Q1 2020 Earnings Call
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I like the hand, the conference over to your Speaker today, Clarissa will it Vice President of Investor Relations. Thank you. Please go ahead.
Thank you operator, good morning, and welcome to last Corp.'s first quarter 2020 conference call.
As detailed in today's press release, there will be a replay of this call available via telephone and Internet.
With me today are actually sector, President and Chief Executive Officer, and Glenn Eisenberg, Executive Vice President and Chief Financial Officer.
This morning in the Investor Relations section of our website at <unk> Dot Com, we posted both our press release and an Investor relations presentation with additional information on our business in operation, which include a reconciliation of the non-GAAP financial measures to the GAAP financial measures discussed during today's call.
Additionally, we are making forward looking statements.
These forward looking statements include but are not limited to see this with respect to expectations for 2020, and the related assumptions, including the projected impact of the cobot 19th had that make on the company's businesses operating result.
Cash flows and financial condition, our responses to any expected future impacts of the covance 19th pandemic on our business more generally as well that's on general economic.
And market condition.
Each of the forward looking statements is based upon current expectation and is subject to change based upon various factors.
Many of which are beyond our control that could affect our financial results.
Some of these factors are set forth in detail in our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q and in the Companys other filings with the FCC.
We have no obligation to provide any updates to these forward looking statements, even if our expectations changed.
Now I'll turn the call over to Adam Schechter.
Thank you for its a good morning, everyone and thank you for joining us today.
These are certainly unprecedented times in which we've been living and working as a result for the global pandemic.
Every country government customer shareholder and employee has been impacted by these turbulent times and Labcorp is no exception.
Given our unique role across the spectrum of diagnostic testing and drug development, we have risen to the challenge to help combat the virus.
We are supporting the detection of both those who are currently or previously affected by the virus and we're involved in the development of potential treatments in vaccines.
Our teams like many who are directly involved in fighting this pandemic I've been working around the clock.
Never me energized by all that we're doing to minimize the impact in the United States and around the world.
I've been incredibly proud.
Impressed with how quickly and effectively we have mobilize our response.
And I am confident that our company's mission to improve health and improve lives.
Delivering world class diagnostics, accelerating availability of innovative medicines and vaccines and using technology.
Resonates even more in the most difficult of environments.
In the first quarter, we delivered solid performance across the company. Despite the challenges associated with Tobin Nike.
First quarter revenue of $2.8 billion.
Adjusted EPS in $2.37.
And free cash flow of over $97 million.
During the first quarter diagnostics and drug development began experiencing the impact of the global pandemic with clients postponing programs and lower demand for diagnostic testing.
The increase testing group of corporate covert 19 did not nearly offset the decline in other testing.
Diagnostics revenue declined 1.2% compared to a year ago due to lower organic revenue from the impact over 19 and continued price pressures from Panama.
Drug development revenue grew 6.4% from a year ago margins expanded 30 basis points.
And trailing 12 month book to Bill remains strong at 1.26.
Backlog remains unchanged from last quarter and $11.3 billion.
Given the significant uncertainty regarding the duration and the severity of the pandemic on a global basis. The company's withdrawing its 2020 financial guidance provided in February 13 2020.
To protect our longer term prospects and to preserve jobs that we believe will be necessary in the future. We have taken a number of a prudent steps to manage expenses as we make our way through these unusual times.
I will provide specifics of expense actions in a moment.
Importantly, we are not planning large scale employment reductions.
Looking forward despite the unpredictability of the pandemic, we believe that we're well positioned to continue to serve our customers and to drive long term shareholder value.
My belief and when I continue to come back to a that's that's our business now and for the future is this.
The work, we do was important before that prices.
And I believe it will be even more important as we move forward.
Just consider how we're making a difference during this time, we were the first commercial labs to launch PCR testing a march that only five days after the FDA Lucent rules around emergency use testing.
PCR the technology that Labcorp played a central role in commercializing what it was first introduced nearly 30 years ago. So it is no surprise that we're able to mobilize quickly.
Since that time working in close collaboration with the White House Crooner virus taskforce.
And with federal and state agencies across the United States. We have continued to apply our science its scale as we develop new methodology to test more people enter TFM faster.
To date, we've conducted over 1 million covert 19 tests and we're capable of performing within 60000 per day or 1.8 million per month nationwide.
We continue to build additional capacity.
In addition, we launched the Labcorp over 19 at home test collection kit on or pick so by that core platform.
This is the first at home collection kit to receive F.D.A. Eway approval and is currently available to healthcare workers and first responders, who may have been exposed to covert 19 or have symptoms consistent with the buyers.
We will roll out this at home collection more broadly in the coming weeks.
We also launched urology testing, which helps to determine if an individual has had an immune response to the virus.
Currently we can perform more than 50000 surrounding test per day.
We expect to perform with a 200000 tests per day by mid May.
This tax will be available in our 2000 patient service centers, including our hundred Labcorp at Walgreens sites and thousands of Dr. offices across the country.
