Q2 2021 Laboratory Corporation of America Holdings Earnings Call
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Ladies and gentlemen, and thank you for standing by and welcome to the Lab Corp, second quarter 2021earnings conference call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
I ask a question during the session.
And you would need to press Star then 1 of your telephone. Please be advised that today's conference is being recorded if you acquire any further assistance. Please press Star then zero I would now like to hand, the conference over to your host today Chaz Cook Vice President Investor Relations. Please go ahead.
Thank you operator good morning.
And welcome to Labcorp second 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.
And 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 for the GAAP financial measures discussed during today's call. Additionally, we're making forward looking statements. These forward.
Looking statements include but are not limited to statements with respect to the estimated 2000 and 'twenty, 1 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 to and the expected future impacts of the COVID-19 pandemic.
And to make our business more generally as well as on general economic business and market conditions. Each of the forward looking statements is based upon 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 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 our expectations change now I'll turn the call over to Adam Schechter. Thank you Chad and good morning, everyone. It's a pleasure to be with you. This morning.
We.
Committed to using our extensive diagnostics and drug development capabilities to advance our mission of improving health and improving lives around the world.
Innovation technology and science remains at the forefront of all we do for better for patients providers and shareholders.
To that end of the second quarter of 2020.1.
We remain very strong across both diagnostics and drug development.
Revenue totaled $3.8 billion.
Of 39% increase from the same period and 2020 low.
Much of this growth was driven by the continued strength and our base businesses.
Adjusted EPS reached $6.
And 13 cents versus $2.50 from the prior year.
Free cash flow was $390 million from the quarter versus $272 million in 2020.
The strong performance and the quarter and the improved outlook for the year resulted in us raising full year guidance for.
For revenue EPS and cash flow, Glenn who will review the new value with you in a moment.
Our base business continues to recover and grew 51 and 32% for diagnostics and drug development respectively.
The drug development and trailing 12 month book to Bill remains.
Strong at $1 for 1.
This performance was driven by patients and providers returning to routine health care checkups and.
And pharmaceutical clients resuming their important research activities and even.
And faster pace than expected.
I'll now turn for the company's continued responsible and Donna.
Our organization's collective strength and scale have allowed us to play a substantial role and the fight against Covid.
Much progress has been made it is clear that there is still a lot of work to do and the U S and around the world.
Labcorp remains vigilant and stands ready to help wherever and however, we can.
We have since the earliest days of the pandemic.
To date Labcorp has performed over 50 million Covid test.
And the quarter of steady decline and positive cases drove an overall decrease and COVID-19 testing with an average of 54000 PCR tests per day.
As the month of June was lower than the quarter average.
However, testing started to increase again in recent weeks.
We continue to monitor developments and the United States and around the world and are watching the delta very closely.
To support the CDC and tracking and monitoring the delta.
And other variance this quarter, we announced an extension to our contract to provide genetic sequencing from positive PCR test samples.
It is difficult to predict exactly what COVID-19 testing demand will look like for the remainder of the year as various continues to spread and we entered the flu season.
Delta Therefore, we will maintain our ability to scale test and capacity quickly and expand access for communities and individuals and need.
At the same time, our drug development teams continue to be involved and many studies and potential vaccines and treatment for COVID-19 around the world.
Our new automated clinical trial kept production facility in Belgium is up and running which will double our automated kept production capacity over time.
This will allow us to better serve our pharmaceutical clients and study investigators in Europe, the middle East and Africa.
Other COVID-19 related actions.
This quarter includes a collaboration with the U S Department of health and human services to raise awareness of monoclonal antibody therapies.
And at state and local levels, we expanded and notable partnerships and places like Massachusetts, and North Carolina to facilitate mass vaccination programs and expanded.
Expand access to add home test collections for underserved populations.
In addition, we continued our collaboration with Walgreens pixel by Labcorp test kits are now available and 6000, Walgreens stores and through on demand delivery services like door dash and its the cart.
And important.
Our scientists use data available through our robust testing infrastructure to contribute to essential research.
In the quarter, we released the results of 1 of the largest COVID-19 related studies of its time, which annualize the test of more than 39000 patients.
This offered useful detail on the.
Reaction for natural infection, and we work, whereas it worked for learn more about the nature of the immuno response.
We are also building upon our portfolio of serology testing, including semi quantitative analysis and T cell memory.
We remain proud of our significant contributions towards stemming.
Badri credit Covid, and and the development of treatments and vaccines.
All of which are intended to assist people to safe to go back to work and normal life activities.
Now I'll provide updates to our strategy.
We are focused on leveraging our industry leading positions to drive growth.
And being the fifth customer and patient experiences and advanced science and health care.
We seek to intensify customer focus and integrate data and digitalization across our business.
As part of that objective, we announced plans to add of state of the art bio analytical laboratory in Singapore, expanding our global drug.
And hain offering and elevating our clients' experience through faster turnaround times and Asia.
And the United States, we continued to improve our patients experienced and our service centers for.
Focusing our efforts to create a seamless digital journey for <unk>.
