Q1 2021 Laboratory Corporation of America Holdings Earnings Call
Cook. Thank you. Please go ahead Sir.
Thank you operator, good morning, and welcome to lab Corp's first quarter 2021 conference call as detailed in today's press release, there will be a replay of this conference call available via telephone and Internet with me today are Adam Schechter, Chairman and Chief Executive Officer, and Glenn Eisenberg, Executive Vice President and Chief Financial Officer.
This morning, and the Investor Relations section of our website at Www Dot Labcorp Dot com, we posted both of our press release and and Investor Relations presentation with additional information on our business and operations, which include a reconciliation of the non-GAAP financial measures to the GAAP financial measures discussed during today's call. Additionally, we.
We're making forward looking statements. These forward looking statements include but are not limited to statements with respect to our estimate of 2021 guidance and the related assumptions, including the projected impact of the COVID-19 pandemic on the company's businesses operating results cash flows and our financial condition our responses.
<unk> and the expected future impacts of the COVID-19 pandemic on all of our business more generally as well as on general economic business and market conditions. Each of the forward looking statements is based upon our current expectations and are subject to change based upon various factors many of which are beyond our control that could affect our financial results some of them.
These factors are set forth in detail and our most recent annual report on form 10-K, and subsequent quarterly reports on form 10-Q, and and the Companys other filings with the SEC. We have no obligation to provide any updates to these forward looking statements even if it our EBIT if our expectations change now I'll turn the call over to Adam Schechter and thank you Chad.
Good morning, everyone and thanks for joining us today, our focus continues to be on bringing innovations to market that help improve people's health and lives and.
As you'll see from our first quarter results doing so and generate strong growth and returns for our shareholders.
I'm going to begin by covering our overall performance and the first quarter, which was very strong across all of our businesses.
Revenue increased 47% versus the same period in 2020.
Well a good amount of growth can be attributed to COVID-19 testing, we also delivered 15% year over year growth and our base business.
And diagnostics and drug development base business revenue increased 8% and 24% respectively from the prior year.
Our drug development book to Bill remains very strong and reached 147 for the trailing 12 months.
Our adjusted EPS of $8.79 represents significant growth from last year.
And we generated $1 $1 billion of free cash flow and the quarter, that's up from $97 million and the first quarter of 2020.
Our first quarter results and our improved outlook for the year enabled us to increase our full year guidance.
We're also encouraged to see that patients continue to return to the pre pandemic customer teams as.
And as well as a pharmaceutical and biotechnology customers resuming and important research and development work.
Our first quarter results demonstrate labcorp strong position and both diagnostics and drug development.
We continue to play a central role and helping health care professionals assess of patient cell and decided and appropriate treatment options and we're also aging and the development of treatments and cures that are critically important for the future.
Now I'm going to turn to our response to COVID-19.
As you know labcorp capabilities and testing and drug development had been critical to the pandemic response.
Our fight against this virus is not over but we're thankfully seeing a reduction and cases from pandemic highs, especially in the United States and and.
With that our COVID-19 testing volume has declined.
While we cant fully predict kind of pandemic will evolve as of year goes on and we're confident and our ability to leverage the considerable experience and expertise that we've gained over the last year to continue to build and a leading of COVID-19 testing and treatment capabilities.
Our scientists for developing new testing solutions, we have sufficient capacity to serve our customers and our teams continue to support important COVID-19 science and trials.
We're also proud to be of part of getting people back to work to school and for life.
Our employer services team offers testing and vaccination services to support workplace and community safety.
Our recently announced offering for small businesses can help employers, including restaurants reopen.
And since the onset of the pandemic, we've been focused on serving all communities, including underserved populations.
This quarter, we further that commitment and a partnership with the state of North Carolina to provide pixel COVID-19 homecare and at no cost to underserved communities.
Additionally of Walgreens partnership expanded to include new integrated digital experiences available to all Walgreens customers.
And access for our pixel of home kit and over 6000 locations.
We're also helping patients securely access their results through their personal devices and apps like Tom and health and coming fast.
Finally, we're continuing our important work for the CDC to genetically sequence approximately 5000 and virus samples every week and order to identify variants.
Now I'll provide several updates to our strategy.
And the quarter as we delivered growth and our base business and we responded to and needs of our customers and a pandemic. We also made progress in advancing our strategy and.
Our central laboratory business, which supports trials across many therapeutic areas, we continue to automate our processes using robotics and proprietary analytics.
Our investments and our central lab business will enable us to increase our productivity create resiliency and our supply chain and better meet the needs of our customers.
We recently opened a new automated clinical trials get production facility in Belgium, we expect that to eventually double our capacity.
The facility will offer fast for kit delivery more flexible ordering.
And reduced transportation costs for Biopharma clients and clinical trial of investigator sites across Europe, Middle East and Africa.
We're also advancing our position of oncology.
Strengthening our leadership team and investing and its important area, where novel diagnostic testing and better treatments are needed around the world.
