On February 15, 2024 Labcorp (NYSE: LH), a global leader of innovative and comprehensive laboratory services, reported results for the fourth quarter and year ending Dec. 31, 2023, and full year 2024 guidance (Press release, LabCorp, FEB 15, 2024, View Source [SID1234640145]).

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Labcorp Logo (PRNewsfoto/Labcorp)

"We made significant progress on our strategy in 2023 and delivered strong results," said Adam Schechter, chairman and CEO. "Our teams developed and brought important diagnostic testing advancements to market and supported our biopharma clients as they advanced their new drug pipelines and treatments. With the successful integration of several hospital partnerships including Ascension, and the spin of Fortrea, we enter 2024 with a strong foundation and momentum. We remain focused on advancing science, technology and innovation to fuel our growth and fulfill our mission to improve health and improve lives."

In the fourth quarter and throughout the year, Labcorp executed on its enterprise strategy. The company closed its previously announced transaction with Legacy Health to acquire select assets of Legacy’s outreach laboratory business. Labcorp now manages Legacy’s inpatient hospital laboratories, serving patients throughout Oregon and Southwest Washington state.

In November, Ovia Health by Labcorp announced that it will offer a first-of-its-kind Fertility and Family Building Benefit, allowing employers and health plans to offer customizable solutions to employees and health plan members to support their family-building needs. Additionally, the company also became the first lab to launch a new, FDA-cleared blood test for risk assessment and clinical management of severe preeclampsia.

Last month, the company announced a strategic collaboration with Hawthorne Effect, Inc. to create new service offerings that support decentralized clinical trials and aim to improve the patient experience, accessibility, and efficiency.

On January 12, 2024, the company announced a quarterly cash dividend of $0.72 per share of common stock, payable on March 13, 2024, to stockholders of record at the close of business on February 27, 2024.

Consolidated Results

Fourth Quarter Results

Revenue for the quarter was $3.03 billion, an increase of 3.5% from $2.93 billion in the fourth quarter of 2022. The increase was due to organic revenue of 1.5%, acquisitions, net of divestitures of 1.4%, and foreign currency translation of 0.7%. The 1.5% increase in organic revenue was driven by a 5.0% increase in the company’s organic Base Business, partially offset by a (3.5%) decrease in COVID-19 PCR and antibody testing (COVID-19 Testing). Compared to the Base Business last year, Base Business revenue grew 7.4%. Base Business includes Labcorp’s operations except for COVID-19 Testing.

Operating loss for the quarter was ($122.8) million, or (4.0)% of revenue, compared to operating income of $28.5 million, or 1.0%, in the fourth quarter of 2022. The company recorded impairment charges, amortization, restructuring charges, and special items, which together totaled $517.6 million in the quarter, compared to $384.0 million during the same period in 2022. Included in these numbers are goodwill and other asset impairment charges of $333.8 million compared to $260.5 million in the fourth quarter 2022, which are primarily related to the Early Development business. Adjusted operating income (excluding impairment charges, amortization, restructuring charges, and special items) for the quarter was $394.9 million, or 13.0% of revenue, compared to $412.6 million, or 14.1%, in the fourth quarter of 2022. The decrease in adjusted operating income was due to a reduction in COVID-19 Testing.

Net losses from continuing operations for the quarter were $(166.8) million compared to net earnings of $37.1 million in the fourth quarter of 2022. Diluted EPS from continuing operations were $(1.95) in the quarter compared to $0.42 during the same period in 2022. Adjusted EPS (excluding impairment charges, amortization, restructuring charges, and special items) were $3.30 in the quarter compared to $3.05 in the fourth quarter of 2022.

Operating cash flow from continuing operations for the quarter was $579.6 million compared to $607.2 million in the fourth quarter of 2022. The decrease in operating cash flow was due to lower COVID-19 Testing. Capital expenditures totaled $165.4 million compared to $99.1 million a year ago. The increase in capital expenditures was primarily timing related. As a result, free cash flow from continuing operations (operating cash flow less capital expenditures) was $414.2 million compared to $508.1 million in the fourth quarter of 2022.

At the end of the quarter, the company’s cash balance and total debt were $0.54 billion and $5.05 billion, respectively. During the quarter, the company invested $154.8 million on acquisitions, paid out $61.1 million in dividends, and settled its accelerated share repurchase program, receiving approximately 1.1 million additional shares. At the end of the quarter, the company had $530.4 million of share repurchase authorization remaining.

