Q1 2022 Laboratory Corporation of America Holdings Earnings Call
Good day and thank you for standing by welcome to the Lab Corp. First quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded I would now hand, the conference over to your Speaker today, Jeff Cook Vice President Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to lap Corp's first quarter 2022 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 <unk>.
Best of relations 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 businesses 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 2022 guidance and the related assumptions the impact of various factors on the Companys businesses operating and financial results cash flows and our financial condition, including the COVID-19, pandemic and the general economic and market conditions.
Our responses to the COVID-19, pandemic future business strategies expected savings and synergies and opportunities for future growth. Each of the forward looking statements are subject to change based upon various factors many of which are beyond our control more information is included in our most recent annual report on Form 10-K and subsequent.
The reports on Form 10-Q , and in the company's filings with the SEC. We have no obligation to provide any updates to these forward looking statements even if our expectations change now I will turn the call over to Adam Schechter. Thank you Chad and good morning, everyone. Thanks for joining us today.
In the first quarter, we continued to advance our strategy through science innovation and technology.
We delivered a solid first quarter, despite omicron, which had a significant impact across both businesses in January and continued to impact drug development outside the U S throughout the quarter.
We remain focused on growth opportunities, while continuing to take actions to mitigate inflation.
In the base business each month of the quarter was progressively better than the previous one.
This positions us well for continued success throughout the year.
In the quarter revenue totaled $3 9 billion.
Adjusted earnings per share reached $6 11.
And free cash flow was $239 million.
Diagnostics base business volume increased four 4% versus last year as both routine and esoteric testing saw a significant uptick uptake after an initial slowdown in January .
In drug development.
Book to Bill remained strong at 123 on a trailing 12 month basis.
Our backlog increased to $15 2 billion.
An increase of eight 7% compared to last year.
Covid related vaccine work was lower versus a year ago across the segment with the largest impact in clinical trial testing solutions or Cts, which primarily consists of our central laboratories operations.
While we continue to see some impact from omicron and the conflict in Ukraine throughout the quarter overall drug development recovered nicely in March giving us confidence in our 2022 performance and guidance.
Turning now to COVID-19, our PCR volume was approximately 70000 per day for the quarter.
Testing rates have since declined and we expect that decline to continue for the remainder of the year.
Turning to the results for Covid PCR test is currently one day on average.
We are maintaining our ability to process 300000, PCR tests per day pending supplies and labor to help the country remain prepared for potential new ways of infections or new variance as a public health emergency persists.
I will now highlight examples of progress on our strategy.
And apology, we are fortifying our leadership position by harnessing the scope and the scale of our comprehensive capabilities.
During the quarter, we closed the acquisition of <unk> and the integration is going smoothly.
<unk> portfolio of liquid biopsy and tissue based products enhances our leading oncology capabilities and puts us at the forefront of helping to drive better outcomes for people with cancer.
We believe that <unk> kitted solutions will allow laptop to expand genomic profiling globally and help our pharmaceutical clients identify more personalized treatments for patients.
In addition, we recently announced new collaboration with <unk> Biosciences to advance the development of cell and gene therapy research.
This follows our previous investment in company and is designed to help clients more effectively bring innovative cell and gene therapies to market.
Net labcorp continues to intensify its customer focus and embed data and digitalization throughout the business.
In February we launched our innovative lab Corp on demand digital health platform we.
We have a pipeline of tests focused on preventative wellness and health Monterey.
Women's health and family planning and men's health.
And we plan to add to those throughout the year.
Separately, we introduced a new risk, scoring test this quarter, where people with advanced liver fibrosis due to Nash.
This test will add an assessment of the risk of liver disease progression and Alaska earlier intervention that can support better patient outcomes.
And we became the first U S commercial laboratory to offer quantitative test for detecting and measuring unintentional gluten consumption, which can help with the management of celiac disease.
That continues to be committed to pursuing short and long term high growth opportunities.
During the quarter, we entered into an expanded several strategic relationships with hospitals and health systems.
Last month, we announced a strategic relationship with Prisma health, the largest health system in South Carolina as.
As a part of the arrangement lab corporate greed to acquire select outreach business assets and provide ongoing technical support to their hospital laboratories.