Our science and technology continued to be critical for Labcorp success and future growth.
We made continuing strikes for first quarter and developing future tests for cancer, Alzheimers disease, autoimmune and liver disease. We also increased access to testing and trials and through Tele medicine, pharmacies, and employers home kits and our decentralized clinical trial capabilities.
In fact, our continued scientific and technology advancements for recognized by fast company, which named US one of the world's most innovative companies for 2021.
This accolade is great recognition for last books talented teams, who are resilient and fast and agile, it's a testament to our company's ability to adapt and thrive and a rapidly changing environment.
In closing as announced in March the board and leadership team are undertaking a review of the company's structure and capital allocation strategy.
The goal is to ensure we are best positioned to unlock shareholder value, while continuing to support the patients and customers who rely upon us around the world.
This process will take time and there'll be no updates until conclusion is reached.
Our team is focused we're focused on delivering on our mission of improving health and improving lives, which we believe drive strong shareholder returns.
I want to think of more than 70000 employees around the world who continue to rise for the occasion, we look forward for brighter days ahead as vaccines continue to rollout and I remain very confident and our strength across our businesses as we move forward with that I'll turn it over to Glenn.
Thank you Adam I'm going to start my comments with a review of our first quarter results followed by a discussion of our performance in each segment and conclude with an update on our 2021 full year guidance.
Revenue for the quarter was $4 $2 billion, an increase of 47, 4% over last year due to organic revenue growth of 45 per cent acquisitions of <unk>, 9% and favorable foreign currency translation of 140 basis points.
The increase and organic revenue was driven by COVID-19 testing of 39, 32, 9% and organic base business growth of 12, 2%.
Operating income for the quarter was $1 $1 billion of 25, 4% of revenue.
During the quarter, we had $32 million of restructuring charges and special items, primarily due to COVID-19 related costs and acquisition integration charges.
We also had $92 million of amortization, which was higher than last year due to the accelerated amortization of the Covance trade name related to our previously announced branding initiative.
Adjusted operating income and the quarter was $1 $2 billion for 28, 4% of revenue compared to $366 million of 12, 9% last year.
The increase and adjusted operating income and margin was primarily due to COVID-19 testing organic base business growth acquisitions, and launchpad savings, partially offset by higher personnel costs.
The tax rate for the quarter was 24, 6% the adjusted tax rate, excluding restructuring charges and special items and amortization was $24 five per cent compared to 25, 3% last year.
The lower adjusted tax rate was primarily due to the geographic mix of earnings we continue to expect our full year adjusted tax rate to be approximately 25 per cent.
Net earnings for the quarter were $770 million or $7 82 per diluted share.
Adjusted EPS, which exclude amortization restructuring charges and special items were $8 79, and the quarter up from $2 37 last year.
Operating cash flow was $1 $2 billion for the quarter compared to $204 million a year ago. The increase in operating cash flow was due to higher cash earnings and lower working capital requirements.
Capital expenditures totaled $95 million of two 3% of revenue compared to $107 million of three 8% of revenue last year.
As a result of free cash flow was $1 1 billion and the quarter compared to $97 million last year.
During the quarter, we paid down $375 million of debt invested $34 million and acquisitions and repurchase $69 million of stock.
At quarter, and the company had $732 million remaining of its board authorized share repurchase program.
Now I'll review, our segment performance beginning with diagnostics.
Revenue for the quarter was $2 $8 billion and increase of 62 per cent compared to last year, driven by COVID-19 testing of $54 five per cent and base business growth of seven five per cent.
The base business growth was primarily driven by organic growth of six 3%, which includes the negative impact of weather of approximately 2%.
Relative to the first quarter of 2019, the compounded annual growth rate for the base business revenue was two 7% to 7% and was primarily due to organic growth.
Total volume increased 27, 3% over last year, primarily due to organic volume growth of 26, 6%.
The increase and organic volume was due to the contribution from COVID-19 testing volumes of 27, 9%.
Partially offset by a reduction and organic base business of one 3%.
Which was negatively impacted by weather of approximately 2%.
As a reminder, we do not include hospital lab management agreements and our volume, which would have added approximately one 3% organic base business volume growth.
Price mix increased 34, 7% over last year, driven by COVID-19 testing of 26, 6%.
And a favorable mix and the organic base business of seven 5%, which was primarily due to higher test per recession.
Diagnostics adjusted operating income for the quarter was $992 million of 36% of revenue <unk>.
Compared to $254 million of 2014, 9% last year.
The increase and adjusted operating income and margin was primarily due to COVID-19 testing organic base business demand and launchpad savings, partially offset by higher personnel costs.
Diagnostics three year Launchpad initiative remains on track to deliver approximately $200 million of net savings by the end of 2021.
Now I'll review of the performance of drug development.
Revenue for the quarter was $1 4 billion and increase of 25, 7% compared to last year.
Due to organic growth of 21, 9% acquisitions of 1% and favorable foreign currency translation of 290 basis points.