Full Year Results

Revenue was $12.16 billion, an increase of 2.5% from $11.86 billion in 2022. The increase was due to acquisitions, net of divestitures of 1.7%, organic revenue of 0.6%, and favorable foreign currency translation of 0.2%. The 0.6% increase in organic revenue was due to an 8.7% increase in the Company’s organic Base Business, partially offset by an (8.1%) decrease in COVID-19 Testing.

Operating income was $725.6 million, or 6.0% of revenue, compared to $1,436.5 million, or 12.1%, in 2022. The company recorded impairment charges, amortization, restructuring charges, and special items, which together totaled $989.3 million compared to $736.0 million during 2022. Adjusted operating income (excluding impairment charges, amortization, restructuring charges, and special items) was $1.71 billion, or 14.1% of revenue, compared to $2.17 billion, or 18.3%, in 2022. The decrease in adjusted operating income was due to lower COVID-19 Testing.

Net earnings from continuing operations were $380.4 million compared to $1,003.5 million in 2022. Diluted EPS were $4.33 compared to $10.94 in 2022. Adjusted EPS (excluding impairment charges, amortization, restructuring charges, and special items) were $13.56 compared to $16.66 in 2022.

Operating cash flow from continuing operations was $1.20 billion compared to $1.76 billion in 2022. The decrease in operating cash flow was primarily due to lower COVID-19 Testing and items related to the Fortrea spin-off. Capital expenditures totaled $453.6 million compared to $429.3 million in 2022. As a result, free cash flow from continuing operations (operating cash flow less capital expenditures) was $748.7 million compared to $1,335.5 million in 2022.

During the year the company repurchased $1.00 billion of stock representing approximately 4.8 million shares and invested $0.67 billion on acquisitions.

Fourth Quarter Segment Results

The following segment results exclude impairment charges, amortization, restructuring charges, special items, and unallocated corporate expenses.

Diagnostics Laboratories

Revenue for the quarter was $2.35 billion, an increase of 2.6% from $2.29 billion in the fourth quarter of 2022. The increase was primarily due to acquisitions of 1.8% and organic revenue of 0.8%. The 0.8% increase in organic revenue was due to a 5.3% increase in the Base Business, partially offset by a (4.5%) decrease in COVID-19 Testing. Total Base Business growth compared to the Base Business in the prior year was 7.6%.

Total volume (measured by requisitions) increased by 2.4% as organic volume increased by 0.3% and acquisition volume contributed 2.1%. Organic volume was impacted by a (2.6%) decrease in COVID-19 Testing, partially offset by a 3.0% increase in Base Business. Price/mix increased by 0.2% due to organic base business growth of 2.4%, partially offset by COVID-19 Testing of (1.9%), and acquisitions of (0.3%). Base Business volume increased 5.2% compared to the Base Business last year. Price/mix was up 2.4% in the Base Business compared to the Base Business last year.

Adjusted operating income for the quarter was $353.7 million, or 15.1% of revenue, compared to $387.0 million, or 16.9%, in the fourth quarter of 2022. The decrease in adjusted operating income was due to a reduction in COVID-19 Testing. The benefit of higher organic demand, acquisitions, and launchpad savings was partially offset by higher personnel costs. The decrease in adjusted operating income margin was due to the reduction in COVID-19 Testing and the mix impact from recently closed hospital partnerships.

Biopharma Laboratory Services

Revenue for the quarter was $694.8 million, an increase of 7.1% from $648.8 million in the fourth quarter of 2022. The increase was primarily due to organic revenue of 4.0%, and foreign currency translation of 3.1%.

Adjusted operating income for the quarter was $109.0 million, or 15.7% of revenue, compared to $95.2 million, or 14.7%, in the fourth quarter of 2022. Adjusted operating income and margin increased due to organic growth and LaunchPad savings, partially offset by higher personnel and stranded costs.

Net orders and net book-to-bill during the trailing twelve months were $2.89 billion and 1.04, respectively. Backlog at the end of the quarter was $8.25 billion, an increase of 4.9% compared to last year. The company expects approximately $2.47 billion of its backlog to convert into revenue in the next twelve months.

2024 Guidance

The following guidance assumes foreign exchange rates effective as of Dec. 31, 2023, for the full year. Enterprise level guidance includes the estimated impact from currently anticipated capital allocation, including acquisitions, share repurchases and dividends.