Q3 2021 Laboratory Corporation of America Holdings Earnings Call
Good day and welcome to Labcorp Q3, 2021 earnings Conference call. At this time, all participants are in a listen only mode.
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I'd now like to turn the call over to Chad Cook VP Investor Relations. Please begin.
Thank you operator, good morning, and welcome to Labcorp third 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 in the Investor.
<unk> section of our website at Www Dot Labcorp Dot com, we posted both our press release and an 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 are making forward looking statements. These forward looking statements include.
But are not limited to statements with respect to the estimated 2021 guidance and the related assumptions the projected impact of various factors on the Companys businesses operating and financial results cash flows and our financial condition, including the COVID-19, pandemic and general economic and market conditions are responsive to the COVID-19 pandemic future business.
<unk> expected savings and synergies and opportunities for future growth 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 in our most recent annual report on Form 10-K, and subsequent quarterly reports on form.
<unk> 10-Q, and in 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.
Thank you Chad good morning, everyone. Thanks for joining us today.
And that's what we continue to leverage innovation science and technology to accelerate our strategy as we work to improve health and improve lives around the world.
We serve as a trusted source of health information that helps customers advanced health care, a guide medical decisions.
At the same time, we remain focused on helping the world through the pandemic.
In the third quarter, we delivered strong results.
<unk> totaled $4 $1 billion adjusted EPS reached $6 82.
And free cash flow was $650 million.
As a result of our strong performance and our improved outlook, we're raising full year guidance for revenue adjusted EPS and free cash flow Glen will cover those in more detail in a few minutes.
The base business for both diagnostics and drug development performed well with 10 and 22% growth respectively.
We saw consistent recovery across both businesses.
In diagnostics, we experienced broad geographic recovery in our base business.
Cros are testing portfolio.
So tariffs and routine testing demonstrated solid year over year growth for the quarter.
The trailing 12 month net book to Bill for drug development remains strong at 134.
Drug development continues to recover with nearly 85% of sites now open.
The business also saw decentralized trials, increasing by more than 50% versus prior year.
Now I'd like to turn the ongoing role independent Emmick response.
Labcorp continues to support the fight against the pandemic in every way possible through both our diagnostics and our drug development capabilities.
We experienced greater than anticipated COVID-19 testing volumes in the quarter, although levels were below the same period last year.
Turning to the results for Covid test remains an average of one to two days.
With results typically available within one day.
PCR testing volume averaged 85000 per day in the quarter up from 54000 per day in the second quarter.
We averaged 114000 tests per day in September with volumes declining week over week since that time.
We will continue to break out COVID-19 testing from base business revenue and volume as it remains difficult to forecast.
We will also continue to maintain high capacity levels to be prepared for potential future scenarios.
We also had another successful quarter of bringing new innovations to market.
Notably, we recently received emergency use authorization for our combined Covid and fluid home collection kit.
With flu season upon us the Kid offers a convenient way to test for both viruses.
This new offering will be available for adults and children ages, two and over and no upfront cost for those who meet clinical guidelines.
In addition, we collaborated with Astrazeneca on both the Covid prevention in treatment trial of its new long acting antibody combination in.
And the trials the investigational antibody combination demonstrated a statistically significant benefit.
It is symptomatic COVID-19 and in reducing severe COVID-19 or death and out patients with mild to moderate COVID-19.
Promising milestones in the development of new treatments.
Also earlier this month Merck filed for FDA emergency use authorization for its investigational oral anti viral medicine for the treatment of mild to moderate COVID-19 and at risk adults.
Treatment that we supported through phase one phase two in phase III clinical trials.
I'll now discuss progress on our strategy and I'll start with oncology.
Let me see integration is going as planned and they're really pan cancer diagnostic capabilities extend our portfolio of solutions in this area.
Additionally, we launched the first and only FDA cleared test for monitoring residual blood cancer.
As part of our efforts to address healthy equity health equity issues. We recently partnered with the community clinic oncology research network to assess social and economic impacts of cancer care disparities.
And we also recently began work with pillar biosciences to enhance our next generation sequencing and plan to offer a specialty oncology assay.
During the quarter, we advanced our commitment to intensifying, our customer focus and embedding technology and data throughout our business.
We acquired Obeah health, a leading digital platform trusted by millions of women for family planning pregnancy and parenting support.
We have health extends our position as a go to source for women's health insights through our deep expertise in diagnostics genetics and specialty testing.