The increase and organic revenue was due to base business growth of 19, 7% and of two 2% contribution from COVID-19 testing performed through at Central Lab business.
Drug development delivered broad based revenue growth across all businesses, including COVID-19 vaccine and therapeutic studies.
And relative to the first quarter of 2019, the compounded annual growth rate for the base business revenue was 14, 7% and was primarily driven by organic growth.
Adjusted operating income for the segment was $234 million of 16, 3% of revenue compared to $151 million of 13, 2% last year.
The increase and adjusted operating income and margins were primarily due to organic base business demand COVID-19 testing and launchpad savings, partially offset by higher personnel costs.
The company continues to develop and execute new launchpad programs to support profitable growth and drug development.
For the trailing 12 months net orders and net book to Bill remained strong at seven 6 billion and $1 47, respectively.
Backlog at the end of the quarter was $14 billion and increase of approximately $210 million from last quarter.
We expect approximately $4 6 billion of this backlog to convert into revenue over the next 12 months.
Now I'll discuss our 2021 full year guidance, which assumes foreign exchange rates effective as of March 31, 2021 for the full year.
We are raising our full year guidance to reflect the company's strong first quarter performance and improved outlook for the remainder of the year for both our diagnostics and drug development based businesses.
We expect enterprise level revenue to grow two to six 5% from our prior guidance of minus one to plus four five per cent.
This includes the benefit from foreign currency translation of 70 basis points.
This guidance range also includes the expectation that the base business will now grow 13.5% to 16% up from prior guidance of 11% to 13, 5%.
The revenue guidance on the contribution from COVID-19 testing is unchanged and down 35 to <unk> 50 per cent.
However, current estimates are less favorable than the midpoint of the range.
We are raising our expectations for revenue and diagnostics of flat to minus 5% from prior guidance of minus <unk>, 5% to minus seven five per cent.
This guidance range includes the expectation that the base business will now grow 13, 5% of 16% given our first quarter performance and improved outlook and we continue to expect COVID-19 testing revenue again to declined 35% to 50%.
We're also raising our growth expectations for revenue and drug development to 12% to 14% from prior guidance of eight to 10 five per cent.
Our current guidance includes the benefit from foreign currency translation of 140 basis points.
This guidance range also includes the expectation that the base business will now grow 14% to 16%, reflecting strong first quarter broad based performance and an improved outlook.
Given the improved topline growth expectation of our base businesses. We're now raising our adjusted EPS guidance to 20 to $24 up from prior guidance of 19 to $23.
Free cash flow is now expected to be between one eight and $2 billion.
Up from prior guidance of one 7% of $1 9 billion.
Our earnings guidance assumes we will use our free cash flow for acquisitions and share repurchases, which we expect to accelerate and the second quarter.
We continue to expect of capital expenditures will be approximately 4% of revenue driven by investments to support base business growth and productivity.
For additional comparison purposes. We have also included in our supplemental deck on our Investor Relations website of view of our 2021 first quarter results and full year guidance compared to our 2019 results.
In summary of the company had another quarter of strong performance. We remain focused on performing of critical role in response to the global pandemic, while also managing our base business.
And as we progressed through 2021, we expect to drive continued profitable growth and our base business as COVID-19 testing volumes are expected to decline over the remainder of the year.
We expect to continue to use our free cash flow generation for acquisitions that supplement our organic growth.
I'll also returning capital to shareholders.
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And then go operator, we can hear you.
Sorry about that and what happened and you can continue.
Okay, I think we've completed our formal remarks, and we're now ready to take questions.
Okay.
At this time of you would like to ask a question. Please press star one on your telephone keypad.
And Thats Star one to ask a question.
And your first question comes from Jack Meehan with Nephron research.
Thank you good morning.
I wanted to start with the Covance performance. So I was calculating new words up 60% year over year, which would make labcorp number one so far and the quarter. So Adam I was wondering is that math right, where there any chunky awards to call out and can you maybe talk about the relative performance of each of the businesses within <unk>.
Development.
Yes, Hi, Jack Good morning, and no. Your math is about right and we're very pleased with the performance of all of the business is frankly diagnostics and each of the businesses and drug development.
And for laboratory was particularly strong.
But we saw good growth and early stage as well and late stage and as I mentioned on previous calls we had recently won some larger pharmaceutical clients that are helping with our book to Bill. So if you look at our book to Bill of it reached a record of $1 47 for the trailing 12 months and the total backlog as you said grew to $13 90.
$7 billion.
And I would just add to that that only a very small percentage of that backlog is related to COVID-19 work. So it's really related to the other therapeutic areas.
Great and maybe building off of that Glen you mentioned in the prepared remarks, how the stacked growth.
Somewhere in the mid teens as you think about how this backlog growth is going to convert over the next year and a few years.
How do you think the NIM.
Near term trend rate for Covance is looking or you're going to have tough comps as we're looking out a year from now or do you think there's just a lot.
Lot of work to burn through for some time.