Appointment scheduling to results delivery.
With an average of 3 million.
Patient served in a given week, we are striving to enhance their experience using our digital channels.
And the first half of the year users of our website totaled 42 million, a 20% increase over last year and.
And adoption of our patient application is growing approximately 300000 users per month.
Development ill now turn to oncology.
We made significant strides for the quarter and oncology led by highly trained and multi disciplinary team.
We launched several new oncology tests, including omni fit inside a pan cancer tissue based sequencing tests for patients with advanced solid tumor cancers.
The test specific to and individuals' molecular and immune profile provides clinical decision support that helps medical professionals identify the most appropriate treatment options for a patient.
As well as to identify potential eligibility for clinical trials.
We also launched of companion.
Ignostic test to identify patients with non small cell lung cancer, who are eligible for a new treatment option developed by Amgen.
It's important past helps physicians identify patients who may benefit from the treatment promoting personalized precision medicine.
Our work and oncology has created meaningful.
For business relationships across the health care ecosystem that we will continue to enhance and growth.
And important opportunity presented itself of omni C. A longtime oncology partner and a pioneer and solid tumor profiling.
As announced today, we recently exercised our option to acquire there.
The remaining stake and the company.
Adding omni seek enhances our integrated oncology platform.
Expanding labcorp and extensive oncology diagnostics testing portfolio and opening the door for more patient participation in clinical trials.
We continue to concentrate on identifying and engaging.
<unk> and high growth opportunities.
We announced we are acquiring and autoimmune business unit for myriad genetics, including backdrop rheumatoid arthritis assay.
This will strengthen our position and our array which.
Which the CDC predicts will impact roughly 25% of adults in the United States by 2040.
Additionally, we agreed this week to acquire the outreach laboratory business of Minnesota based North Memorial Health.
And we'll provide management services to its inpatient lab.
Our pipeline of acquisition and investment targets is robust.
And we believe there are meaningful business developing.
<unk> opportunities this year to enhance growth and our strategy moving forward.
Finally, I wanted to touch briefly on our board and management teams ongoing review of Labcorp structure and capital allocation strategy that we announced in March of this year.
Working closely with our advisers.
<unk>, we're making progress to identify the best path forward to position labcorp to unlock shareholder value, while continuing to support our patients and customers around the world.
Though we won't have further updates today.
Look forward to sharing our conclusions once our review is complete.
We expect to do so in the fourth quarter.
In conclusion, the quarter was strong across both diagnostics and drug development businesses.
Significant progress was achieved on our strategy and our mission to improve health and improve lives of people around the world and we will continue to support efforts to stem COVID-19.
Covid However, we can.
And I'm very optimistic about the future growth opportunities before us and our continued success.
I want to thank all of our colleagues around the world for their tireless efforts to help them Covid, while also maintaining focus on our strategy and our underlying business now.
Now I'll turn the call.
Call over to Glenn to review more details of our second quarter performance.
Thank you Adam I'm going to start my comments with a review of our second quarter results followed by a discussion of our performance in each segment and conclude with an update on our full year guidance.
Revenue for the quarter was $3.8 billion and increase of 30.
7% over last year due to organic growth of 35, 5% acquisitions of 1.2% and favorable foreign currency translation of 200 basis points.
Our organic base business increased 42, 4% when compared to our base business last year, while COVID-19 testing revenues of 4.
$844 million were flat with last year.
Operating income for the quarter was $704 million for 18, 3% of revenue.
During the quarter, we had $92 million of amortization and $43 million of restructuring charges and special items.
Excluding these items adjusted operating income and the quarter was 8.
<unk> hundred $40 million for 21, 9% of revenue compared to $381 million or 13, 8% last year.
The increase and adjusted operating income and margin was primarily due to organic base business growth acquisitions, and launchpad savings, partially offset by higher personnel costs.
400 during the second quarter interest expense was $78 million up from $53 million last year. The increase was due to onetime costs associated with the company's refinancing of $1 billion and senior notes that were due to mature in 2022, taking advantage of the historically low interest rate environment.
Excluding these 1 time costs interest expense.
<unk> would have been down $7 million versus last year due to lower debt levels and interest rates.
The tax rate for the quarter was 28, 1% the adjusted tax rate, excluding restructuring charges of special items and amortization was 25, 1% compared to 23, 9% last year.
The higher.
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%.
Net earnings for the quarter were $467 million or $4.76 per diluted share adjusted EPS, which exclude.
Higher amortization restructuring charges and special items were $6.13, and the quarter up from $2.57 last year.
Operating cash flow was $487 million and the quarter compared to $371 million a year ago. The.
The increase in operating cash flow was due to favorable working.
King capital, partially offset by lower cash earnings.
Capital expenditures totaled $97 million or 2.5% of revenue compared to $99 million of 3.6 percentage of revenue last year and.
As a result free cash flow was $390 million and the quarter compared to $272 million last year.
During the quarter, we used $300 million of our cash flow for our share repurchase program.
Now I'll review, our segment performance beginning with diagnostics.