Additionally, we are working with several organizations to begin deploying labcorp diagnostic assistant which delivers comprehensive lab results eight clinical insights directly to the point of care.
We're also using technology to improve health for low income individuals and families.
We partnered with medical home network to incorporate lab testing results into the records of Medicaid safety net patients.
And lastly through a collaboration with many data, we're utilizing digital biomarkers with drugs vaccines and device trials too.
To enhance our decentralized clinical trialing offers.
Pursuing opportunities with long term high growth potential remains a focus.
Recent acquisitions, and putting omni see myriad vectra test of rheumatoid arthritis, and Ob It helps advance our position in key growth markets.
We're making progress on our integration and we welcome new team members, who joined Labcorp.
Our M&A pipeline remains robust we expect continued activity on this front for the bandwidth of the fourth quarter and into the first quarter of 2022.
Importantly, labcorp continues to be recognized for the significant work we do.
Just this month, we were named by Forbes as one of the world's best employers in 2021.
In addition, inform a former intelligence selected Labcorp as a finalist for best contract research organization of the year.
These recognitions are only possible thanks to our diverse and talented workforce, which is at the core of our ability to innovate.
Lastly, I'd like to provide a brief update on the board and management teams ongoing assessment of the company's structure and capital allocation strategy.
We remain committed to ensuring labcorp is best positioned to unlock shareholder value, while offering patients and customers with support that they've come to expect.
Working closely with our advisors, we have made significant progress on assessing both our capital allocation and our structure.
And as previously shared we expect to update you on our conclusions in this quarter.
To summarize our base business and both diagnostic and drug development had a strong third quarter and is well positioned for continued success.
We remain dedicated to the fight against Covid.
All while delivering on our strategy and carrying out our mission.
I'm excited by the progress we've made and for what lies ahead.
With that let it will take you through the details of our third quarter results.
Thank you Adam I'm going to start my comments with a review of our third 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 $4 $1 billion, an increase of four 3% over last year due to organic growth of three 4% acquisitions of <unk>, 4%.
And favorable foreign currency translation of 50 basis points.
The three 4% increase in organic revenue is driven by a 10, 2% increase in the Companys organic base business, partially offset by a six 8% decrease in Covid testing.
Operating income for the quarter was $767 million or 18, 9% of revenue.
During the quarter, we had $92 million of amortization and $48 million of restructuring charges and special items.
Excluding these items adjusted operating income in the quarter was $907 million or 22, 3% of revenue.
<unk> to $1 $2 billion or 29, 7% last year.
The decrease in adjusted operating income and margin was due to reduction in COVID-19 testing as well as higher personnel costs, resulting from increased base business demand in a tight labor market as the company continues to invest in its workforce.
Partially offsetting these headwinds were the benefit from organic base business growth and Launchpad savings.
The tax rate for the quarter was 23, 5% the.
The adjusted tax rate, excluding restructuring charges and special items and amortization was 24, 4% compared to 25, 7% last year.
The lower adjusted 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 $587 million or $6.05 per diluted share adjusted EPS, which exclude amortization restructuring charges and special items were $6.82 in the quarter down from $8 41 since last year.
Operating cash flow was $767 million in the quarter compared to $786 million a year ago.
The decrease in operating cash flow was due to lower cash earnings partially offset by favorable working capital.
Capital expenditures totaled $118 million or two 9% of revenue compared to $77 million or 2% of revenue last year.
As a result free cash flow was $650 million in the quarter compared to $709 million last year.
During the quarter, we used $300 million of our cash flow for our share repurchase program and invested $292 million on acquisitions.
Now I'll review, our segment performance beginning with diagnostics.
Revenue for the quarter was $2 6 billion, a decrease of three 2% compared to last year due to organic revenue being down three 9%, partially offset by acquisitions of <unk>, 4% and favorable foreign currency translation of 30 basis points.
The decrease in organic revenue was due to a nine 7% reduction from Covid testing, partially offset by a five 8% increase in the base business.
Relative to the third quarter of 2019, the compound annual growth rate for base business revenue was four 7% primarily due to organic growth.
Total volume increased 2% over last year as acquisition volume contributed 2% and organic volume decreased by 1%.
The decrease in organic volume was due to a five 9% decrease in COVID-19 testing, partially offset by a five 9% increase in the base business is.
