Labcorp announces 2023 second quarter results

Labcorp, a global leader of innovative and comprehensive laboratory services, today announced results for the second quarter ended June 30, 2023, and provided full-year guidance.

“We delivered strong results in the quarter, and I’m optimistic about our opportunities for continued growth as Labcorp enters the second half of the year with significant momentum,” said Adam Schechter, chairman and CEO of Labcorp. “Looking forward, we are focused on advancing our strategy as a global laboratory services leader. Labcorp continues to harness science, technology, and innovation to deliver better patient outcomes that improve health and improve lives, while enhancing shareholder value.”

On June 30, 2023, Labcorp completed the spin-off of Fortrea, its Clinical Development business, which began trading on the NASDAQ Stock Market under the symbol “FTRE” at the market open on July 3, 2023. Upon closing, Fortrea made a cash distribution to Labcorp of approximately $1.6 billion as partial consideration for the assets that Labcorp contributed to Fortrea in connection with the spin-off. Labcorp intends to use approximately $1.0 billion of the proceeds toward an accelerated share repurchase program and $300 million to pay down debt maturing this year.

In the second quarter, Labcorp continued to expand its relationship with hospitals, regional healthcare systems and local labs. In May, the company announced a laboratory agreement with Jefferson Health, to deliver comprehensive laboratory services to the greater Philadelphia area and Southern New Jersey. The transaction was finalized after quarter end in July. Additionally, the company announced the next step in its strategic relationship with Providence Health and Services. Through the agreement, Labcorp will acquire Providence Oregon’s outreach laboratory business and select assets in Oregon.

Subsequent to quarter end, the company announced a comprehensive lab relationship with Legacy Health under which Labcorp will acquire select laboratory business assets and manage Legacy’s inpatient hospital laboratories.

On July 13, 2023, the company announced a quarterly cash dividend of $0.72 per share of common stock, payable on September 8, 2023, to stockholders of record at the close of business on August 8, 2023.

Consolidated results
Second quarter results
Revenue for the quarter was $3.03 billion, an increase of 3.8% from $2.92 billion in the second quarter of 2022. The increase was due to organic revenue of 2.0%, acquisitions, net of divestitures, of 1.6%, and foreign currency translation of 0.2%. The 2.0% increase in organic revenue was driven by a 9.8% increase in the company’s organic Base Business, partially offset by a (7.8%) decrease in Covid-19 PCR and antibody testing (Covid-19 Testing). Base Business includes Labcorp’s operations except for Covid-19 Testing.

Operating income for the quarter was $266.3 million, or 8.8% of revenue, compared to $428.8 million, or 14.7%, in the second quarter of 2022. The company recorded amortization, restructuring charges, and special items, which together totaled $182.0 million in the quarter, compared to $119.0 million during the same period in 2022. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $448.3 million, or 14.8% of revenue, compared to $547.8 million, or 18.7%, in the second quarter of 2022. The decrease in operating income and margin was primarily due to a reduction in Covid-19 Testing. The margin decline was also negatively affected by the mix impact from the Ascension lab management agreement and NHP-related constraints.

Net earnings from continuing operations for the quarter were $155.2 million compared to $268.0 million in the second quarter of 2022. Diluted EPS were $1.74 in the quarter compared to $2.89 during the same period in 2022. Adjusted EPS (excluding amortization, restructuring charges, and special items) were $3.42 in the quarter compared to $4.04 in the second quarter of 2022.

Operating cash flow from continuing operations for the quarter was $280.0 million compared to $548.4 million in the second quarter of 2022. The decrease in operating cash flow was due to lower Covid-19 Testing earnings, spin-related items and higher working capital, partially offset by increased Base Business earnings. Capital expenditures totaled $102.6 million compared to $140.2 million a year ago. As a result, free cash flow (operating cash flow less capital expenditures) from continuing operations was $177.4 million compared to $408.2 million in the second quarter of 2022.

At the end of the quarter, the company’s cash balance was $1.9 billion and total debt was $5.3 billion, respectively. The cash balance includes the $1.6 billion dividend from the spin-off. During the quarter, the company invested $137.1 million on acquisitions and paid out $64.6 million in dividends.

Year-to-date results
Revenue was $6.07 billion, an increase of 0.1% from $6.07 billion, in the first six months of 2023. The increase was due to acquisitions, net of divestitures, of 1.6%, partially offset by lower organic revenue of (1.3%) and unfavorable foreign currency translation of (0.2%). The (1.3%) decrease in organic revenue was driven by an (11.2)% decrease in Covid-19 Testing, partially offset by a 9.9% increase in the company’s organic Base Business.