At the same time Weve safe, we kept a routine and specialty diagnostics operations running and we continue to offer our usual test menu for patients who need diagnostic answers.
That includes the critical services provided by our full bottlenose.
Weve paid special hours available for our most vulnerable populations in our patient service centers.
Moving now to drug development.
Drug development business has benefited from our diagnostic testing and understanding of the virus demonstrating once again the power of the combined capabilities.
As you know there are many pharmaceutical and biotechnology companies, they're working on potential treatment and vaccines the virus.
Our drug development teams are working around the world on these promising anti viral other potential treatment and vaccines.
In fact, we've mobilized to the dedicated covert Nike response to help expedite treatments, enabling us to accelerate development and reach patients faster through a highly coordinated effort across diagnostic and drug development.
These teams have been highly successful and identifying and winning business well above what our market share would imply.
One example of how this team is quickly delivering value is through our collaboration we backfilled therapeutics to test an anti viral drop.
Less than 24 hours after receiving MSG alright clearance the Cohen's team began screening patients.
Three days later on a public holiday.
First patient received the drug.
We continue to use our scientific capabilities to make advancements that while helping to present, the near term and the future.
This includes advances such as launching a patient registry, which side, what Psi ops health that will enable researchers to better understand and characterize cobot 19, diagnosis and treatment and generate insights that will aid ongoing and future pandemic preparedness and prevention efforts.
Also on who's working with companies like adaptive Biotechnologies and Microsoft to focus on immune response to the virus, where we have already recruited our first patient for this trial.
And separately, we're working with Pacific Bile science and unique programs I can shed light on virus characteristics that can support working for inpatient treatment decisions.
In conclusion, our commitment and our ability to support over 19 testing treatments and vaccines.
As well as important scientific advances is unwavering.
It will continue as we go into the future.
Beyond our response to pandemic, we will continue to move forward with our key priorities, which leverages the power of our uniquely combined capabilities across diagnostics and drug development.
The priorities remain to win in oncology integrate data and analytics AI and digitalization across our business to put customers at the center of all we do it's a focus on high growth opportunities.
We remain committed to beating the virus in the short term and to our long term strategy, which I'm, even more convinced is right path to grow and for success.
Now I'll turn the call over to Glenn to discuss more specifically our financial performance.
Thank you Adam.
I'm going to start my comments by discussing the impact of the cold in 19 pandemic sat on our business and then provide some details on our first quarter results.
While we're not providing specific guidance today for the year I'll provide some commentary on our current assumptions and expectations for the remainder of 2020.
As I've noted, our combined diagnostics and drug development offering uniquely enables us to help combat the global Cobot 19 and data.
Supporting the detection of the virus through diagnostic testing as well as the development of treatments. While we continue to play a critical role in combating. This pandemic Kobin 19 has had an adverse impact on the performance of both of our businesses, albeit a different magnitudes and a different ways.
In our diagnostics business at the ended the quarter, we experienced reductions and demand for testing, a 50% to 55% versus the company's normal daily levels.
This reduction in demand impacted testing volume broadly, but with more heavily weighted towards routine procedures.
It also impacted esoteric tests, but to a lesser degree due to the critical in time sensitive nature. These test results.
In addition.
We've ramped up capacity for Koby 19 test the impact of the new volume has only marginally offset the lower volume, we're experiencing what that broader test offerings.
Well not impacting the quarter. We're also focused on increasing capacity of our new coping 19, serology antibody test to over 200000 per day by mid May along with increasing capacity of our Kobin 19 at home test kit offerings.
And our drug development business. The Govan 19 impact started earlier than in our diagnostic segment due to the more global nature of the business.
However, while the impact has been less severe the business has been impacted by customer initiated trial delays limitations and access to certain trial sites and interruptions to the supply chain.
Now I'll review, our first quarter performance.
In our discussion we will be breaking out the impact from Cowen 19, given that the biggest impact was late in the quarter.
Our expectation is that we will not be able to break out the impact in future quarters.
Revenue for the quarter was $2.8 billion, an increase of 1.2% over last year, driven by the benefit of acquisitions net of divestitures of 2.9%.
Partially offset by lower organic revenue of 1.8%.
Organic revenue was negatively impacted by Kogan 19 of approximately $137 million or 4.9%.
Which includes 17 million an increased accounts receivable reserves and our diagnostics segment.
The company increased its reserves as a result of rising unemployment and the financial difficulties faced by our customers and the weight of the covert 19 in them.
Operating income for the quarter with a net loss of $193 million compared to 318 million last year.
During the quarter as result of the ongoing covert 19 pandemic and lower market valuations, we recorded impairments of goodwill and other assets totaling $437 million or 3.7 burst out of the company's total goodwill and intangible assets.
The impairment was primarily related to one reporting unit in our drug development business.
In addition, we have $59 million of restructuring charges and special items, primarily related to Launchpad initiative and Kogan 19 related charges.
As a result, adjusted operating income, which excludes amortization of $62 million as well as restructuring charges special items and impairments was $366 million were 12.9% of revenue.