As a reminder, we do not include hospital lab management agreements in our volume, which would have added approximately one 1% to organic base business volume growth.
Price mix decreased three 4% versus last year due to lower COVID-19 testing of three 8%, partially offset by currency of four 3% and acquisitions of 2%.
Diagnostics organic base business revenue growth was 9% compared to its base business last year was seven 7% coming from volume and one 3% coming from price mix, which was primarily due to an increase in tests per session.
Diagnostics adjusted operating income for the quarter was $775 million or 29, 6% of revenue compared to 1 billion or 37, 1% last year.
The decrease in adjusted operating income and margin was primarily due to a reduction of COVID-19 testing and higher personnel costs, partially offset by organic base business growth and launchpad savings.
Relative to the third quarter of 2019 base business margins were down slightly due to the negative impact from Panama.
Diagnostics three year Launchpad initiative remains on track to deliver approximately $200 million of net savings by the end of this year.
Now I'll review the performance of drug development.
Revenue for the quarter was $1 5 billion, an increase of 17, 5% compared to last year due to organic base business growth of 19, 9% acquisitions of <unk>, 4% and favorable foreign currency translation of 100 basis points. This was partially offset by lower COVID-19 testing performed through a central lab.
<unk>, a three 5% and divestitures of 3%.
Drug development space business benefited from broad based growth across all businesses included COVID-19 in vaccine and therapeutic work.
Relative to the third quarter of 2019, the compound annual growth rate for base business revenue was 11, 4% primarily driven by organic growth.
Adjusted operating income for the segment was $226 million or 15, 5% of revenue compared to $210 million or 16, 9% last year.
The increase in adjusted operating income was primarily due to organic base business growth and launchpad savings, partially offset by lower COVID-19 testing and higher personnel costs.
The decline in adjusted operating margin was due to lower Covid testing.
Excluding the impact from Covid testing operating margins would have been up compared to last year.
For comparability to peers drug development earnings exclude $36 million of expense related to the enterprise component of its bonus which was included in unallocated corporate expense.
We expect full year margins to be up over 2020, which were up over 2019.
For the trailing 12 months net orders and net book to Bill remained strong at $7 8 billion and 134, respectively.
During the quarter orders were negatively impacted by approximately $150 million due to a significant scope change which decreased the book to bill.
Backlog at the end of the quarter was $14 4 billion, an increase of 15, 4% compared to last year.
We expect approximately $4 9 billion of this backlog to convert into revenue over the next 12 months.
Now I will discuss our 2021 full year guidance, which assumes foreign exchange rates effective as of September 32021 for the remainder of the year.
We are raising our full year guidance to reflect the companys strong third quarter performance and improved outlook for the remainder of the year.
We expect enterprise revenue to grow 13% to 14% from prior guidance of six 5% to 9%.
This includes the benefit from foreign currency translation of 90 basis points.
This guidance range also includes the expectation that the base business will grow 18, five to 19, 5%.
While COVID-19 testing is expected to be down 11% to down 6%.
We are raising our expectations for revenue to grow in diagnostics by 8% to 10% from prior guidance of minus one to plus 2%.
This guidance range includes the expectation that the base business will grow 16% to 17%.
While COVID-19 testing revenue was expected to be down 11% to down 6%.
We're also raising our growth expectations for revenue in drug development to 19, 5% to 25% from prior guidance of 17% to 19%.
Our current guidance includes the benefit from foreign currency translation of 170 basis points.
This guidance range also includes the expectation that the base business will grow 21, 5% to 22, 5%.
Given the improved top line growth expectations, we are raising our adjusted EPS guidance to 26% to $28 up from prior guidance of 21, 5% to $25.
Free cash flow is now expected to be between $2 45 to $2 6 billion.
Up from prior guidance of $1 95 to $2 $1 5 billion.
For additional comparison purposes. We have also included in the supplemental deck on our Investor Relations website.
View of 2021 third quarter results and full year guidance compared to 2019 results.
In summary, the company had another quarter of strong performance, we remain focused on performing a critical role in response to the global pandemic. While also growing our base business. We expect to drive continued profitable growth in our base business, while COVID-19 testing volumes are expected to decline through the remainder of the year, we expect to continue.
To use our free cash flow generation for acquisitions that supplement our organic growth, while also returning capital to shareholders through our share repurchase programs.
Operator, we'll now take questions.
As a reminder to ask a question. Please press Star then one.