Revenue for the quarter was $2.4 billion and increase of 39, 7% compared to last year due to organic growth of 37.8.
Acquisitions of 1.1% and favorable foreign exchange translation of 90 basis points.
Organic base business growth was 51, 2% compared to our base business last year, while Covid testing revenues were flat versus last year.
Relative to the second quarter of 2009.
8% compound annual growth rate for the base business revenue was 4.5% primarily due to organic growth.
Okay.
Total volume increased 39, 6% over last year, primarily due to organic volume growth of 38, 7%.
The increase and organic volume was.
Due to a 39, 4% increase and the base business, partially offset by a reduction and COVID-19 testing of <unk>, 7%.
As a reminder, we do not include hospital lab management agreements and our volume, which would have added approximately 3.3% to organic base business volume growth.
Price mix increased.
19, 1% over last year due to currency of <unk>, 9%, Covid testing of <unk>, 7% and acquisitions of 2%.
Partially offset by organic base business of -1.7% due to mix associated with the volume recovery.
Of diagnostics organic base business revenue.
Growth of 51, 2% compared to its base business last year.
And 48, 2% was driven by volume, while 3.1% was from price mix, which was due to an increase and test for recession.
Diagnostics adjusted operating income for the quarter was $663 million.
For 28% of revenue compared to $309 million or 18, 2% last year.
The increase and adjusted operating income and margin was primarily due to organic base business demand and launchpad savings, partially offset by higher personnel costs <unk>.
Relative to the second quarter of 2019 based business.
We're down slightly due to the negative impact from panel.
Diagnostics margins were down and the second quarter of this year compared to the first quarter due to lower COVID-19 testing, while base business margins increase.
Diagnostics 3 year Launchpad initiative remains on track to deliver approximately $200 million of net savings.
Marty and of this year.
Now I'll review the performance of drug development.
Revenue for the quarter was $1.5 billion and increase of 36, 7% compared to last year.
Due to organic growth of 31, 8% acquisitions of 1.3% and favorable foreign currency.
Translation of 370 basis points.
Drug development delivered broad based revenue growth across all businesses, including Covid vaccine and therapeutic studies.
Relative to the second quarter of 2019, the compound annual growth rate for the base business revenue.
Was approximately 15%.
Primarily driven by organic growth.
Adjusted operating income for the segment was $221 million of 14, 8% of revenue compared to $113 million of 10, 3% last year.
The increase and adjusted operating income and margins were primarily due to organic base business demand.
And launchpad savings, partially offset by higher personnel costs.
Relative to the second quarter of 2019 base business margins were up approximately 200 basis points.
And while second quarter margins. This year were lower than first quarter, we expect our second half base business margins to be up versus the first half.
We also expect our full year margins this year to be up over 2020.
Which was up over 2019.
For the trailing 12 months net orders and net book to Bill remained strong at $7.9 billion and 1 for 1 respectively.
Backlog at the end of the quarter was $14.3 billion.
We use of approximately $300 million from last quarter.
We expect approximately $4.9 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 June 32021 for the full year.
We are raising our full year guidance to reflect the company's strong second quarter performance and improved outlook for the remainder of the year for both our diagnostics and drug development based businesses.
We expect enterprise level of revenue to grow 6.5% to 9% from prior guidance of 2 to 6.5%.
And this includes the.
A benefit from foreign currency translation of 100 basis points.
This guidance range also includes the expectation that the base business will now grow 17% and 19% while COVID-19 testing is expected to be down 38% to down 33%.
We are raising our expectations for revenue and diagnostics to -1.
It's a plus 2% from prior guidance of -5% of flat.
This guidance range includes the expectation that the base business will now grow 15% to 17% while Covid testing revenue is now expected to be down 38% to down 33 per cent.
We're also raising our growth expectations for revenue.
And 1% drug development to 17% to 19% from prior guidance of 12% to 14%.
Our current guidance includes the benefit from foreign currency translation of 200 basis points.
This guidance range also includes the expectation that the base business will now grow 19% to 21%.
<unk>.
Given the improved top line growth expectations of our base businesses, we are raising our adjusted EPS guidance to 21, 5% of $25 up from prior guidance of 20 to $24.
Free cash flow is now expected to be between 1 and 95 to $2.1 5 billion.
Up from prior guidance of 1.8 to 2 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 half of the year.
We expect our capital expenditures will be approximately 3.5% to 4 percentage of revenue driven by investments to support base business growth and productivity.
For additional comparison purposes. We have also included in the supplemental deck on our Investor Relations website of view of 2021 second quarter results and full year guidance compared to 2019 results.
In summary of the company had another quarter of strong performance, we remain focused on performing of critical role and responses.
Of the global pandemic, while also growing our base business as we progress through 2021, we expect to drive continued profitable growth in our base business, while COVID-19 testing volumes are expected to decline and the second half.
We expect to continue to use our free cash flow generation for acquisitions that supplement our organic growth.
<unk>, while also returning capital to shareholders through our share repurchase program.
Operator, we will now take questions.
Thank you.
As a reminder to ask a question you will need to press Star then 1 of your telephone.