Fair to 411 million were 14.7% last year.
The decrease in adjusted operating income in margin was due to the negative impact from co. The 19 of $72 million.
Excluding the impact from Cowen 19, adjusted operating income and margins grew approximately 27 million and 20 basis points respectively.
This increase benefited from launchpad savings and other topline growth, partially offset by Panama and higher personnel costs, including one additional payroll day.
The tax rate for the quarter was negative 18.4% compared to 27% last year.
Adjusted tax rate, excluding special charges impairments and amortization was 25.3% compared to 26.3% last year.
The lower adjusted tax rate was primarily due to a higher percentage of the company's earnings coming from lower tax rate jurisdictions.
Net earnings for the quarter, we're in a loss of $317 million or net loss of $3.27 per diluted share.
Adjusted EPS were $2.37 in the quarter or 25 cents below last year due to the negative impact from coven 19 of approximately 55 cents.
Operating cash flow was $204 million in the quarter compared to 166 million a year ago.
Increase in operating cash flow was due to favorable working capital, partially offset by lower cash earnings as a result of co. The 19.
Capital expenditures totaled $107 million or 3.8% of revenue compared to 94 million or 3.4% last year.
As a result free cash flow was $97 million in the quarter compared to 72 million last year.
Early in the quarter, the company repurchased $100 million of it stop however, we have since suspended our share repurchase program given the uncertainty or the code and 19 pandemic as well as we focus on liquidity and financial flexibility.
At quarter end, our cash balance was $324 million down from 338 million at the end of 2019.
Total debt at quarter end was $6.2 billion and our leverage was 3.2 times gross debt to last 12 months EBITDA.
Now I'll review, our segment performance beginning with Labcorp diagnostics.
Revenue for the quarter adjusting out the 17 million dollar increase in accounts receivable reserves as a result of the cold in 19 pandemic was $1.7 billion, a decrease of 1.2% compared to last year.
The decrease was due to lower organic revenue of 2.9%, partially offset by the benefit of acquisitions of 1.7%.
Excluding the negative impact from Kobin 19 of 93 million have a 20 million and the positive impact of an additional one half revenue day of 12 million organic revenue grew approximately 3%.
In addition, the impact from the non renewal of the Beacon Lvs, United Healthcare contract was largely offset by the benefit of weather.
Total volume decreased by 4.4% compared to last year as acquisitions contributed 1.6%, while organic volume decreased 6.1%.
The decline in organic volume was due to a net reduction in demand from cobot 19 of 7.3%.
Partially offset by other organic volume growth of 1.2%.
The reduction in demand impacted testing volume broadly.
It was heavily weighted towards routine procedures.
So the benefit from an additional one half revenue day and favorable weather versus the prior year was essentially offset by the negative impact from lower consumer genetics demand of 1.6%.
As a reminder, we do not include hospital lab management agreements in our volume, which would have added approximately 0.6% to our volume growth.
Revenue per requisition increased by 3.4% the increase was due to favorable mix, which includes the impact from coded 19 of 1.9%.
Consumer genetics of 0.9%.
Other organic growth of 2.8%, partially offset by Panama of 1.1% and the non renewal of the beacon lvs contract of 1.1%.
Labcorp diagnostics adjusted operating income for the quarter was $254 million or 14.9% of revenue compared to 310 million or 18% last year.
Decline and adjusted operating income in margin was primarily due to the negative impact from Cowen 19 of $62 million Pam of 20 million and higher personnel costs, partially offset by launchpad savings and other organic growth.
Excluding the negative impact from Kogan 19 in Panama adjusted operating income in margins grew approximately 26 million and 70 basis points respectively.
We remain on track to deliver $200 million of net savings by the end of 2021 from our diagnostics Launchpad initiative.
Now I'll review the performance of Covance drug development.
Revenue for the quarter was $1.1 billion, an increase of 6.4% compared to last year due to the benefit of acquisitions net of divestitures of 4.9% inorganic growth of 1.6%.
Partially offset by foreign currency translation of 10 basis points.
Excluding the negative impact from coven 19 of approximately $27 million organic revenue grew approximately 4.1%.
Adjusted operating income for the segment was $151 million or 13.2% of revenue compared to 138 million or 12.8% last year.
The increase in adjusted operating income in margin was primarily due to organic demand acquisitions net of divestitures and launchpad savings, partially offset by higher personnel costs and the negative impact from phobia 19 of $12 million.
Excluding the impact from Kobin 19, adjusted operating income in margins grew approximately 25 million at 120 basis points respectively.
We remain on track to deliver a 150 million of net savings by the end of this year from drug developments Launchpad initiative.
For the trailing 12 months net orders in that book to Bill remains strong at $5.8 billion at 1.26, respectively backlog at the end of the quarter was $11.3 billion. We expect approximately $3.9 billion of this backlog to convert into revenue over the next 12 months.
Now I'll provide some commentary for the remainder of 2020.