Yes, no we have seen over the past several quarters of little bit of a decline and the conversion rate. We're now at around 33% and as you know relative to the mix of business that we're doing more oncology work that we're seeing good good growth and our backlog is Adam commented. So right now we continue to have a lot of good momentum our orders.
Continue to be very strong we are building up of very strong backlog again at $14 billion. So nothing from our view of la.
Long term would change obviously and the first quarter, especially youll see kind of of is a really strong growth rate in part because of the COVID-19 related vaccine and therapeutic studies that we have that at some point, we'll obviously start to taper off.
Thank you guys.
Yes.
And your next question comes from the line of Erin Wright with Credit Suisse.
Great. Thank you, Mike and other one on the closing statement here and there's obviously a ton of promotion of Crs, Steve right. Now what are you seeing in terms of opportunities for them from some of other potential disruption there whether it's when rates are our employee recruitment and and on the flip side of that did the ongoing strategic review.
Any of your own relationship with customers I assume with Doug and given the latest bookings for anybody that you just posted.
And also further consolidation and cross the DRA sales from here.
And the need to add scale.
And fitness and probably been controversial topic.
Yeah. So first of all good morning, and Erin and thanks for the questions.
And whenever you have large scale integrations are mergers and consolidation you see.
Some.
Interruption of business. So we're going to be prepared to take advantage of whatever is out there in terms of disruption and distraction of companies that are being acquired or is that are going through the specific significant integrations integrations of just hard to do.
We've said all along and we believe that there was going to be additional consolidation of industry. So it is not a surprise to us and we were aware of the marketplace and all of the competitors and obviously, we know what's happening at the same time, we've always said you need a certain level of critical mass to be successful and the good news is we have that critical mass and as you said are and you can see it.
And our numbers you can see it and the strength of our book to Bill you can see it and the strength of our.
<unk> to continue to grow and the Covance business. So we know the industry. We know the other players very well and that's of Great thing about Labcorp I mean, everybody comes and talks to us at the same time and we feel like we're in a very strong position.
With regard to your second question was as we go through a strategic review.
Yes.
We're focused on executing and the marketplace and we're not going to lose focus and we're not going to spend.
Spend time and the vast majority of our organization, they're just meeting the needs of our clients and our customers every single day, and it's going to be the boards and management teams that are working together to do this thorough review and we're not going to distract.
Largest parts of our organization, we're going to keep them focused on delivering hopefully you see that our execution and the marketplace has been really strong across diagnostics and drug development. It's been strong with everything we're doing for COVID-19, it's been strong and our base business and our base business for.
The overall grew 15% and the base business for diagnostics was up 8% drug development was up 24%. So you see strength there and that's because we're so focused on executing on and each of our customers and we're going to continue to do that while we also performed a strategic review.
Okay, and switching over to the diagnostics zachman, and I guess and Europe.
How is the competitive landscape change as we emerge from the pandemic here within the emerging smaller labs, and other and Steve stepping up investments and testing capabilities.
Does it change any of your outlook for when consolidation standpoint at this point and question the core clinical lab space.
And a couple of parts of that answer. The first thing is that if you look with people and have built capabilities to do COVID-19 testing you know those are really doing molecular testing molecular testing is a very very small part of the $530 million or so testing at labcorp rest of the year. So no matter how much capacity is out there for molecular testing I don't think that there would be of.
And impact of our business with new competition that can do some molecular test what I do believe is that some of those competitors are not going to be able to make it with just COVID-19 testing is we've seen a number of tests per day go down and therefore, I believe that will continue to be consolidation in the industry and frankly and thats something that will continue to look at.
And we've always said that acquiring local laboratories of our hospital laboratories, and our regional laboratories are great way for us to use of capital we know how to integrate those they return their cost of capital very quickly and they're accretive typically and the first year. So we will look for opportunities for consumers for continued consolidation, but not just and.
And the smaller new competitors, but also in the hospitals and other laboratories.
Okay perfect. Thank you.
Thank you.
Your next question comes from the line.
Of dam monarch with Wells Fargo.
Another question on the drug development business big growth year on year, and the New awards, but off of a lower base could you comment on the book to bill ratio and the quarter and.
And on and off for trailing 12, but specifically for the quarter and if you felt like you were winning your pro rata share of bookings and anything to be aware of and on the monthly trends Brian.
Yeah, Hey, Dan This is Glenn as you know, we do a book to Bill on a trailing 12 number and again a record level of 147, and so it's picked up nicely from the prior trailing 12 months. So obviously it implies obviously a very good quarter, we tend not to give the quarterly numbers because we don't want it to be focused on the quarter.
Obviously this has done over the years, but it's fair to say that we feel we had a very good quarter and it was enough to meaningfully bump up our trailing 12 month level and.
Okay, and then also say day.
And as if you look at Rfps that continue to be coming in strong. If you look at investment from pharma and biotech and continues to be strong and we continue to win at a minimum amount of share maybe even a bit better.