This allows us to offer Christmas patients and providers the benefit of enhanced there across multiple clinical areas.
We also expanded our relationship with Atlantic here in New Jersey in the quarter by agreeing to acquire select assets of the organization's clinical outreach business.
In addition, we've agreed to purchase outreach business of Saint Dominic's Hospital in Jackson, Mississippi.
This builds on our 2020 acquisition of the outreach program upgrade assistant missionaries of our Lady Health system.
As I previously reported in February we entered into a comprehensive laboratory relationship with Ascension one of the U S health Care's largest systems.
The long term relationship will include our management of hospital labs in 10 states as well as the purchase of select outreach laboratory business assets and we continue to make progress on planning efforts lifts collaboration.
As expected these transactions are scheduled to close later this year.
Our pipeline of acquisition and investment targets remains robust and that should result in a very active 2022.
We're committed to investing in our employees and continuing to operate responsibly. So that we can provide the highest quality services to patients and the customers.
We recently issued our 2021 corporate responsibility report.
Which offers insight into the following.
Our practices and processes to manage our company with integrity our.
Our sustainability journey, including our pursuit of our science based targets to reduce carbon emissions.
Our commitment to provide employees with an environment in which they can thrive.
And our efforts to help address the world's most pressing health care challenges and the communities, where we live and work.
The report is available through our Investor Relations website, and I encourage you to read it to better understand lab Corp progress and commitments in these important areas.
In addition, we continue to take other actions designed to enhance shareholder value.
This quarter, we are providing additional information about the quarterly revenue contribution of each drug development business unit and.
And earlier this month Labcorp initiated a quarterly dividend and announced a cash dividend of <unk> 72 per share of common stock payable in the second quarter of this year.
To sum up our base business continued its recovery across diagnostics and drug development progressively in the quarter. Despite some headwinds.
We continue to execute well against our strategic priorities.
And our current momentum in the base business combined with our recent hospital systems business development announcements sets us up well for success throughout the year.
So with that Glen will take you through the details of our first quarter results.
Thank you Adam I'm going to start my comments with a review of our first quarter results followed by a discussion of our performance in each segment.
And conclude with an update on our full year guidance for.
For reference we've also included additional business information that can be found in our supplemental deck on our Investor Relations website.
Revenue for the quarter was $3 9 billion.
Decrease of six 3% compared to last year due to lower organic revenue as the negative impact from foreign currency translation was offset by acquisitions.
Covid testing revenue was down 43% compared to Covid testing last year, while the base business grew four 5% compared to the base business last year.
Operating income for the quarter was $688 million or 17, 6% of revenue.
During the quarter, we had $67 million of amortization and $39 million of restructuring charges and special items.
Excluding these items adjusted operating income in the quarter was $794 million or 24% of revenue compared to $1 2 billion or 28, 4% last year.
The decrease in adjusted operating income and margin was primarily due to a reduction in COVID-19 testing higher personnel expense and other inflationary costs, partially offset by organic base business growth and launchpad savings.
The tax rate for the quarter was 23, 1% the adjusted tax rate, excluding restructuring charges special items and amortization was 23, 4% compared to 24, 5% last year.
The lower adjusted rate was primarily due to the geographic mix of earnings and stock compensation, we continue.
To expect the adjusted tax rate for the full year to be comparable with last year at approximately 25%, excluding any impact from potential tax reform.
Net earnings for the quarter were $492 million or $5 23 per diluted share adjusted.
Adjusted EPS, which exclude amortization restructuring charges and special items were $6 11 in the quarter compared to $8.79 last year.
Operating cash flow was $356 million in the quarter compared to $1 2 billion a year ago.
The decrease in operating cash flow was due to lower cash earnings primarily impacted by Covid testing and higher working capital requirements, which were mostly timing related.
Capital expenditures totaled $117 million compared to $95 million last year.
As a result free cash flow was $239 million in the quarter. We continue to expect to generate between one seven and $1 $9 billion of free cash flow for the full year.
During the quarter, we invested $455 million on acquisitions. We were also in the market repurchasing approximately 600000 shares as part of our $1 billion accelerated share repurchase program, which was completed April one.
At the end of the quarter, we had $1 5 billion of share repurchase authorization remaining.
Now I'll review our segment performance.