As we announced this morning and earnings press release due to the unpredictability regarding the duration and impact of the Coca 19 pandemic, we have withdrawn our full year 2020 guidance.
Especially during times like these the strength in power of our combined diagnostics and drug development business is evident both from a strategic as well as financial standpoint.
Given the current environment, we continue to adjust our operations and manage costs, while still investing in the company to achieve the best long term outcome for our customers employees and shareholders.
While revenues and earnings are expected to be down in 2020, we still expect to generate both solid earnings and free cash flow.
Some of the actions we're taking the helped mitigate the impact of Coven 19 include furloughs, delaying hiring reducing temporary and contract workers or limiting hours, where demand for our services is soft suspension of discretionary merit adjustments in for one day planned contributions.
In addition, the company's cash flow for the year is expected to include government related actions such as the deferral of payroll tax payments the upcoming benefit from the suspension of sequestration and the cares Act from which we received $56 million, which will help support the increased spend related in wrapping up testing capacity to address the co.
But 19 pandemic.
From a capital allocation standpoint, we will continue to make internal investments to support long term growth and profitability.
However, even after the increase spend to develop and expand test capacity for the molecular covert 19 as Rajiv test, we expect our capital spend to be less this year than last year.
Similarly, we will continue to evaluate acquisition opportunities, but with the heightened threshold as we focus on liquidity.
In addition, as I mentioned earlier, we have suspended our share repurchase program for the foreseeable future.
Our investment grade philosophy has served us well in these challenging times from a liquidity standpoint on top of the strong free cash flow, we expect to generate this year as of March 30, Onest, we had $324 million of cash on hand, and $924 million of available credit for our 1 billion dollar revolving credit this.
Ladies that matures in 2022.
The only debt we have due this year is $412 million of notes maturing in November that we expect to pay down using free cash flow.
However, we may opt to refinance these notes in the public bond market, depending upon our needs.
As I mentioned earlier, our leverage at the end of the quarter was 3.2 times gross debt to last 12 months EBITDA within our four times debt covenant.
While we currently expect to be within our covenant throughout the year, we have had discussions with our banks to add future flexibility to this covenant given the uncertainty related to cope with 19.
We continue to actively monitor the evolving cobot 19, pandemic and will provide updates as appropriate.
This concludes our formal remarks, and we'll now take questions.
Operator.
Thank you Sir.
As a reminder to ask a question you would need to press star one on your telephone.
Which are your question press the pound key.
To the essence of time, we ask that you. Please limit yourselves to one question each.
Please standby, while we compiled acuity rosner.
I show our first question comes from Lisa Gill from Jpmorgan. Please go ahead.
Good morning, Thanks very much.
Adam Thank you for all that your team is doing on the front lines of these difficult time.
I, just really want to understand just a couple of things as we think about the testing volume for both Kobe 19, as well as technology can you first talk about expect to expectations around reimbursement and then secondly, I know that you pulled guidance.
But with the anticipation of 200000 sterility test today, how many tests do you expect that you can get on the molecular side and do you think I know you said you expected numbers can be down this year, but has.
Dissipation that potentially this testing volume could help to offset some of what you're seeing as far as traditional volumes and then just lastly, like when we think about volumes going into the back half the year what are your expectations around kind of getting back to more normalization will that.
Happen potentially by the time, we get to the third or fourth quarter I know that's a lot of questions in one but I just wanted to understand how to think about these volumes.
Yes, sure good morning, Mesa, and I'll start off by saying.
I've been involved with Labcorp now for six years and I began as CEO.
In November and when an organization is close to the limits you really learned a lot about reorganization and the people that labcorp worked so hard and are doing so much and care about their work in a remarkable way and just you can get to see the heart and soul of an organization.
And what I've seen is just amazing and I'm, just very impressed with the people that I'm working with the scientists the frontline workers the bottom is carriers.
People. They are building our capacity have just been outstanding So I'm just.
It's a pleasure for me to be able to work with such.
People with regard to the testing let me try to give you some background of where we are and where I see things going. So it was just about 45 days ago that we began testing we're able to do several thousand test. The day right now we can do about 60000 test today I'm talking PCR testing for so.
The strategy in a moment and we're going to continue to build that capacity I don't know the exact number that we'll be able to build to and how fast, but I would like to get over 100000 tests per day as quickly as possible. The issue that you run too is you need additional machines and you can imagine there's lots of backorders and you're doing these arnie.
New PCR test takes a lot of equipment, but we're going to try to build to get to over 100000 as quickly as we can the interesting thing is for a short period of time when we're doing thousand today. We did have some back orders for several weeks, we no longer have any back orders and in fact, we have some additional capacity. So we're not using all of our CFO.
Passed the at the 60000 per day right now I think Thats, just short term and I think as states become.
Up and running and back to business I think that we will be at full capacity in a very near future which is why.
Trying to build more and more capacity as quickly as we Kevin I believe that the PCR testing will be running at capacity for quite some time.