And then my follow up can you elaborate a bit more of the drivers of the organic growth and your base business and diagnostics. It seems like the health care system hasn't fully normalize yet doing 6% organic is better than the industry. So may be if there is more granular detail you can offer on the drivers there.
Yes, no Dan we've been really pleased with the pace of the recovery and diagnostics frankly coming in a little stronger than what we would've expected, which again is one of the reasons. We've increased the guidance that we have for for diagnostics. When you look at the breakup of the call. It the 6% plus organic revenue growth.
<unk> are still down year on year, and they were down around one 3%.
But actually would have been favorable if you took out the negative impact from weather. So we've really started to see the trend change and when you think about it and not too surprising when you're Comping now at the end of the first quarter to the beginning of the pandemic impact last year, but what we are equally pleased to see is that the volume levels continue to improve all of <unk>.
We'll be down from 2019 pre pandemic levels low single digits as well and so.
So while revenue continues to be up year on year to 20, while revenues continue to be up compounded compared to 19 kind of a normalized year volumes are still a little bit down and our expectation continues to be that the volume levels will now start to kind of kick in and above 19 levels call. It at the middle of the year.
But the good news is that.
While volumes are still a little bit soft compared to historical levels, we're making that up on our price mix works, we're attributing more to the number of tests, we're doing because we report volume on an assertion basis. So maybe fewer visits to the physicians, but theyre doing more tests for each of those visits but good momentum that we're continuing to see.
And.
Helpful color. Thank you Glenn.
Your next question comes from the line of Kevin Kelly <unk> with UBS.
Good morning, Thanks for taking my call.
You mentioned in your prepared comments capital allocation would accelerate over the course of the year.
Is the strategic review part.
Is that the reason why there wasn't really much capital deployed and <unk>. Your buyback of 69 million of M&A was $34 million and then I guess the second half of that is how should we really think about.
Capital deployment and in total meaning is there is there a target in terms of buybacks and Laura.
<unk>.
Allocated of total allocation.
And built into these numbers.
Yes, Hi, Kevin.
To your point of what.
We've said and our guidance overall is that the free cash flow that we're going to generate this year of call. It. The one eight to 2 billion, we expect to deploy between M&A and share repurchases, we tend to start off slower and the first quarter, just historically, even with our buyback program just to let the year of little bit unfold and see what the M&A opportunities are there and.
We continue as Adam said to have really a strong pipeline of M&A transactions and the reason why we said we were accelerating especially on the share repurchase side, because we can obviously unilaterally control that is that with one quarter under our belt <unk> to go we still have that midpoint of $1 nine to fully deploy so you would.
Normally expect that instead of it just being done at all towards the end of the year Youll start to see of pickup, but we're encouraged with the pipeline of deals that we feel we can do we're encouraged obviously that will continue to redeploy our capital with M&A and from our perspective, we're on track with what we were expecting to see happen and Kevin just to give you a sense of how we think about.
I mean, we've always said that local hospitals regional hospital, our laboratories local laboratory those will be things that we would look to acquire and.
As I said before they are accretive and a first year return cost of capital and a couple of years and we know how to integrate goes really well. We then look for strategic acquisitions that are typically top of tuck ins like we did with global care of last year of snap Iot that helped us with our decentralized clinical trials and maybe some things and oncology or other parts of our strategy, where we went up.
Reinforce our position and that's the second place, we look and then of course for opportunistic with the buybacks and.
And we look at all three of those.
Okay, and just one quick follow it up.
One quick follow up is the.
Is the biggest delta between the high end and low end of your guidance still PCR volumes or is there is there something else that would sort of be the biggest.
Net mover of earnings for the rest of the year.
Well again, if you are one of the reasons again, we've broken out the guidance between our underlying base business and the COVID-19 testing is.
And as such that we can get various ranges for the two and clearly there is a little bit more uncertainty visibility. If you will on the level of PCR testing, depending on what's going on with with obviously, the pandemic and how it impacts so from our perspective, when we gave that range. We've said two things that it's going to be a combination of different volume levels, but also potentially.
Different levels of pricing. So right now, we obviously had a very strong first quarter relative to PCR of volumes of 112000 tests per day.
We ended the quarter it kind of of the 80000 tests per day level. So you can see that we continue to see and expect that volume levels will continue to trail down but again, yes, we will.
And we will see if it picks up again, if you will but you know at the midpoint, we're clearly considering that the volumes will come down and Theres also pricing what CMS, we've always held to the pricing on the reimbursement. We continue to do that at some point that pricing may change CMS may change their pricing and reimbursement. So there's just a lot of variability. So at this point we.
Continue to do we have all the capacity there our turnaround times are extremely strong and so we're just meeting the needs that are out there.
Kevin I think the good news is that our base business is strong and that's what we're able to increase the guidance and both of our base businesses and frankly, that's the long term success that we expect to have and the base business. If you look at the <unk>.
PCR testing today, and you looked at a range between down 35% and down 50% you would actually get closer to down 50% today versus the 35.