Even the enterprise wide strategic focus on oncology, we are reclassifying, our oncology investments in R&D spending.
These investments that are not supporting current revenue are being reclassified from our segments to corporate unallocated.
This represented $4 million of corporate unallocated expense in the quarter.
In our supplemental deck. We have also included additional business information for both segments.
For diagnostics, we provided a breakout of base business esoteric versus routine testing revenue as well as payer mix for drug development. We included revenues for its three businesses.
Early development or E D.
Clinical trial testing solutions, or Cts, and clinical development and commercialization services or see Dcs.
In addition, we've provided quarterly book to Bill quarterly net orders and pass throughs.
I'll begin the segment review with diagnostics.
Revenue for the quarter was $2 5 billion.
A decrease of 11% compared to last year due to organic revenue being down 11, 5%, partially offset by acquisitions of <unk>, 5%.
Covid testing revenue was down 43% compare to Covid testing last year, while the base business grew five 6% compared to the base business last year.
Relative to the first quarter of 2019, the compound annual growth rate for base business revenue was three 7% primarily due to organic growth.
Total volume decreased 5% compared to last year as organic volume decreased by five 3%, partially offset by acquisition volume of <unk>, 3%.
Covid testing volume was down 38% compared to Covid testing last year, while base business volume grew four 4% compared to the base business last year.
Compared to the first quarter of 2019 base business volume levels were relatively flat as the decline we experienced in January due to omicron rebounded in February and in March.
Price mix decreased 6% versus last year due to lower COVID-19 testing of six 3%, partially offset by acquisitions of 2% and organic base business growth of 1%.
Base business price mix was up one 2% compared to the base business last year benefiting from an increase in tests per session.
So gerrick testing growing faster than routine testing and acquisitions.
Diagnostics adjusted operating income for the quarter was $683 million or 27, 8% of revenue compared to $992 million or 36% last year.
The decrease in adjusted operating income and margin was primarily due to a reduction in COVID-19 testing.
Covid testing margins were down compared to last year due to lower testing demand, while the company continued to maintain capacity.
Base business margins were down slightly due to higher personnel expenses and other inflationary costs, partially offset by organic growth and launchpad savings.
Now I'll review the performance of drug development.
Revenue for the quarter was $1 5 billion.
An increase of one 5% compared to last year due to organic base business growth of four 3% and acquisitions net of divestitures of 1%.
Partially offset by lower Covid testing of one 7% and foreign currency translation of one 2%.
Base business revenue compared to base business last year grew three 3% or four 5% on a constant currency basis.
The growth was led by E D.
We also experienced good growth and see Dcs, although constrained by omicron and the conflict in Ukraine.
Cts was relatively flat as traditional base business growth was offset by lower COVID-19 vaccine and therapeutic work as well as the conflict in Ukraine.
Relative to the first quarter of 2019, the compound annual growth rate for drug development base business revenue was 10, 7% primarily driven by organic growth.
Adjusted operating income for the segment was $169 million or 11, 6% of revenue compared to $234 million or 16, 3% last year.
The decrease in adjusted operating income and margin was due to lower COVID-19 testing reduce COVID-19 vaccine a therapeutic work the impact from this conflict in Ukraine.
Higher personnel expense and other inflationary costs, which were partially offset by organic base business growth and launchpad savings.
While margins were down in the quarter, we continue to expect margins to be up for the full year compared to 2021 as the segment benefits from top line growth targeted price increases and launchpad savings.
We ended the quarter with backlog of $15 2 billion.
And we expect approximately $4 9 billion of this backlog to convert into revenue over the next 12 months.
Now I'll discuss our updated 2022 full year guidance, which reflects our solid first quarter performance and outlook and assumes foreign exchange rates effective as of March 31, 2022 for the remainder of the year.
The enterprise guidance also includes the impact from currently anticipated capital allocation with free cash flow targeted to acquisitions share repurchases and dividends.
We expect enterprise revenue declined one five to five 5% compared to 2021.
This is a narrowing of the prior range with the midpoint growth rate, increasing 50 basis points.
This guidance range includes the expectation that the base business will grow 8% to 10%, while COVID-19 testing is expected to decline 60% to 70%.
We expect diagnostics revenue declined 11, five to 15, 5% compared to 2021.