Regarding surrounding it's still very early and it's not easy to predict I think there's still some debate frankly in the marketplace on how to utilize the surajit test and the way in which to go about using strategy right. Now we can go over 50000 throughout the test today, but we'll be able to do well ahead.
Hundred thousand today by the Middle of next month I don't know how long it will take so what are put to use all of that capacity per day, and I think that there's several reasons why one is as companies, particularly large companies are coming back to work. Some of them are talking about throughout the test in doing them on large scale some of them.
Are saying they don't see the needs. In addition to that I believe it will be other ways such as we know of care through allergy test.
And I don't know, how they're going to be used in the marketplace. My expectation is that we'll be able to use most of our surrounding capacity as we get into the summer months and into the fall and I. Just don't know how quickly that will ramp up but I think we'll be able to find ways to properly utilized most of this reality testing.
As we move forward through the summer.
With regard to that though we think about those numbers over 200000 test today and.
Surajit and maybe 100000 pest over time from PCR, It's still a very small number compared to the $530 million. So test that we do a year across all of our testing.
So unless we start to see that come back you will be hard for these tests to make up for the difference in what we've seen.
At the last weeks of March now the good news is we are starting to see a little bit less of a decline as we go towards the end of this month.
And as the country gets back up and running I would expect will start to see less severe decline over the summer.
And assuming that there's no additional impact in the fall this year with another.
Impact from the covered 19 virus I would expect that as we get towards the end of the year a lot of the volume will come back and I always come back to the effect of what we did before was important for help I worry right now that a lot of people that need diagnostic testing or not getting what they need once they feel comfortable again to go outside of their home.
I believe they will start to go back further diagnostic testing that they have in the past hopefully I've answered your questions Lisa. Thank you.
Okay.
Thank you.
Our next question comes from Ralph Giacobbe from Citi. Please go ahead.
Thanks, just wanted to continue on the serology testing I mean, do you have any expectations of pricing at this point and timing of when CMS released the great.
And then once your expectation that commercial rates are going to mirror those for astrology.
Insurers come up and banks 100 dollar molecular test thanks.
Yeah. So let me start up with the molecular testing so molecular test.
The reimbursed rate by Medicare is about is $100 and that's what we tried to all customers $100. We're trying to and this pandemic and time would be we're looking for consistency and we're charging a consistent price across the marketplace. We don't have a Medicare price yet for this.
Algae testing I'm, not saying for certainty that that will be our price that we talked to all customers, but if you look at what we've done with.
The PCR testing, that's something that will be looking at very very closely again I want to make sure that we're seeing as doing everything again. This pandemic to help in every way, which we can and I think that we should know something hopefully in the next days certainly not more than a week or so I would expect.
Thanks.
Thank you.
Sure next question comes from Kevin targeting both from GBM. Please go ahead.
Thank you good morning, I'd like to talk a little bit about the CRL.
If you've seen any cancellations yet in anything and how the three segments are performing from a demand and disruption standpoint.
The level of work that you can continue any sort of visibility around that or you can break it down by the three Crs segment.
And maybe when you expect to get some activity ramping back up.
The year progresses.
Sure Good morning, Kevin So a couple of things there first of all with regard cancellations in the first quarter. We saw about the same number cancellations that we would expect to see in any quarter. So we did see acceleration of cancellations with regard to the overall cereal business.
We continue to have growth. Despite kogan 19 in the first quarter, but obviously towards the ended the quarter, we started to see a significant impact from people postponing trials.
Interestingly that business start to be impacted a little bit earlier than the into March because we do have a central laboratory business in China. The impact there was earlier than the United States and we've actually seen our business in China start to pick up as China has begun to open up.
But what I look at more than the segments and the timing of them coming back because they will come back.
It is what's happening in the marketplace right now and I mentioned that if you look at the cobot 19 trials, whether it be for vaccines, whether it be central laboratory work or be early stage development for anti viral we are winning more than our share would predict in fact almost twice the amount.
Of studies as a percent than what you would have expected based on our share I think that truly demonstrates the power of the combined when I watch when our teams are doing and our diagnostic teams are joining our drug development team.
Conversations with clients and even with our diagnostic teams our drug development teams are coming into the diagnostic discussions to help understand what is being done in the marketplace. In the studies are underway, we are really starting to see significant.
Advantage of having both the diagnostics and drug development business now most of their trials, our preclinical phase one even there were winning more than our fair share market, but what I want to see is as those vaccines and as anti viral is go into phase two in phase three that we continued to win above what our market share.
I would suggest so I'm excited about the long term prospects for certain im seeing the power combined how quickly. The business comes back is going to be determined to some extent how quickly markets around the world open up particularly for the phase three clinical trial, because most of those are global clinical trials.
But I would say that we're optimistic that the world muted what we did before this and certainly with what's happening today and the trials for Kobin 19, I think our capabilities are needed even more so in the future.
Thank you. Thank you.
Thank you next question comes from Dan Leonard from Wells Fargo. Please go ahead.