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Please standby, while we compile the Q&A roster.
Our first question comes from the line of Brian <unk>.
And with Jefferies. Your line is now open.
Hey, good morning, guys, congrats on a strong quarter.
Yes. My first my question will be on Covance, obviously, seeing some good strength, there and mark.
And the strong just wanted to hear your thoughts and yes.
How do you think this is how are you thinking about sustainability of margins and the growth outlook and your ability to maintain that.
Net high pace of growth going forward just for the Covance business. Thank you.
Yes, hi, Brian Thanks, very much for the.
Question, So covenants had a very strong quarter again, and if you look at our Labcorp drug development business in total we.
We had progress in all parts of the drug development business. So.
All 3 grew strong and the double digits and as I look at the margins going forward Ive always said be careful to look at any 1 quarter of the margin.
Specially as we're going through Covid, there's certain areas, where we continue to maintain and people.
And we maintain those people we're doing it because we're going through COVID-19.
And we know we're going to need them for after Covid. So some of our margins look a little bit odd from quarter to quarter.
We're also seeing a slight increase and material cost and and labor costs, which people are seeing and almost every industry, but we're going to continue to offset that with things like our launchpad initiatives. So I would look at the margin on.
Basis, and we believe that this year will be better than last year, which was better than the year before and I would expect as we go into next year and of drug development business. The margins will look better than this year. So we're going to continue to find ways to expand our margins moving forward.
Awesome. Thanks.
Thank you our next.
Yearly then comes from the line of Jack Meehan with Nephron. Your line is now open.
Thank you good morning.
<unk> focus on capital allocation was curious if you think is the strategic review, having any influence over the timing of how you redeploy capital of 2 billion of cash on the balance sheet net leverage of a.
Question is below kind of of returns you've been at historically.
And within the second half acceleration just any additional color on kind of the pacing of or magnitude of what you're looking to redeploy.
Yeah, Hi, Jack I'll start and I'll ask Brian to jump in.
So first of all of 2 separate thoughts 1 as we continued to execute on our strategy.
<unk> and we continue to do our capital allocation and we've always said our allocation is focused on strategic acquisitions, you saw 1 of those where we are.
The remaining interest and omni seek this quarter. So oncology is of strategic area, we're looking for ways to enhance our strategic capabilities and.
And we've.
Strategy and look to do more hospital regional and local laboratory acquisitions and you saw 1 of those this quarter with what we announced we were doing with 1 of the hospitals and Minneapolis area.
Minnesota, So so those of the types of acquisitions, we're going to continue to do what I would say is the pipeline.
Seth is as robust as I've ever seen it and frankly I felt we'd have a couple of more close this quarter, but I feel confident we're close more of those as we go through this year.
And and distinct from that we continue to make progress on our strategic review and we're going to do the strategic review once we reach the conclusion, we'll look forward.
Who knows with you and we expect to do that and the fourth quarter of this year.
Yeah, Jack the only thing I'd add is you're right our targeted leverage.
And the 2 and a half to 3 times and.
And a couple of things are going and obviously, we have the benefit of the Covid testing, which is generated and helped our free cash flow this year, which has helped to.
The share of it but.
But also when you look at the improvement and our EBITDA because of Covid testing is higher than normal. So as you do look at our leverage relative to call. It pre pandemic using a pro forma 2019, you'd get that our leverage currently gross debt to EBITDA is towards the upper end of our range, having said that.
Adam commented on we expect to use our free cash flow of this year.
For M&A and share repurchases.
The midpoint of our range of little bit over $2 billion.
We spent around $400 million, so far and the first half of the year. So needless to say it implies that the second half youll see more capital allocation given to.
For both share repurchases and M&A, Adam spoke to the strength of our M&A pipeline, which again gives us a lot of confidence we'll be able to deploy more towards the M&A that we've done and the first half, but we will continue to use our share repurchase program as well.
Great and looking forward to the updates thanks.
Thank you.
Thank.
Our next question comes from the line of Kevin Caliendo with UBS. Your line is now open.
Thanks.
A little bit of about Covance.
Revenues were up sequentially, yet the margins fell by about 150 basis points of credit sequentially is.
Thank you the analogy there.
Is there anything related to COVID-19 potentially that would cause that I guess really ultimately what I'm trying to figure out and what.
Is the right way to think about margins for that business going forward.
Yeah, Hi, Kevin Yes.
Adam actually commented.
There anything of this.
Remarks, URL, so that you know looking quarter to quarter. Obviously, you do have issues on seasonality and just timing related things and that the comparison year over year and gives you a pretty strong.
View of how our margins are doing which again and both businesses from a base business standpoint are.
And were up nicely.
And a little bit look at Covance, though to your point sequentially you move from kind of the first quarter to the second margins were down print.
Principally related to Covid testing was down within that segment the level of Covid vaccine and therapeutic studies was down compared to the first quarter, we had higher pass throughs and the.
Second quarter versus the first and obviously the tight labor market also impacting and so a lot of things that will impact a quarter to quarter kind of change.