Let's see what happens because in November there could be another outbreak of the flu and therefore, a lot of people might come in for PCR tests.
We have back to school and the kids are going back to school will be large scale of screening. So that's why we've given ranges and both and Thats why we have a much broader range for PCR testing.
Thank you so much and that's really helpful.
Your next question comes from the line of Ralph Giacobbe with Citi.
Thanks, Good morning.
And I want to probe a little more and to the guidance more around trying to figure out baseline earnings this year, excluding COVID-19 and Amit.
Point of guidance, you said COVID-19 revenue $1 6 billion of it sounds like you are trending towards sort of the lower end of that.
But even if I take that sort of lower and based on my math I'm still coming up with maybe six to $7 of EPS contribution.
And I think it's a fair ballpark.
Again there.
We guide to the revenue, obviously, we've talked a little bit about kind of the leverage that we get on that volume for PCR, depending upon the pricing. So we've talked about it being kind of north of our 65% incremental leverage on PCR volumes kind of comparable but a little bit north of what we would nor.
We have seen like on incremental volume.
From weather, if you will so as Adam said, when we gave our guidance.
We give a range of obviously the midpoint is kind of where the most expectations, but clearly we could see our way to getting higher at the upper and and other things that could be headwinds on the lower and the reason we commented on the PCR one and it is just that it's a little bit south of of the Centerpoint is because one that's what we're currently seeing on the trends.
Two as Adam said, we could see a pick up again. So we were just trying to provide some color and given where the extension of the public health emergency continues to go out if it gets extended again of that could reinforce better pricing than what you know.
That would hold our pricing, which would be and improvement because we do assume and some of the scenarios we'll see.
Lower pricing overall, but when.
And when you look at our earnings and it's kind of interesting. We obviously had a very solid first quarter and you compare it to call. It the midpoint of the guidance that we give for earnings for the year, we had a much higher percentage of earnings and then we would historically do we tend to try to attract.
Not not for this precisely but lets say a quarter of our earnings would normally be or one quarter of quarter of the year here, we did around 40% of our earnings and frankly and the second quarter I think it's fair to say it'll be a strong quarter relative to the full year as well because we're still going to have another strong quarter of COVID-19 testing, even though it will be less and what we saw and the <unk>.
First quarter from our standpoint, the bigger question will be the second half of the year, which was really where we do expect to see.
A decline in volumes and potentially of declining and pricing, but there is still that uncertainty out there that could potentially be upside if the volume levels hold up greater and the pricing holds up greater but there's just a wide range of outcomes.
Okay, Alright, that's helpful and then just a follow up.
<unk> and any update on school testing I guess broadly and then more specifically on the <unk> program and its going to be announced shortly could you just help US did you guys and need for a coordinator role and the four regions or will you just be one of the uptick and I guess labs concern of the program and is there any way to sort of size of frame the.
Opportunity and <unk>.
Thanks.
No absolutely and it's a great question and we.
We did bid on certain regions and we do expect that we would be one of the labs irrespective of if we have one of the hubs or not so we expect to be involved and both but we'll see as it plays out and the minimum it's hard to imagine where you wouldn't need for capacity and the capabilities. We have for the testing itself, it's really going to come down for.
How many schools want to implement the screening and as more and more people are vaccinated as more parts of the country of opening up I mean, almost fully and certain parts of the country. It's hard to tell to be honest. How many schools are going to say, we're going to want a screen on.
Fairly often basis all of our students so.
As we said and that's why we have this broad kind of guidance between down 35% and down 50%, we're trying to be more down towards the 50% but of the schools were bigger and actually get a lot of testing well then we could go the other way and the range, but right now we're not expecting that to be of very significant amount and thats why we kept the <unk>.
And where it is.
Okay got it thank you.
Your next question comes from the line of Ricky Goldwasser with Morgan Stanley.
Hi, Yes, hi, good morning.
First question on the diagnostics side.
If we.
And think about the base business.
Organic growth of of core business was up 70 basis points when you adjust for the weather.
And I suspect the results of sort of and in terms of for light flu season.
Thank you for being there so I E.
Normalized for that core testing would have been even higher and you can get a sense of those dynamics and also one thing that's very clear from all of the details you are absorbing and thank you are growing faster than your closest competitor.
Both encore and testing and on PCR testing and while some of it could be geographic I think forecasting will grow faster.
SaaS or geographically the PCR testing.
So can you talk a little bit above.
Share dynamics that Youre seeing.
Yeah, Hi, Ricky So couple of things first of all.
Our base business as you say is very strong and it's strong across diagnostics and drug development and frankly each area of drug development. When you look at the diagnostics were seeing that people are coming back for more routine health care and if you look at the volume and you compare it for 2019, it's only down and the low single digits now versus.
If you look at the end of last year was and the mid to upper single digits. So we've seen continued improvement and people.
Moving back to the routine testing the other thing that we're seeing is that for each.