Thank you so trying to understand the organic volume growth trend in the quarter in your in your lab business in the disparity versus your large competitor can you comment and maybe any any share dynamics in the quarter agent were there any lingering headwinds from the expanded has been expanded managed care access for your competitor or.
Has that all annualized at this point thank you.
I'll give some context, then if he wants to jump in but basically saw our.
Our decline between 50% to 55% towards the ended the quarter in terms of volume in the last several weeks of March and we've seen that kind of leveled off and I'd say in the last couple of weeks, we've actually seen and begin to come back a little bit.
We saw a little bit of a change in mix as well that the esoteric testing did not decline as fast as the overall testing done and Thats not a surprise is esoteric testing. It typically is more severe diseases and so forth. That's a little bit why you saw an increase in our average price for the quarter because the esoteric.
Business held a bit stronger than the typical regular diagnostic business, but as we go forward. We would expect both businesses to begin to pick up and assuming that the country begins to come back to work and as we get through the summer. There is no additional impact in the fall season, I would expect both esoteric and the other.
Other diagnostic tests to come back to somewhat normalized we get through the end of the year.
Yes, Dan.
I guess just add too when you look at our normalized level of organic volume it was pretty consistent with where we have been.
Roughly around 1.3% when you take out the unusual so if you will so as Adam said, the obviously backing out the impact of coded, which we said was around 7.3% impact.
Then we had three other kind of discrete items.
To that were positive. So we benefited from the half of revenue day and that was around 0.7% benefit to our volume growth and then we had favorable weather compared to a year ago of around 0.8, but that was offset effectively by lower consumer genetics demand at 1.6, So effectively a 1.3 for us has been kind of where we've tracked and obviously.
Improved over the fourth quarter, but kind of where we would expect attractive I know you mentioned our competitor we do talk about that we do treat the treatment of volume differently for lab management fees, which would have added around 60 basis points. So we feel really good that the base business.
From a demand standpoint of volume standpoint.
Been pretty consistent what we've also been very pleased about and really impacts our revenues even more is on the price side given while overall our pricing. We would say is relatively flat the mix impact really was nice so again in a similar vein and while we ship we show kind of organic pricing at.
Around a 3.4% increase we had a couple of headwinds and tailwinds.
We benefit from as Adam said from coded where we have though lower.
Lower percentage impacted from the esoteric tests. So it mixes up that helped us around 1.9% severally with lower consumer demand consumer genetics demand at a lower price point, that's helped our mix at 0.9 and then the headwinds we've talked about already have Pam and began each at around 1.1, so give getting into a new.
Normalized price would get us to around price mix of 2.8%, which actually is tracked higher than what we've done the past year inline call. It with the last couple of quarters, where we've been north of two but we continue to see favorable price mix. So from a revenue standpoint again, excluding cobot.
We felt we had actually very strong quarter.
Okay. Thank you.
Thank you.
Next question comes from Derik de Bruin from B. Riley. Please go ahead.
Hi, Good morning. Thank you for taking the question. So I would just wanted to go back on the the testing side for coated so we've seen estimates of anywhere from the need for 500000 Teu molecular test they end up on that one I'm just sort of curious in terms of what.
Sort of capacity expectations or need expectations, you're planning for and you're looking for.
It is sort of how you think about that and just sort of goes into a question about.
Your ultimate share and where you think it as a first as the first part that question is one on on what you think the ultimate testing need will be and how long duration of that is and the follow up on that one's going to be something similar for serology I mean, there's clearly a lot more serology capacity in the US then there is molecular and I'm just curious on how users.
The demand for that market evolving.
Going forward just given there are so many more players that can do serology testing. Thank you.
Yes, hi, dark.
A couple of a couple of thoughts first of all if you look at overall capacity needed from PCR testing, which is testing to tell them first and actually has the virus is actively setting the virus. It's impossible to know the exact number that you need across United States I would say right now if you look at what's been done over 5 million past.
It's pretty significant I, just said that we could do today 1.8 million test per month, and we're going to try to increase that if we can get a 100000 test or greater a day alone. We can do two and a half million per month, and then you would add in all the other commercial labs, the state labs to local labs.
The academic medical centers, I think theres going to be a very significant amount of capacity that at least will get people through stage one.
At the White House criminal virus task forces recommending to get us picks up and running.
At the same time, we're going to all continued to build capacity because until there's a vaccine I think we're gonna have to have the ability to continue to do testing to see who has the virus and I think that type of testing will continue even when there is a treatment up until there is a vaccine.
Separate and distinct from that is that surround view, which is to tell who has been exposed to the virus in the past and scientifically frankly, there's still a lot of discussion on what's the most appropriate way to use this reality testing for surveillance I think it's going to be used for a long time.
I also believe that as businesses get up and running they're going to test large parts of the population where throughout the test.
And I believe if somebody test positive for surround do you mean, if they've been exposed to the virus in the past they'll probably need to second test in order to validate that it wasn't a false positive.