What we've commented on is that the second half margins within drug development, we expect to be higher than the first half and net for the full year, we expect it to be up over the over the prior year. So we feel good.
About how the business is.
Is leveraging the top line growth from the base business standpoint.
And just a quick follow up to that how much is it.
And as wage pressure impacting both both segments of the business and do you expect that yeah, Hi, how are you contemplating that within the guidance of how.
<unk> has that been to your guidance.
So far.
Yes. So of course, we look at that closely we've included.
What we think Theres a range of potential things that could occur within the guidance that we provided today I think everybody is facing a tough labor market and.
Most industries as we speak.
And we're just going to have to continue to find ways through launchpad and other ways to reduce cost to cover that and the future. So we will continue to find ways to take out cost and other areas to things like virtual clinical trials and those types of things.
Okay.
Thank you.
Thanks.
Thank you. Our next question comes from the line of Ricky Goldwasser with Morgan Stanley. Your line is now open.
Yes, hi, good morning, So a couple of questions here first of all when you think about the comparison for the base business for core testing verses 2019, and I think you said its up and second.
Second quarter was.
And that sort of half percent.
As to Q19, baseline can you maybe give us a little bit more details and how it progressed on a monthly basis and what are you seeing in that July run rate and and what's embedded into your second half guidance and then secondly.
And you talked about the increasing labor costs and offset with launchpad.
Any updates on what's kind of like launch, but auto I think divulge credit and the 2021 and what are kind of like your plans for the next round of of cost savings.
Yeah. So let me start Ricky with the base business and the diagnostics, we saw the base business rebounded nicely.
And 1 for you to look at revenue, which is what you stated, but the other thing is to look at volume and for the first time since the pandemic. We saw the volume increase in June of this year compared to June of 2019. So that's a good sign and it shows continued recovery as we.
July it's still too early to give any sense of that but our expectation throughout this year is that we will see continued volume and revenue growth versus 2019 and that that will continue throughout this year.
And Ricky just maybe just a couple of.
A follow on.
And comments because as Adam said we.
We crossed over where our revenue and diagnostics space business really of the fourth quarter of last year was favorable to 2019 levels, but that was driven off of the price mix. Yeah. We were seeing more tests per session and that was making up for the volume shortfall. So June was a signal a month for us if you will.
And looking at all have crossed over with volume now comparing favorably as well as price mix continues to be higher than normal, but as we've continued to progress through the rest of this year and obviously going forward I expect those to fall more in line with kind of the historical patterns.
And she will comment on launchpad, and really with the tight labor market particular, but you know both.
We'd now have launchpad initiatives.
Completed the drug development 1 of at least publicly last year and this year will wrap up our diagnostics business, but that's part of and ongoing business process improvement initiative of the company every single year.
We know we have just tie inflationary costs as we go into every year.
And with bits of Launchpad is really set to.
No offset and mitigate those rising costs. So continue to see a lot of opportunities to continue to drive productivity through technology and labor efficiency that will continue to help mitigate those costs going forward.
Thank you.
And thank you. Our next question comes from the line of Ralph Giacobbe with Citi. Your line is now open.
Thanks, Good morning.
Certainly understand the fluidity of the backdrop, but the guidance range of its pretty wide for <unk> seen in the first half of I guess why keep it so why that and maybe help on assumptions, particularly.
And on the lower end and that seems pretty hard to get to and.
And just quickly also wanted to ask about it I think you mentioned the number of average Covid tests per day and the second quarter was 54000 and I was hoping you could give US you know where the midpoint of guidance assumes for the back half around that.
And.
And if any color you can give on what you've seen over the last couple of weeks in terms of average cost per day and called it. Thanks.
I'll start with the tax question and we can give you some context on the ranges.
And as we've said the average number of tests per day and the second quarter was 54000, and if you look at the month of June.
Actually it was lower than the average of the 54000 and if you would've just trend and based upon the June data you would've been in the 35% to 50% reduction that we had been quoting for the.
And beginning of the year in terms of pass, but we saw a slight change with the delta variant and.
We also saw the.
Extension of the <unk>.
The government, saying that we're going to continue to be and an emergency situation and those 2 things gave us confidence that the reduction of Covid cost would be less and what we had originally had and the plan and Thats why we lowered and narrowed the guidance for Covid testing.
With 33 down to 38% down. So you know, we really good narrow that and provide some additional guidance there if.
You look at those numbers I know, it's still a fairly wide range from 33 to 38, but there's a lot of different ways that you can actually get there are 1 of us by number of paths and.
So if you start to think about the variance and what we're seeing will that continue if you start to think about what could happen. If there's a strong flu season or masks or mandated again and certain states maybe the flu season will be very light like it was last year and then the other is obviously price and the question is will there continue to be and emergency declaration of as we go into the fourth.
And if it's here. So we've tried to do is kind of triangulate and all of those different variables and that's why we give you the range of 33% to 38%, which I think is a good reasonable range for us for being with the uncertainties that still exist.
[noise] Raphael and thing I guess I would add to that is that.
CT and ranges or we don't disagree this year of kind of wider than they would be and a normal year.