This is a narrowing of the prior range and an increase at the midpoint by 100 basis points.
This guidance range includes the expectation that the base business will grow 4% to 6% while.
While COVID-19 testing is expected to decline 60% to 70%.
At the midpoint of our base business guidance range, the compound annual growth rate compared to 2019 would be four 5% primarily driven by organic growth.
We expect drug development revenue to grow six to eight 5% compared to 2021.
This is a reduction at the midpoint of 100 basis points, primarily due to the 70 basis point change in foreign currency translation from the prior guidance in.
In addition, the guidance change reflects the conflict in Ukraine, which is partially offset by the benefit of the acquisition of <unk>.
This guidance range of six to eight 5% growth over last year includes the negative impact from foreign currency translation of 110 basis points compared to last year.
This guidance range also includes the expectation that the base business will grow six 5% to 9% compared to 2021.
We expect to benefit from growth in all three businesses led by E D and C Dcs at.
At the midpoint of our base business guidance range, the compound annual growth rate compared to 2019 would be 11%, primarily driven by organic growth.
For adjusted EPS, we are narrowing our guidance range and increasing the midpoint by 38 <unk>.
Compared to the prior guidance our guidance range is now $18 25 to $21.
Free cash flow guidance remains unchanged at one 7% to $1 9 billion.
For additional comparison purposes. We have also included in the supplemental deck on our Investor Relations website, a view of our 2022 first quarter results and full year guidance compared to our 2019 results.
In summary, the company had another quarter of solid performance, we expect to drive continued profitable growth in our base business for the remainder of the year, while COVID-19 testing volumes are expected to decline.
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 program and our newly initiated dividend.
Operator, we will now take questions.
Operator.
As a reminder to ask a question Youll need to press star one on your telephone to withdraw your question press the pound key.
Again, Thats star one to ask a question.
First question comes from Brian <unk> with Jefferies. Your line is open.
Hey, Good morning. This is jacqueline on for Brian . Thanks for taking my question and nice job on the quarter.
So as I look at this acknowledging some of the specific headwinds and I. Appreciate all the color you gave around the numbers for Covance.
When we look at it can you just give us a little more color on how we think about the progression there throughout the year and can you remind us on.
Large pharma has been.
Point of focus for you. In addition to oncology can you remind us of exposure, there and how that might impact growth rates beyond 'twenty two.
Yes. Good morning. This is Adam Thanks for the question. So a few things if you look at the business in general for.
For our drug development.
<unk> had a good quarter. Despite some of the headwinds that we knew were occurring so back in February you may recall.
We discussed that we expected the first quarter to be the toughest because we already have seen some impact from <unk> and we saw it in both our drug development and our diagnostics business, but the good news is that each month of the quarter got progressively better for both of the businesses and the interesting thing is if you look at the impact.
Impacted parts of our business differently. So for example, our Cts or a central laboratory business was the most impacted by Amazon and we saw it there first and then for our drug development. We saw for diagnostics, we saw the impact obviously in the United States, where our business is.
And that went away very quickly after the January we saw the base business and diagnostics bounce back very fast drug development Ccs is a little bit different because it's a global business and we saw continued impact from <unk> and parts of Europe , and then as we got to the end of the quarter. We saw some data the Ukraine.
As we look at the rest of the year, we're confident because as we looked at in March we saw strength versus January we saw strength in March versus February and we're on a good run rate now we believe that there'll be some continued impact from Ukraine in particular in the second quarter. So second quarter will be a little bit more difficult in the third.
Third and fourth quarter, where we expect to continue to see progress as we go through the year.
Thank you. Our next question comes from Jack Meehan with Nephron Research. Your line is open.
Yeah.
Thank you and good morning.
So couple of questions on the drug development business. The first is on margins. So understand some of the pressures you talked about to start the year, but when I look at some of the peer reports so far this earnings season. It does look like your drug development margin pressure was more per ounce and others have reported so.
Was curious to get your thought as to what might have been unique to the lab core business.
That drove kind of more pressure than others.
Yeah, Hey, Jack good morning.
As I mentioned, just before we saw some of that pressure starting in the beginning of the year. When we were here in February we mentioned that but we have a very large cts business Central laboratory business larger than most others and we saw the largest impact from overtime in that business and I'll give you two examples.