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Please limit yourself to one question.
Our first question comes from Ann Hynes with Mizuho. Your line is open.
Hi, good morning.
Good morning, and so I know, you're not providing 2022 guidance, but could you maybe provide some high level thoughts on headwinds and tailwind for each business going into next year and in that context, maybe address any labor inflation pressures that we should consider what we're modeling. Thanks.
Sure Good morning, and again as you said providing guidance for 2022, but as I look at 2022, I think there are things that you see in this quarter that you can kind of start to think about 2022 first of all the base business for both drug development and diagnostics is rebounding well.
And if you.
Look even for the first couple of weeks of October it rebounded from where we were.
Even in September so we would expect the base business to continue to improve.
At the same time, we've said before we're actually.
Have several things that we're looking at when it comes to cost. One is we kept our head count at a level that is higher than we typically would to ensure that we're prepared for whatever scenario could occur.
With Covid and by the way I'm glad we did that if you would have gone back to the second quarter. We averaged 55000 PCR test. There was good reason to say, we should reduce head count because we saw test coming down we didn't do that and then when the tests came to 110000 or so per day in the month of September.
We still had a one day turnaround time for the majority of tests. So we're going to continue to keep our labor costs are bit higher based upon the number of people to ensure that we're prepared for any scenario and thats for both diagnostics and drug development I said drug development continues to rebound 85% of sites are now open but that still means 15% ish.
Sites are not open and we're continuing to keep that head count because if people are hard to retain their hard to train and we believe the business will come back.
Separate and distinct from that we are seeing impacts in certain materials and people related costs and we're seeing that due to supply chain constraints, but also a very tight labor market I don't think its any different than what our peers are saying everybody is seeing the same thing. So we're focused on maintaining our operational continuity.
And we're going to continue to look for ways to reduce expenses now the increased material costs and increased labor cost hit you very quickly. It takes us time to take out the expenses, where we're going to continue to find ways to find efficiencies and reduce costs wherever we can to offset those things I think the biggest factor again going into 2022 as well.
What happens with Covid and Covid testing and when we provide guidance, we're going to break out the guidance for Covid testing like we did this year. So that we can give you a range of possibilities and then we'll also give you what we believe the.
The range of opportunities would be for the base business and then the last thing I would say is we also are working on our capital allocation and that we are doing continuing to do M&A and we have a significant pipeline as we go into next year I am very excited about the pipeline of M&A that we have and will continue.
To do share repos, where appropriate so hope it gives you some kind of context of how we're thinking about next year I think that we have good momentum as we go into the year.
Okay, great. Thanks.
Sure.
Our next question comes from Jack Meehan with Nephron Research Your line is open.
Thank you good morning, guys.
Good morning, John.
On the strategic review, if you'll humor me, you're now I think around nine months into the review and expect to conclude this quarter.
Are there still significant items at this point related to the business structure, which are being evaluated and what's your level of confidence that one way or another you're going to be able to find a way to get better credit for the value of the businesses versus where your peers trade and then just one procedural point any comment on what type of form youre going to choose for disclosed.
The results.
Yes, So let me give you some additional context.
I appreciate the question Jack So first of all I want to start off by saying that we believe that theres intrinsic value labcorp, that's yet to be realized we believe that.
And we're working closely with our outside advisers and we have several of them and we're also working with our board of directors to evaluate our structure and capital allocation as you know.
We are making significant progress to ensure that we find a way to best position lab booked on lap the shareholder value.
I can tell you exactly we are performing a very thorough and very thoughtful analysis and it just takes time to fully assess all of the alternatives and we continue to assess all of the alternatives.
Though we're not giving any additional updates today, we are looking forward to share. The conclusion. Once the review is complete and we still expect that to happen in this quarter.
We haven't.
Reached the conclusions and then we'll figure out exactly how we communicated on a very broad direct basis. So.
We reached the conclusions and then we'll think about how to best broadly communicate our decisions.
Great.
And then one on the business in the quarter just wanted to talk about bookings in drug development.
The trailing 12 month metrics look good but my back of the envelope math.
Suggest the quarterly awards were down year over year. So just curious how you're feeling about RFP flow in the quarter.
When rates anything you would call out which would make year over year comparison looks negative yeah, I'll give you some context and I'll ask Glenn to try to just provide additional context. So you know we still had a strong book to Bill was 134, and we've always said that a one two or above gets you high single mid to high single.