And it just reflects the lack of visibility and the uncertainty. That's ahead of US having said that with the new guidance that we provided we've not all of you narrow.
And there are the ranges so we shrunk our range given that we have 6 months remaining we give annual guidance.
And more importantly, we've increased the call it the mid points of all of the key financial metrics that we guide to sort of reflecting the company's performance. So when you look at the midpoint of our range and as you would expect that's kind of where we see things. If we were to have to kind of put it a point, but we then give the ranges around it because there was a lot of things of that on the positive or the negative.
And that could occur of overall.
Overall, and and as Adam said with regards specifically to the Covid testing.
And narrowing the range and improving it.
But what we did see which was.
And the first time, which we didnt have when we gave our guidance last quarter was that we've seen a sequential decline and COVID-19 testing of each.
Each month as we've gone through the year as Adam said with June being the <unk>.
Lower than the average for the quarter for July was the first month of frankly that we've seen the level of COVID-19 testing higher than the prior months and.
So obviously with the advent of the Delta virus, the advent of the extension of the public health emergency.
Emergency gives us reason to feel now.
Better about where we are with Covid testing.
For this year than we did just that.
A quarter ago, but still with a lot of uncertainty that's ahead of us.
Okay. That's helpful. Thank you.
Okay.
Thank you our next question.
Comes from the line of Peto Chickering with Deutsche Bank. Your line is now open.
Hey, good morning, everyone. This is Justin Bowers on for Peter.
Just shifting back to the diagnosis of diagnostics business.
How should we think about <unk> versus for.
For Q and the base business.
It sounds like Youre back to half of our bonds.
Pre COVID-19 volumes, but the question really is should we.
Does the guide kind of assume like normal kind of historic seasonality patterns or.
Or or something.
And I'm asking because we're just we're just hearing diversion.
Messaging from.
Hospitals and med Tech companies, so trying to figure out where you guys stand on that.
Yeah, No I think from our standpoint, and why we kind of focus on the 2019 comparison just to kind of get.
The fact of more normalcy, if you will we're still obviously seeing a strong recovery as we compare to 2020, but similarly, when we look at of comp relative to 2020 last year, we saw the trough really being early in the year with the pandemic and then it got better throughout the year, but we continue to expect to see good growth.
And favorable.
Margins year on year compared to 20, so really kind of taking a look back to 19 and to your point diagnostics is definitely has seasonality to the business. So when you look at sequentially you really have to look at holidays, and where the days play. So we do expect normal seasonal patterns to occur within diagnostics again.
And especially when you look at it relative to 19.
For normal times, so from call.
Call it.
Our margin standpoint, while we expect margins to be up year on year, we expect them to be flat to slightly down compared to 2019 and because of the negative impact of panna.
Far as just the revenue.
Revenue growth, we feel good that the volume again revenues have been up even compared to 19, but we're seeing the volumes pick up so volumes will be positive.
Which will be a continued trend pricing mix should start to come down from where it's been again as volumes pick up to get back to that more normal pattern, but again good.
As expectations for the second half of this year from volume and from favorable mix and obviously as we go into 'twenty 2 expect that to continue.
Thank you I'll hop back in queue.
Thank you. Our next question comes from the line of Tycho Peterson with Jpmorgan Your line.
Good growth.
Hey, Thanks, a couple of follow ups on the Covid outlook, specifically are you able to quantify where you ended that July on tests per day, and just curious about that.
It looks like and then does the outlook taken any back to school testing and I'm curious, if you're starting to have discussion drought and bigger programs.
And is not lastly, I'm just curious on serology latest thinking there obviously lots of more discretionary around antibodies potentially laying off and how are you thinking about it and uptick and 2 LNG and the back half of the year.
Yeah. Thank.
Thank you for the question Tycho I think they are all important questions as we.
And go through the rest of this year and for next year I'll start with the serology first so at the moment.
We have the ability to do as many serology tests as we would need to do.
And the CDC.
Does not come out to recommend and utilization of serology to try to understand titers. So therefore.
Not many people are going for serology tests, so that we can do to do several thousands of.
Every day, but we're.
And then do as many as we may need, but we're also developing and have the ability to do T cell memory testing as well as semi quantitative testing, which ultimately might be helpful. If you start to think about.
A tighter that you might need to understand the waning of effectiveness of vaccines over time, So what I would say is we are.
Our prepared for whatever might be necessary and we are building capacity to be ready for whatever that could be my personal point of view is that I believe that serology testing over time will be more important, particularly if vaccination is not going to be every single year, if it could be less or more of than a year and.
Could it be different by individuals and then I think youre going to need significant serology testing and that's why we continue to develop it with regard to back to school and we're having a lot of discussions about back to school, we're prepared to do as many PCR testing as we may need for back to school, whether it be through individual tests with true fully.
Pooling, but to be honest and they've really been discussions we haven't seen a lot of schools willing to pull the trigger and say we're going to put in a significant back to school testing program. So we're going to have to wait and see and even though we're having a lot of discussions within the range that we provided of the down 33 of the down 38%, there's multiple different ways.