And I would draw that theres more tests being run and that blood draw and then historically happen and the question is will that be maintained.
We are hypothesizing that some people have been out of health care for a while so when they finally and do go to their doctor of telemedicine Youre doing a lot of cash just to check on People's overall health and therefore that might not continue over time, but on the other hand, it may and we're going to have to watch that closely in terms of how many tests per accession, we see over time, there's no day.
Now that the diagnostic team is executing extraordinarily well and our marketplace.
The team is focused energized, they're doing a great job they've worked through COVID-19. Our sales folks are out there of the entire time doing whatever they could with doctor's offices are open joining things remotely one of them.
Our platforms for our key pillars of our strategy was digitalization. So we were able to do a lot of things digitally through the pandemic that historically, we would not have been able to do so I agree with your assessment that we're performing well and the marketplace versus others.
Okay.
And then.
On the CLO business I mean for one thing that think of we're clearly seeing with some of the industry consolidation is that scale matters more and more.
Your compares of becoming bigger so just kind of like any thought for how you think about COVID-19 and this call critical scale excluding the.
The central lab business and.
I'm just kind of like how do you think that competitive environment and go ahead Bob.
Yeah. So first of all I'd say, if you look at the free features of our business and outbreaks and acquired individually. If you look at our early stage business, we have scale and we're strong and we're a leader and that business and our performance very well. If you look at our Central Laboratory business. We're a leader there as well we have scale and we can compete and I've said, all along and we have the scale that we need.
In late stage clinical trials, that's the area of that as you get more trials you can scale of the quickest and you can do that to some degree organically you don't necessarily have the scale and clinical trials of Inorganically. So for example, we wanted to have more capabilities and China and Japan, we were able to build scale for credit.
And for development in those countries fairly quickly so we see what's happening in the marketplace, we understand and marketplace well, we understand the importance of scale and to me. It's a certain level of scale you need to have and then you can be successful and I believe we have the level of scale across each of our three businesses that we need.
And then one last question I wanted to follow up and what you said, he said and Youre seeing.
Or people coming basket of low teen health care.
Acuity something okay.
The market and is very very focused on <unk> and <unk>.
And of what type of tests are being ordered.
Thank you.
Part of of correlated Jorge correlation of with with acuity level.
Any sense there in terms of what type of testing you're seeing being ordered.
Yeah, Yeah, So Ricky said we've seen.
All of the business come back whether it be our base business or our esoteric business and the first quarter, we saw a little bit more of the base business coming back. We think it was probably because people are getting physicals and the.
Year was starting it's typical to see that base business perform a bit better and the first quarter esoteric business continues to be pretty consistent because when people need to get one of those that they get it irrespective of the time of the year. So there's not a really significant difference versus what we would expect to see.
Thank you. Thank you very much.
Your next question comes from comes from the line of Brian <unk> from Jefferies.
And just thinking about your comments on pricing expectations later in the year, taking out COVID-19. How are you thinking about the durability of pricing and the base business.
Ex the COVID-19 testing that we're seeing right now.
You know Bryan when I look at the business the pricing is always under some pressure, but its pretty asymptotic it doesn't tend to be significantly more pressure overtime than not and the pricing is pretty stable and I feel.
And I feel good about our volume I feel good about our pricing as we go into the future obviously, Panama right now, we're having a base case that there'll be an impact next year and we expect that will be about the same as it was in 2019 around $100 million Mark but at the same time, we think that theres ways to get through that and to be.
Of this be successful through that.
Yeah, the only thing to Brian that I'd add is I agree that from a unit pricing standpoint.
Yeah exactly as Adam has conveyed it when we talk about price. We also do price mix and so as you see that the volume levels are coming back you'll see the price mix come down a little bit.
Again, when you think about it and now those people are going to the physician's office more normal youll start to see a more normal cadence of how many tests per session and they would have so, especially as we continue to grow when we talk about of normal historical growth rate of kind of 2% to 3% if you will.
And call it organic revenue with.
With 1% and 2% coming from volume one from price. So we normally always still do expect to have a contribution for unfavorable price mix, but given that the volume levels have been negative from year over year comparisons, we've seen and unusually high price mix. So again as we get more of a normal so you'll see both kind of fall back into where we are.
Normally expect it to do.
Your next question comes from the line of Matt <unk> with William Blair.
Hi, good morning, and thanks for taking the question.
And some goalposts around what you expect calls and molecular look like and 'twenty 'twenty. One could you give a sense or maybe give us some sort of wider goalposts around what it could look like in 2022, do you think potentially down another 50% and.
And then the second piece of that would be you talked about leveraging the experience and expertise of <unk> gained from COVID-19, but what about sort of a substantial footprint and capacity and he's built out to me couple of demand how do you leverage that.
Moving forward.
Thank you Matt.
Good morning so.
It's hard to predict where 2021 is going to end up that's where you have such a broad range of it makes it even more difficult to predict 2022, what I would say is part of it is going to depend on how long the vaccines work for or are we going to need a booster shot every year is it kind of last for several years a part of it is going to depend on how cost of flu seasons.