And then the question becomes how often is somebody who's negative to Surajit get tested is every three months is every six months and I don't think that there's any known recommendation at this time the good news for us for Surajit, It's a blood test and we run blood test all the time, we know how to run blood test.
We're going to build as much capacity as we can will utilize as much of that capacity as we can but at the same time a lot of those will be run on the machines that we run our typical blood tests on anyway. So I think I think for us it's a matter of build as much as you can see how the signs plays out see how the marketplace marketplace plays out and just.
We prepared for whatever volume we may need.
Okay.
Thank you.
Sure. Our next question comes from Erinn right from Credit Suisse. Please go ahead.
Great. Thanks, Dave a couple questions on coal then.
Q I guess, what percentage of the sites would you consider offline or inaccessible right now and what percentage of that clinical trial work you anticipate will convert to more virtual at all my remote monitoring and then second part to that would be how many of these cobot Nitrini 19 trials have you were.
I wanted you anticipate those trials to actually be material from a financial perspective, others. I guess, an industry has downplay contribution from this kind of Kobe trials like.
Okay fair enough to start with your last question first note.
And so the other one so first of all if you look at the Cobot 19 trials, whether they be for anti viral whether they be the things that we're doing with a company like Pat buyout or rich backfilled therapeutic most of them are early stage smaller trials. So we're winning I said more than twice our market share would.
Expect us to win but Theres still relatively small times there early stage preclinical or phase one as those progress I would expect that we would win more than our fair share in phase two in freight and then I believe they become much more meaningful in terms of dollars right now they're meaningful because it really is demonstrating the power.
Of having a diagnostic capability combined with drug development capability.
Separate and distinct from that with regard to sites up and running we think it's that about 70% to 80% of sites are not up and running at the moment for clinical trial at the same time, we're working hard because we have made significant advances and hybrid and virtual clinical trials and I think as the trial has come back there will be even.
Question for things like hybrid in virtual trials. So we'll continue to work with our pharmaceutical and biotechnology colleagues to help them get their trials up and running as quickly as possible.
Thank you.
As a reminder to ask a question at this time you'd need to press star one on your telephone so what's your your question press the pound Qi Ji.
Due to the essence of time, we ask that you. Please limit yourselves to one question each.
Our next question comes from Ricky Goldwasser from Morgan Stanley. Please go ahead.
Yes, hi, good morning, and thank you for all the details.
Question on on reimbursement.
The PCR, obviously CMS reimbursement from Q1 $200.
What are your thoughts testing expands in any shifts to a phase two in phase three.
Do you anticipate reimbursement is going to stay at those levels or as volumes pick up in the.
Okay got it is flat and we didnt see changes.
Thanks.
So so thank you for the question Ricky and right now the Medicare prices $100 and Thats been our price and our philosophy on pricing, which is to use a Medicare price, which they take a lot of time spent a lot of effort to think through what is appropriate and therefore weve charge all customers at that price I have.
No reason to believe that that price would change based upon anything I know today and I think that the testing for PCR will continue to grow but the importance of it. It makes it very cost effective to test patients and actually find out who has a disease and then isolate them. So others don't get the disease. So.
I think it's a very cost effective way in order to ensure that you do everything you can at the same time I would say that the capital expense and the difficulty of PCR is pretty high and doing the PCR testing.
It is not simple I mean, its and are in a extraction that has multiple steps. So I feel like the reimbursement where it is today is that a good rate.
Thank you.
Thank you.
Our next question comes from Stephen Baxter from Wolfe Research. Please go ahead.
Yeah.
Hey, good morning, Thanks for all the color you guys provided today.
I was hoping to get a little more insight into the increase in accounts receivable levels that you guys mentioned during prepared remarks have you started to actually see anything yet in terms of your ability to collect on copays and deductibles and allowed side of the business and this in terms of what this this charge actually represents a discovering Q1 data service.
Some wider range of time and then how are you thinking they're expecting us to play out kind of throughout the balance of the year and there's going to be an item that you continue to exclude from earnings for the balance of there. Thank you.
Yeah. This is Glenn.
I'd say.
We looked at our reserves for receivables, we looked obviously back at Pryor recessions and big events that occurred and needless to say with a high unemployment rates the impact that it's having on what our customers. If you will our expectation is a business that we've already conducted that we currently have as receivables outstanding we've.
Assessed the full amount and have taken kind of a onetime God charger onetime reserve relative to.
Those receivables will obviously still left to go and collect on them, but based upon historical experiences we feel that's an appropriate level to build the reserve.
For that so as we go forward, we never normal standard process every quarter, we assess the the adequacy of all of our reserves. So at this point, we would say we're fully reserve based upon what we believe in that if anything changes in the future will adjust but our expectation is that.
The reserves that we established or not adequate to deal with the environment that we're operating in.
Thank you.
Thank you next question comes from Matt Leroux from William Blair. Please go ahead.
Hi, Good morning. This is Dan Lawler on for Matt Leroux, Thanks for taking my question I.
I wanted to ask about the initial demand that you've seen for your at home cobot tests, and whether or not you think cobot 19 could be a catalyst.