As you can get there 1 would be a lot of back to school of best thing, but a lower price otherwise we'd be not much Baptist school testing, but you could continue to have growth and other areas and then the last thing I would say is it's truly to get to the end of July but as we look at the first couple of weeks of July were certainly starting to see numbers that are.
Yet there, but closer to the average that we had for last quarter versus where we ended for the month of June.
Okay.
That's helpful. And then maybe 1 follow up just on the broader kind of decentralization theme. Obviously just spent a lot of capital place you know over the past year, and and hospitals and smaller labs and physician offices.
Maybe just talk on the competitive dynamics, you know when he see that as a potential longer term risk as they have to fall back on that COVID-19 testing and and think about broader menu.
Yeah, you know again, if you look at.
Covid testing and molecular tests and if you look at the number of molecular tests that we do as.
As a percent of the total of $530 million or so tests that we perform every year, it's still a very very small amount. So even though there might be additional capacity and hospitals for laboratories for molecular types of tests. It wouldn't have a significant impact on our overall business frankly.
Okay. Thank you.
Sure.
And can you make you. Our next question comes from the line of Derik de Bruin with Bank of America. Your line is now open.
Hi, good morning.
Hey, good morning, good morning so.
No.
And I know, it's tough enough to predict the second half of <unk>.
20th let alone I'm, sorry of 21, let alone.
Looking at 'twenty, 2 but I just was wondering if.
Sort of your initial thoughts on sort of where the consensus estimates are I mean, if I look at earnings estimates and any.
Just words, who have grown EPS by 10% off of your.
Of your 2019 base that gives you something around a 15 dollar number for 'twenty, 2 and earnings the streets around $16, assuming some COVID-19 and some items like that 1 is I mean is that is that are you comfortable with sort of like where the consensus estimates are right now.
And just from any sort of initial color on what you sort of think about the.
At this point.
Yeah. So the first thing I'd say.
It's Eric is that we're still working through 2020, 1 and we're obviously and up yet.
For 2022, but the reason we're trying to break out our base business versus our Covid testing is to really give you a better sense of how to start to think about.
2021, and if you think of our base business, we expect to get back to normal growth rates that you would have seen prior to the pandemic.
Part of that we're still trying to figure out is what could COVID-19 testing look like as we go through 2020, 1 and that's the entire reason that we're giving you the different pieces to try.
<unk> 22.
And as we get there next year.
Great.
And if I could ask 1 follow up.
Can you talk a little bit more about your oncology testing and going on with that is that back as well and then you talked about routine testing me back of oncology back.
And so obviously, we're hearing some mixed things and the market about demand and somebody's wallet.
And some of the some of the other companies. Yeah. You know what I would say is if you look at esoteric testing which includes oncology.
That actually went down less than the.
Other testing that we did were routine testing at the beginning of the pandemic, but as we stand here today, they've both come back and.
And it looks about what you would expect it's about a 60 to 40 breakout of our business, 60% on a more standard testing and revenue and about 40% from the esoteric including oncology, So we've seen and both coming back.
Thank you Sir.
Sure.
Thank you our next question comes.
From the line of Matt and <unk> with William Blair. Your line is now open.
Hi, Good morning, you mentioned of test per session and again were a driver, but just curious how that trended sequentially, because you mentioned and as a driver and <unk>.
And as well I guess I'm, just trying to get a sense for whether.
Things are normalizing or whether.
There's still some catch up going on.
Patients visit conditions touch it for the first time and quite a while.
Yeah, I'll, let me give some specific but in general we expect the test per accession to come back to pre COVID-19 levels over time, and we're already starting to see that a bit.
But Glenn maybe you can.
And give some additional kind of no.
For the right sequentially the tests per session impact was less than it was and the first quarter, but obviously the volume levels were much higher.
And the second quarter than the first quarter as well. So you will ultimately get back to that more sense of normalcy and overtime.
Okay and then just.
Just on <unk>, you've given some good data points here over the last couple of quarters on access.
And how that's improved.
And I can you share any data around what patient uptake either volume or revenue contribution has looked like.
And then maybe what the margin profile of pixel wouldn't look like relative to.
Yeah. So if you look of pixel it ranges anywhere from 4 per cent to maybe 8% at the peak of the percent of total of PCR tests that we do so it's a part of the armor and retire and really have a people that use of really appreciate it.
It is now available.
<unk> and 6000, Walgreens stores and things like door dash and interest of card, but it's been relatively consistent at about 4% or so of the total tests that we do.
And and the margin isn't that different than other margins.
Okay. Okay.
Sure.
Thank you. Our next question comes from the line of Erin Wright with Credit Suisse. Your line is now open.
Great. Thanks, and what are you seeing in terms of and industry fundamentals across the Covance clinical and managed in terms of site accessibility RFP flow and and the nature of new business wins and the quarter what was still.
Covid related work and and and you did mentioned of labor costs at Covance, but I'm curious if you anticipate.
Seen.
Any partial offset from some of the disruption associated with with some of the consolidation of across your peers and in the space and and curious if that's something that's coming up with with customers as well.