Digit growth so anything above a 1.2, we think is a very strong book to Bill and I've said time and time again I wouldn't read too much into one quarter I look at the trailing 12 months because it gives you a better understanding over time and with book to Bill could be lumpy a study could fall in one quarter this year and fall out into a different quarter versus next year. So.
Quarterly.
We try to watch carefully obviously, but I wouldn't draw too many conclusions from one quarter versus another.
Look at is the Rfps, which continue to be very strong and we continue to do very well as we go through the Rfps. So if you look at the trailing 12 months net orders there were $7 8 billion. They were up 27% year over year and if you look at the backlog. It was $14 4 billion that increased by over $100 million.
In the second quarter and that was up 15% year over year. So I think there is still strength. There that you can see but again I focus on the trailing 12 months and I think above one two is where you want to be I don't know exactly when.
To talk about some of the quarter fluctuation.
And Jack in her remarks, we talked about this change in scope that we had that was $150 million that obviously negatively impacted.
The quarter, so as Adam said when you put it in the perspective of the trailing 12 months you know it gets kind of round. It out if you will we still have strong levels of backlog strong levels of quarters to your point, while our orders on a trailing 12 would've been up around 27% year on year.
<unk> the the scope change for the quarter, we would've been down slightly down around 4%. However, what's interesting is that we actually received the order in the third quarter of a year ago. So it really has kind of a double effect. If you back it out of the year that we received at the third quarter and you take it out of now.
The change from the third quarter of this we'd actually would have been up around 13% and orders excluding it for the quarter. So it still reinforces frankly from our perspective, why we really focus on their trailing 12, because even with the volatility you really get a sense of the true growth in the future potential of the business.
That'll make sense. Thank you.
Okay.
Our next question comes from Kevin Kelly Endo with UBS. Your line is open.
Thanks, and thanks for taking my call.
Talk a little bit about the M&A pipeline.
You obviously are excited about it are we talking about.
A more focused and diagnostics are we more focus in clinical.
Take me through sort of where the opportunities lie and are we talking about technologies on the diagnostic side or market share any more color on on what the pipeline looks like now and how it might be different than what it was a year ago or two years ago.
Yes, sure Kevin Good morning.
First of all we remain excited as you said about the pipeline that we have and we continue to see.
The ability to acquire hospital local regional laboratories, and that kind of makes it a lot of sense are accretive in the first year typically they return their cost of capital very quickly and we know how to integrate those and we see significant.
Potential for that as we go through this year into next year I've said before those sometimes take longer than I would expect but the good news is that we continue to have a very strong pipeline and I'm confident that we're going to have some really interesting things that we can do with regards to those types of acquisitions that we look for.
Strategic acquisitions, and those can be something like <unk>, where it's a digital platform that enhances our capabilities technology and digitalization, but it's also been a very important high growth market, where we have a very strong share in women's health and then you look at things that we've done before like snap Iot our global care.
It gives us strategic capabilities in drug development I mentioned that.
The decentralized clinical trials that were doing were 50% higher year over year, and we're going to need more capabilities and more technology in areas like that so I kind of separate it into three buckets the diagnostic.
Laboratory acquisition opportunities then the strategic opportunities for both diagnostics and for drug development and we've got multiple different things that we're looking at in each of those areas.
Has anything changed.
From the seller's perspective in your opinion around the diagnostics the hospital acquisitions and the like is their environment tougher or are they.
Are you being more aggressive has anything has anything.
You know materially changed in terms of the buy sell algorithm.
Yeah, I think their environments are tough.
I also think that with Covid. They realized they had to update a lot of that machinery in order to view the COVID-19 testing if they wanted to do it in a hospital and they had to take a look at how they were using their capital.
And they realize that running their laboratory might not be core to what they do every day and they probably would do better if they had another surgical operating suite or put their money towards something like that versus updating laboratory equipment. So you know as we have more and more discussions with the hospitals and hospital systems in local laboratories.
Thank the realization that diagnostics does take capital in order to have the right machinery, you'll have to run that machinery, often to get the best output and margins through running that type of equipment and that we can do it extraordinarily well for them. So I think all three of those things have led to us having a more robust robust pipeline now.
But what I've seen in the past.
Is there is there any.
Just one quick last follow up to that is there any impact at your M&A pipeline has on the strategic review or vice versa.
Meaning can you run both of them separately or are they any way intertwined.