To wrap up pixel over the long term thanks.
Yeah, Hi, Dan Thanks for the message and you know we announced the launch of our pixel by Labcorp at home test recovered 19 about a week ago, and we're focused right now on frontline healthcare workers and first responders that have symptoms and we've seen the demand is pretty significant in terms.
So.
Not only people that are going to our website, but other people that are trying to reach out and see when it will be available more broadly to additional people outside of those sub groups. So I do believe that this may be a reason that pixel continues to grow overtime as we go into the future.
Same time, we do plan to launch pixel two additional groups of people as we get through the next week's and I would expect right now we have over 100000 kits available that we'll continue to make that much.
As we look out into the future on a weekly to other every other week basis.
Thanks.
Thank you.
I sure on next question comes from Michael Pork from Baird. Please go ahead.
Hey, good morning, Thanks for taking the question I wanted to get a bit more detail on the goodwill impairment Glenn I think you mentioned it.
Relates predominantly to one of the reporting units in drug development.
What piece of the Covance business took the impairment and and I guess more context around why.
A lot of companies are viewing.
Because of a disruption as a transitory influence so it was a little surprised to see a permanent impairment charge taken.
Any color on this topic would be helpful.
Sure Michael.
It is kind of an interesting exercise.
Given that these are point in time, so as you recall in our 10-K, we commented that we did have one of the reporting units within a drug development that was relatively close variable fair value versus the book value and that was performed as we do all of our reporting units of the based upon September thirtyth.
And we report out on it for the year, but when we bring it to our kind of outside from that as our valuations as based upon a point in time.
So what's interesting that's happened is now we move forward at March 30, Onest, where we've now got it again.
And obviously the business has been impacted by cobot as a lot of others, but we'd look at the valuations are they look at valuations based upon Dcs as well as just market valuations.
Interestingly when you look at the CRM market multiples from September 30 through March 30, they're down 30% and so we're effectively half of the valuations, saying the value of the business is down 30% at that one point in time frankly, we were to do it today it would be a very different number but accounting so.
You do it on that day, and then also given the volatility of the market you have the discount rate that was increased so from their exercise on the value of a business on a particular day that caused the the decline.
Of which we took the noncash charge of.
During the quarter.
Would you say, it's equally spread across lab clinical early or was this related predominantly by chiltern or in Vigo or anything else that you could specifically call out.
Sure that effectively we have a lot of different reporting units, but the one reporting unit here, that's broken out primarily relates to our clinical business.
So that's the reporting unit.
Separate and as you know when you look at.
You know even at acquisition and you break out the pieces to it.
Doesn't necessarily say, it's reflective of the total valuation of a company. It's just the specific reporting unit, that's broken out as well as the specific goodwill.
Allocated to that business at that point in time, and so to your point you could say that within a year ago, you acquired a business and you pay the market multiple for that business at that time now have a sudden you'll see a 30% correction that business that you just bought is now theoretically worth 30% less and county.
I would say that's what you evaluated that day and then six months later you can be backup to that's a market multiple the valuation goes back up but you don't write it back up it's just the convention. So it's just a confluence of events with Cobot 19 impacting earnings results of all the companies as well as the market valuations.
Resulted in the.
The impairment charge and the only thing I would add is strategically there is no doubt in my mind, and we're seeing more and more evidence everyday, particularly as we go through the code 19 pandemic, having the drug development business together with the diagnostic business was a great strategic move.
And I believe in the importance of the combined today as much if not more based upon what we're going through what we're seeing than I did even before the virus.
I appreciate all that color if I could sneak one more in on the on the cares Act. The 56 million that you received I presume in April.
Well you carve that out of adjusted earnings for future reporting just a housekeeping item and then do.
Do you expect any additional disbursements under the cares Act.
I know there was a second round of payments.
Did here in the very near term any anything else you might anticipate to receive.
Yeah, I'd say, obviously, how will account for it.
We'll determine as we go through the quarter report I think it's fair to say given we have you been done. It now anything that is unusual we will either call out separately or at least explained that the performance benefited from that but clearly.
That's to some extent to recoup if you will have the negative impact.
That were being impacted by Kobe as well as the capital spend and other spend that we're making a in order to ramp up our testing as well.
While there are other tranches of the cures act that we could potentially be.
Included in.
At this stage, which is too early to tell what that would be and obviously once we have more clarity on that we'll we'll be able to convey that.
Okay. So first of all thank you everybody for joining us today and I have to Sam So proud of the way our company is mobile access or patients customers, our local communities and the world.
Purpose been innovators and science medicine to help address global needs and I'm deeply grateful for the way, which are 65000 employees have stepped up in every country around the world, what we do matters and I believe it matters more in the future than it did in the past and I believe it mattered a lot in the past the challenge is far from over.
But as I said previously.
I have no doubt that we can beat this virus and also that Labcorp will remain committed to our mission to improve health and improved lives as we move forward. So thank you so much for joining the call today.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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