Sure I'll give you some additional context.
The business. The first thing I would say about 80% of sites are currently opened and so we still have sites around the world that have not yet fully.
Fully open to allow us to go into help them enroll patients, but yeah. We would expect continued improvement there as we go through the year.
I would've thought it would be a little bit further than where it is at the 80 per cent right now, but the good news is the RFP flow is very strong and we continue to see a significant number of Rfps I think we have a good chance to win a many of those and it's a very healthy flow of the rfps that we're getting.
And just to give you a sense I mean, we were really pleased with our $1 for 1 <unk> trailing 12 month book to Bill and if you look at that I mean, you kind of branch of our backlog of backlog was $14.3 billion and that was an increase of $300 million from the first quarter. It was also of 21% increase year over year.
If you looked at our trailing 12 months of net orders they were almost $8 billion and they were up almost 30% year over year. So you know with that performance and the continued rfps that we're seeing.
We believe that there is continued significant growth opportunities before us.
And then go I don't know if you want to talk.
Any more about the <unk>.
Labor costs that were saying, but where we're seeing that and we're hearing that and not just in drug development, but across different industries diagnostics and drug development and it's something that we're dealing with I think we're doing a good job with it but we're gonna have to continue to find ways to reduce costs and other areas of <expletive>.
As we go.
Go through and then the last thing I would say is if you are you asked about COVID-19 and the percent of our net orders.
It's you know, it's still relatively small it's less than 3 per cent of our backlog and its about 7.5 per cent of our net orders over the past 4 quarters. So overall, it's small.
Okay, Great and just 1 quick follow up and on the P. L and and preferred lab networks can you give us an update on that front and how that is helping to potentially kind of scared of lab volume. Thanks.
Yeah. So we were added to the steel and for the third year in a row. Unfortunately with Covid I don't think there's been a ton of progress made and appeal and it makes a lot of.
And I believe over time.
It'll be the right thing to do and our customers moving out of direction, but you know I've been saying for a couple of years now of that I believe will have a better answer at the end of the year and then with Covid and everything else, it's been very difficult to measure or to actually execute on so we'll continue to provide updates when it becomes meaningful.
Point, we're glad that we're on there we have a great relationship with our colleagues.
And United and will continue to work with them and we can to help reduce cost and give high quality diagnostic testing.
Okay, great. Thank you.
Yeah.
Thank you.
And last question comes from the low.
That's it and Heinz with Mizuho. Your line is now open.
Great. Thank you I just wanted to know if you can give any detail on revenue per test for PCR testing and all for serology and also there was increased speculation that the public health emergency and might be extended into 2020.
And I know bill and if so do you think labs can maintain elevated COVID-19 of pricing in that scenario. Thanks, Jeff.
Yes, hi, and thanks for the question.
If you look at our domestic testing that we do the price is still you know and the high Eighty's just just below 90, frankly, and so we continue to maintain a very good price and.
<unk>.
Trade and other states.
And if the emergency does move into next year I think it will help us of price price is going to continue to be under pressure. It's under pressure now and we continue to have a lot of discussions with our colleagues.
And Payors.
But having emergency declared.
There is certainly a help and enables us to continue to provide the testing that we need you know the 1 thing that's interesting I've mentioned before that we continue to keep the capacity that we have despite the fact that it impacts our margins to some degree and part of the way we're able to do that is because of the emergency and the.
And then we're able to get for this past if we were in a normal time period, we might have reduced certain things as we saw the total number of pass through the second quarter declined every month I'm. So glad we didn't do that because of all of a study and there was a significant increase because of the delta variant, we were able to ramp on the leap.
We kept our 1 day on average turnaround time, and we're going to continue to do that for the emergency declaration and the price certainly is helpful for us to be able to do that.
And then and just 1 follow up I know that the school opportunity is still and then now and but if it comes to fruition.
I'm assuming that that.
Revenue per test for I would be a little lower and you have a range of what that would be just for modeling purposes. If we wanted to put anything in my models. Yeah. I would say you know it depends if it's a pool paths you could put 10 people and 1 test that would be different than if it's an individual test so it really and it depends on the type of testing and they would want to do but.
But I would agree with you that if you're doing surveil and it's been it's harder to have the same pricing and when you're actually testing people that are exposed to or that have symptoms.
Yes.
Alright. Thanks.
Sure.
Okay. So I want to thank everybody for joining us this morning, and spending time with us.
And it's clear that the second quarter was a very strong and across the enterprise and that enabled us to increase our full year guidance I want to thank all of our dedicated employees around the world I mean, their tireless efforts and their pursuit of answers really have demonstrated our mission to improve health and improve lives around the world and I'm very great.
And for the colleagues that we have that are doing that as its also very continues to progress and other variants emerge I encourage everybody to get vaccinated I really encourage people to get vaccinated as quickly as possible. If you are eligible and to stay diligent and vigilant about the disease and the pandemic, where all of this together so.
Grateful I look forward to talking to you soon and everybody have a great day. Thank you.
Yeah.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
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