Yes, so we're continuing to execute on our strategy today, and we're doing a very thorough and thoughtful strategic review.
We're making sure that of course, we consider both as we move forward, but it's not getting in the way of us doing what we need to do to run our business and be successful execute in the marketplace today and hopefully what you see when you look at our numbers is that we are executing extraordinarily well in both diagnostics and drug development.
And we're continuing to do M&A as we showed with what we bought for myriad for the rheumatoid arthritis drug obeah omni seek but at the same time, we're making progress on the strategic review.
Okay. Thanks, so much.
Our next question comes from Ricky Goldwasser with Morgan Stanley. Your line is open.
Yeah, Hi, good morning.
So.
Clearly there Toby is going to be.
The swing factor Adam to your point next year.
But how should we think about what's the right earnings base to think about for.
For next year, I think maybe for us can be evs, if you can exclude.
The impact of closing this year and hopefully start what's the right baseline for next year.
And also I know you haven't provided to us.
Long term.
Earnings targets.
For some time now is this going to be also part of the strategic.
Unveiling to sustain or do you will you gave us.
Long term growth goals.
Yeah. Thank you Ricky good morning.
So so first of all you know as baseline I tend to look at 2019 and go pre pandemic and then I looked at what the growth would have been if everything was normalized and that kind of is how I think about how to grow the base business as we move into the future I would be very careful comparing versus 2020.
<unk> or 2021, because the base business was recovering the Covid testing was different for example, as we saw Covid testing grows significantly in September we saw an impact on the base business in September it was slightly less in August now, we'd see COVID-19 tested less for the first couple of weeks of October we've seen the base business now nearly.
Flat to where it was in 2019, so using 'twenty 'twenty 'twenty to 'twenty. One I'd say you have to be really thoughtful and careful about I use 2019, as the baseline to figure out where we should kind of get from a normalized perspective.
As we look at next year, and then with regard to long term guidance you know we're looking at everything as we go through the strategic review and we are discussing all options for structure as well as capital allocation and how we communicate those things. So we haven't reached a conclusion on that risky, but I can tell you we are considering all of it.
Okay, and then just one follow up I think you mentioned that the base business is almost flat versus 2019, what are the 17th.
The ability between the different geographic regions and why do we think about 2019 is that sort of a 2019 exit run rate or I guess my full year basis.
Yeah, Hi, Brian it's Glenn so as we've seen.
<unk> been currently so you can use it as a run rate or you can look at it for the full year both businesses. Our topline revenues are kind of at the high end of historical levels compared to 19. So we really feel good about the current levels of performance, what's interesting and unique and I think a little bit to your question within the diagnostics business is that we're keeping our revenues at the <unk>.
The level of growth compared to 19, but we're doing it through price mix because effectively our volume levels have been plus or minus relatively flat to 19. So as we go forward. Obviously, we would expect volume to continue to tick up and go above 19 levels, but obviously, we'll see a corresponding decline if you will in tests.
Or price mix, which has been driven by test per recession that had been higher than normal given people who've had fewer fewer visits but overall to Adam's comment as we look to pre pandemic levels. Both businesses are kind of tracking well too it, albeit you could argue the mix of how we're getting there is a little bit different.
Okay.
Thank you.
Our next question comes from Justin Bowers with Deutsche Bank. Your line is open.
Hi, good morning, everyone can.
Can you just give us an update on.
Kind of the mix of Covid or vaccine related.
Orders or backlog for drug development.
Sure. Good morning, Justin first thing I'd say is that's important because as you think about last year, we had a significant amount between 10% to 15% that we discussed of the book to Bill on Covid and a lot of those studies were in third and fourth quarter of last year and it happened very quickly because every.
He was working as fast as they could to enroll those trials to get the results of the trial. So we can get the vaccines and therapeutics to market as fast so you're burning through those studies faster than you typically would if you look at where we currently are the mix is much less COVID-19 right now it's less than 5% frankly.
Of the total.
You know that we have for the backlog so it's significantly less than it was before we are still doing some work, but again as we start to think about future comparison, you just have to remember third and fourth quarter of last year had significant cohort studies in them.
Got it and then.
Just in terms of D. C. Ts any way you can help US you can kind of frame the order of magnitude for that maybe just.
What.
What percentage of subjects or trials or or.
New bookings have some kind of D C T component yes.
Yes sure.
That was greater than 50% increase that we've seen.