Operating income was $596.1 million, or 9.8% of revenue, compared to $1,034.0 million, or 17.0%, in the first six months of 2023. The company recorded amortization, restructuring charges, special items, and impairments, which together totaled $300.0 million in the first six months of 2023 compared to $235.3 million during the same period in 2022. Adjusted operating income (excluding amortization, restructuring charges, special items, and impairments) was $896.1 million, or 14.8% of revenue, compared to $1,269.3 million, or 20.9%, in the first six months of 2022. The decrease in operating income and margin was primarily due to lower Covid-19 Testing and higher personnel costs, partially offset by a recovery in the Base Business.

Net earnings from continuing operations were $363.6 million compared to $689.1 million in the first six months of 2022. Diluted EPS were $4.08 in the first six months of 2023 compared to $7.38 during the same period in 2022. Adjusted EPS (excluding amortization, restructuring charges, special items, and impairments) were $6.88 in the first six months of 2023 compared to $9.54 during the same period in 2022.

Operating cash flow from continuing operations was $410.2 million compared to $904.6 million in the first six months of 2022. The decrease in operating cash flow was due to lower Covid-19 Testing earnings, spin-related items and higher working capital, partially offset by increased Base Business earnings. Capital expenditures totaled $181.5 million compared to $247.4 million during the same period in 2022. As a result, free cash flow (operating cash flow less capital expenditures) from continuing operations was $228.7 million compared to $657.2 million in the first six months of 2022.

Second quarter segment results
The company’s two segments include Diagnostics Laboratories and Biopharma Laboratory Services (comprised of its Central Laboratories and Early Development Research Laboratories). The following segment results exclude amortization, restructuring charges, special items, and unallocated corporate expenses.

Diagnostics laboratories
Revenue for the quarter was $2.34 billion, an increase of 3.8% from $2.26 billion in the second quarter of 2022. The increase was due to organic growth of 1.8% and acquisitions of 2.2%, partially offset by foreign currency translation of (0.2%). The 1.8% increase in organic revenue was due to an 11.9% increase in the Base Business, partially offset by a (10.1%) decrease in Covid-19 Testing. Total Base Business growth compared to the Base Business in the prior year was 15.7%. The increase was due to the Ascension lab management agreement of approximately 7% as well as continued volume recovery compared to last year, which was negatively impacted by Omicron.

Total volume (measured by requisitions) increased by 1.4% as acquisition volume contributed 2.5%, while organic volume decreased by (1.1%). Organic volume was impacted by a (6.1%) decrease in Covid-19 Testing, partially offset by a 5.1% increase in the Base Business. Price/mix increased by 2.4% due to organic Base Business growth of 6.8%, partially offset by Covid-19 Testing of (3.9%), acquisitions of (0.3%), and currency of (0.2%). Base Business volume increased 8.1% compared to the Base Business last year. Price/mix was up 7.5% in the Base Business compared to the Base Business last year, which includes the benefit of the Ascension lab management agreement.

Adjusted operating income for the quarter was $409.7 million, or 17.5% of revenue, compared to $515.6 million, or 22.9%, in the second quarter of 2022. The decrease in adjusted operating income and margin was primarily due to a reduction in Covid-19 Testing. Excluding the mix impact from Ascension, Base Business margin was up due to the benefit of organic growth and LaunchPad savings, which was partially offset by higher personnel expense.

Biopharma laboratory services
Revenue for the quarter was $699.0 million, an increase of 3.1% from $677.9 million in the second quarter of 2022. The increase was primarily due to organic growth of 2.1% and foreign currency translation of 1.5%, partially offset by divestitures of (0.4%). The increase in organic revenue was negatively impacted by approximately (5.0%) due to NHP-related constraints in its Early Development business.

Adjusted operating income for the quarter was $104.6 million, or 15.0% of revenue, compared to $93.0 million, or 13.7%, in the second quarter of 2022. Adjusted operating income and margin increased due to demand growth and LaunchPad savings, partially offset by higher personnel expense. The improvement in operating income and margin was impacted by the NHP-related constraints.

Net orders and net book-to-bill during the trailing twelve months were $3.30 billion and 1.23, respectively. Backlog at the end of the quarter was $7.96 billion, an increase of 11.2% compared to last year. The company expects approximately $2.46 billion of its backlog to convert into revenue in the next twelve months.

Outlook for 2023
Labcorp is providing 2023 full year guidance to reflect its second quarter performance and full year outlook. The following guidance assumes foreign exchange rates effective as of June 30, 2023, for the remainder of the year. Enterprise level guidance includes the estimated impact from currently anticipated capital allocation, including acquisitions, share repurchases and dividends.

MB Bureau