Are so so theres still a lot of unknowns as we go to 2022 I would expect there will still be testing for COVID-19 and 2022 that we'll be doing the level of which will be determined to some degree by the vaccines, but on the other hand, if the vaccines last for a longer period of time, what we need to do more serology tests.
When we need to do more T cell testing. So I think thats. The story is still going to be written as we learn more scientifically and PCR testing will play a role, but serology and <unk> T cell and other tests may play a very different role as we go into 2022.
And beyond with regard to the testing capabilities that we've built the machinery, we can still use a lot of that and then we use it for other tests there might be some excess capacity that has to be written off over time.
But for us it wouldn't be a significant issue where others at all and they do as COVID-19 testing and holiday and has built capacity for that I think they'll have a significant issue.
We're.
And very good shape, there frankly.
Your next question comes from the line of Derik de Bruin de Bruin with Bank of America.
Yeah.
Good morning, Thank you for taking my question.
So wanted to follow up on that longer term.
Net.
Thanks Scott.
So what are you seeing.
Where do you see and testing, Florida and for reference labs, and the long term given the vaccine and rollout.
Yes.
And.
And also day testing decentralization.
No.
And then of follow up for it related question for that and what the exact with excess capacity.
And in the future from of <unk>.
Testing.
And <unk>.
Wanted to see if you could comment more on what you wanted to.
Ladies and Gents, Hey, Jake talking with you and the testing side.
And that you are focusing on.
And so again with the longer term COVID-19 testing.
Early to understand exactly how that's going to play out part of it is going to depend on vaccines for part of it loss of depend on if we have good therapeutics. So for example, if we get for next year and it's a big flu season, and if somebody gets COVID-19. They still have a high likelihood of being hospitalized and are dying from COVID-19.
I think people are going to want to use of molecular PCR test and haven't done by us if theres, great therapeutics and of people get COVID-19, they end up not being hospitalized and they can be managed from their home and it's more like the flu and then I think you might find more testing thats done and physician's offices. So so really it's going to depend on how the science plays up.
I assume there will be some testing needed in the long term that we'll be doing but obviously it'll be significantly less over time and we've done in the past to me. The real question continues to be will there be a role for serology, where we need to know if people are still of immune to the disease are vaccinated and have tighter.
At the right level for the disease and there might be other tests in the future of that play a more important roles and they do today and lots of continued to watch that the last year of phase with regard to capacity and the future and I've seen some countries that are going to use that capacity to do significantly more screening for things like HCV or HIV things, where molecular tests are.
Done routinely today, but they are routinely done to diagnose versus to screen. So there might be some opportunities to do those types of things, but in general as I said molecular testing is a very small amount of the 530 million tests or so that we do every year and therefore for us it's not for me to be a significant issue I feel very optimistic.
As I look at our base businesses moving forward.
Your next question comes from the line of Peter Chickering with Deutsche Bank.
Hi, Good morning. This is Joseph <unk> from for Peyto and.
Nice strength across both segments this quarter of Bob Dickey.
Digging into diagnostics of little more can you give us a sense of.
And what you saw across different regions of the country and then.
As you look at your different customer base, whether it's acquisition, where test or reference labs can you tell us what and <unk>.
And what trends were like in the quarter there and.
And then lastly.
Where are you guys tracking now on daily PCR tests versus kind of where you exited in March.
Yeah. So good morning, and some of the first thing I'll answer. The last question first we exited the quarter averaging around 80000 tests per day, we average for the quarter about 113000 tests per day. So you saw a continued decline.
And with regard to geographical differences, whether it was probably a bigger impact and other things so.
And we saw the northeast of hit by weather there was of 2% impact of lot of it came from where the weather was obviously and Texas. We saw a significant issue with what was occurring there at some point when electricity was out for a week so.
And it was more driven I believe by that and it was differences and other testing, obviously youre going to see some differences by geography as different parts of the country open up and different ways of different times, but frankly, you saw strength pretty much across all parts of the country. When you compare it to where we were at the end of last year.
And at this time there are and.
There are no further questions.
Okay. So thank you everybody for joining us today.
And by saying, we remain optimistic about the progress against the virus, albeit of certain parts of the world of continued to be impacted significantly and our thoughts are with them as they continue to go through.
The devastation from the virus, but and the U S. We are very optimistic about where we are and how things are progressing.
We're very pleased to see our base business has performed well across every single area of our business and we're seeing that as people go back to that normal lives and their normal health care teams and the United States, but we're also seeing pharma and biotech colleagues began to perform the important research and development, particularly in therapeutic areas outside of COVID-19.
As you can see our first quarter was very strong and it was a strong quarter of performance and I think we executed in the marketplace very well, we look forward to continuing to execute on our mission to improve health and improve lives and we look forward to talking with you soon and thanks for your time today.
Thank you for participating this concludes today's conference you may now disconnect.