I'd say, it's about a third of the New awards have some type of DCT component. If you look at the current quarter and that's significantly more than it would have been a year ago, but if you look at the total trials that we do its still less than 10% of the total trials that have that type of component. So it just shows that as we move forward having us.
<unk> capabilities are obviously going to be more important and that's why the acquisitions that we made last year like global care Snap Iot were so important we were able to get ahead of where we knew the market or believes the market was going to end up.
Got it thanks, so much.
Yeah.
Our next question comes from Tycho Peterson with Jpmorgan. Your line is open.
Hi, guys. This is Casey on for Tycho maybe.
Maybe just going back to Covid volume. So <unk> average was 85000 per day, peaking at 110 mid September can.
Can you give us an idea of what you exited the quarter at and then where you are currently just want to understand sort of the step down you're seeing here in the near term given infection rates and then what is the high end and low end of your guide assumed from <unk>.
Maybe any kind of 2022 baselines framework that we can you just for our models. Thanks.
Yeah, sure and just to give you a little bit additional our history. So in the second quarter, we averaged 64000 per day in the third quarter, we averaged 85000 per day, but if you just looked at the month of September was 114000.
That we were actually averaging in September.
You know as we went through September we saw that number going down and if you look at the first couple of weeks of October we continued to see the number of Covid tests going down if you look at our guidance, we think it'll be somewhere between 50 and 70000 per day.
As we look at the fourth quarter and where we are currently and I think that's the kind of pretty good range for you to work with them.
Okay.
Got you and then just.
One more on inflation costs.
Competitor.
And he talks about potentially passing some of those costs through.
Customers via pricing.
Do you have any sort of comment on potentially you guys are saying or is it more about.
Managing inflationary pressures through cost savings.
Yeah, So I just believe that as.
As an organization we have to continually pressure your cost base and you have to continually find ways to take out cost and health care and I've been involved in health care for 35 years, it's very hard to pass on price increases and you know.
Are there certain areas within our business, where we may be able to of course, we will look at that and if there are opportunities. We would work on those opportunities, but I don't think that's something you should put in your base case in your base case I think it has to be how do you have cost reduction initiatives that continue to have the quality that you need that continue to.
Enable you to retain the people that you have but also that you can do it more efficiently. So as we go forward, we're going to continue to really find ways to reduce our cost base.
Okay.
Our next question comes from Ralph Giacobbe with Citi. Your line is open.
Thanks, Good morning, I just want to go back to that last question, Adam you answered sort of for 2021 and maybe purposely didn't talk about 2022, but is there any baseline or a floor that you guys should think about on Covid testing you mentioned sort of is that the lowest this year were still where you guys are still doing 50000, a day I'd imagine the floor would be we'd be low.
Over the night, but not sure if you have some baseline or and sort of at least figure.
Per day, and then just what about reimbursement for next year as you think about sort of.
Covid and PHH.
And then the second question more broadly.
The managed care companies are talking a lot about virtual first primary care offerings.
Is that sort of developed how do you think that impacts you and just give us a sense of your relationship with some of the telehealth providers. Thanks, Yeah sure Ralph Good morning, So I'll start with the second question first we have a great relationship with the vast majority.
The telehealth providers and in fact, we work with them and technologically we have most of them where they can be directly working with us through their electronic medical record. So.
We embraced talent medicine, we think that is good for our health care, where it makes sense and we will continue to work to ensure that as people get telemedicine. They can also get the appropriate diagnostic testing and we have a team that is focused on ensuring that we have those relationships and that they work smoothly with regard to COVID-19.
Testing I wanted to get through this year and see where we ended up and we will provide guidance next year and it'll be a range of potential.
It really comes down to a couple of things will there be another variant that is not as.
Manageable with the current vaccines will you need a different booster in the future will antibody testing become more important in order to know if and when people should get vaccines. So I don't want to give numbers for next year I want to get through this year and see how it plays out we gave a range between 50 and 70000.
Test per day. This year I also want to see flu season, because you know if you have a high flu season, I believe youll, probably see more COVID-19 testing through the work that we do because if somebody is not sure. If they have flu our COVID-19 I think they're going to want to come to us and get an answer as quickly as they can and we have the at home collection kit, but also physicians can prescribe.
Our diagnostic tests to look at both of those in our turnaround time is very good so let's let's see how this year plays out let's see what happens with the flu season, and then when we give guidance for next year, we'll give you an appropriate range roughly.
I'll say at least one other thing I guess I would add too is that when you think about even the volatility that we experienced this year and the changing in our guidance as we went through we really had kind of two variables is what was the demand going to be and what was the reimbursement can be and then obviously as we kept to see the public health emergency continuing to expend the.
The pricing kind of has held out so as we tighten the range. If you will especially with the fourth quarter as Adam said, we have a range of testing that we feel as best as we can here is a range that we think will happen, but with an assumption that pricing will hold as we think about 'twenty two and again, we will give you our best guess at that time, but I think it's fair to assume you're going to see a fairly well.
Mid range starting out the year because you go back to the uncertainty with regard to both volume and pricing and again, what you can see an updated which was again to Adams point earlier that we will continue to break out COVID-19 testing separate from the base business. So you can see the impact of both.
Okay got it thanks fair enough.
Yes.
Our next question comes from Brian <unk>.
Tank wallet.
Jefferies. Your line is open.
Hey, good morning, guys.
Wanted to follow up Glenn I guess due to the point that you made earlier on price mix being one of the key drivers.
Right so.
On a normalized basis, maybe post 'twenty two because obviously, it's gonna be noisy and covered in the background, but I only think about base you know, what's the right way to think about your longer term view on revenue per req, and then I guess as I look at your guidance here, you're showing the CAGR versus 2019 at 364% on the base business is.
Is that a good way to think about this given broader utilization trends post 2022.
Yeah, No Brian I'd say historically, we've always talked about that organic growth revenue growth for the base business would be call. It a 2% to 3% level with call it 1% to 2% coming from volume and then one from price mix, which was mostly driven by mix because as Adam said, you know assume that price or unit.
<unk> is this overall relatively stable so the the view would be that long term, that's where it will gravitate to obviously, we continue to add new innovative tests that could skew. It hopefully upward obviously, we would add acquisitions to the mixed I would skew it upwards, but just the organic base business trends you would expect to.
See that so it wasn't surprising that our revenues right now is still tracking at or slightly higher compared to 19 from a revenue standpoint, but we're seeing just a unusually high level of price mix than what we would normally expect to see you know.
Call it in a normal environment.
Got it thank you.
Our next question comes from Derik de Bruin with Bank of America. Your line is open.
Hi, This is John on for Gary.
I wanted to dig into.
The pricing for any surveillance pool testing as well as in terms of the volume feel that theres been some isolated announcements from schools in Florida impacting Texas.
And sent back to school and surveillance testing.
Any updates there.
Yeah, Good morning, John.
I think that there are a lot of places that are doing surveillance testing, but typically they are using the <unk>.
Rapid test that you can kind of do on site, we're not doing a lot of whole testing, although we have the ability to do it and most of our testing is being done for people that either have symptoms that have been exposed to COVID-19.
Much less of the surveillance of lot of the surveillance work is being done by the other types of tests out there in the marketplace. So as we look to next year. We will continue to make the service available we do more of that through our lab Corp employee services group and we go through the core Labcorp diagnostic business when it comes to surveillance.
But of course, if there are opportunities out there we are ready to help with that as an assortment of those but it's not a significant amount of the testing that we do today.
Gotcha, and then if I could just ask one more question.
In terms of your esoteric testing I wanted to ask how the oncology testing volumes trending.
You could provide any color.
Color on the uptake for the Omni Inc.
The oncology tests you launched.
Yeah. So if you look at omni seek we are seeing good uptake with that although it's not a significant part of our testing overall at the moment and if you look at oncology testing in general.
Recovered like the other esoteric has recovered and we feel.
That it's getting.
Getting back to levels pre pandemic.
Gotcha. Thank you.
Okay. Thank you.
There are no further questions I like to turn the call back over to Adam Schechter for any closing remarks.
Thank you so first of all thanks, everybody for joining us today and.
You can see we are encouraged by our progress and it led to another strong quarter and it led us to increase our full year guidance again.
More than 70000 employees are going to continue to work relentlessly to achieve our mission to save and improve lives, but also continuing to help the world through the pandemic. So I'm grateful to my colleagues around the world for their dedication and focus lastly, if it has not yet been fully vaccinated eligible. Please stay safe please get vaccinated and be careful as we approach.
The holiday season. Thanks, So it will be in touch soon.
This concludes the program and you may now disconnect everyone have a great day.
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