One is if you look at our Cts essential laboratory business you saw that the growth rate for that business now that we're providing by segment growth rates was less than the other segments. That's because we had such a strong first quarter of last year.
We were prepared with omicron to do as much Central Laboratory work as we did in the first quarter of last year. This year, because we saw the impact of <unk> in December and January and we kept as many people as we could prepared in case the boosters caused a huge amount of volume it did not cause a huge amount of volume.
As the boosters came out this year in fact, it was a lot less than what we saw with the initial vaccines in the beginning of last year and then the second thing is we have a early development business AEG business and we saw some impact.
Inflation in that business, particularly as you think about utilities and research and product costs, we're going to offset that with price reductions or price increases, but also by cost reductions and as I said at the beginning of the year. The inflationary pressures hit you all at once and it takes you time to launch there.
To get the cost out we saw improvements across all the businesses as we went through the quarter month over month. So therefore, we are confident that we're on a good run rate as we go into the rest of the year.
Great that's helpful.
With drug development can you talk about what impacts the lockdowns in China may be having on the business. Just how are you managing your labs in the region and has it impacted your access to large molecule or I'm, sorry March models at all.
Yes, sure Jack if you look at our business in China first of all I want to let all of our employees know that we're thinking of them. We're here to support them in doing everything we can to help them. In fact, we have some employees that are basically living in our laboratories right now so that they can continue to keep the work going while the lockdowns are occurring we have not seen.
<unk> a significant impact on our business due to the lockdowns at the moment, but we're going to continue to monitor that very closely it is not inhibited our ability to do the studies that we need to do at this point in time.
Thank you. Our next question comes from Ricky Goldwasser with Morgan Stanley . Your line is open.
Yes, hi.
So a couple of questions here.
First on the CMO and just kind of like think of already talked about contracting the headwinds into corners have code that Ukraine and inflation.
Can you just maybe quantify each of these.
Areas.
Thank you that's going to be really helpful for us as we think about it for the rest of the year and then on the lab side I think in the supplemental package you compare lab volumes to 2019 baseline.
This is very helpful.
Can you just give us a little bit more color on.
The core volume performance versus 2019 by marketing choices is down 50 basis points on volume.
<unk> 22 versus <unk>.
19.
Can talk about what you're seeing versus baseline.
Market.
Alright.
Guarantee basis as well.
Sure. Thanks for the question Ricky I'll start with the lab volumes and then I'll ask.
Glenn to jump in with regard to some of the.
Quantification that you asked for so with regard to diagnostics. So you saw revenue for the quarter was strong as about $2 5 billion.
The base business revenue grew about five 6% versus last year and then in a compound.
Compounded rate versus 2019, it grew three 9% and.
And if you look at our base business volume, it's up about four 4% versus last year, but I think what's important is if you look at the volume versus 2019, you saw were about flat and as you may recall Ricky in February we said that what we saw in January for our base business versus.
2019 was down 8%. So that tells you the strength that we had in February and March and the base business and how we saw it come back so strong which gives us the confidence we really didn't see a difference between esoteric or non esoteric business, we didn't see a big geographic teams.
I mean, there were certain breakouts that are happening with <unk> in the northeast of the country for a period of time and then it might have moved to the southeast but nothing that I think is important for you to know that I'd say overall across esoteric non esoteric across the regions. We've seen a very strong bounce back in our base business in February and March and <unk>.
See that by the fact that we were flat for the quarter versus 2019, when January was down 8% versus January 2019.
Hey, Ricky Ricky this is Glenn.
I guess just to follow up a little bit on that too. So the 8% decline that we saw in January was not compounded. So it was the total decline, but as Adam said the progression in February and March got us on a compounded annual growth rate to be just down to point.
5%, so relatively flat with the expectation as we continue to go through the year that obviously will become a positive number as we continue to experience the recovery there on a volume basis.
So pleased with what we're seeing there on the drug development side quantifying a call at the vaccine and the impact of Ukraine were probably the two more meaningful ones that impacted us for the quarter.
From a vaccine standpoint, probably around $30 million of headwind from that.
Ukraine.
Closer to rounding to around $10 million. So when we think that both of those primarily impacted the cts business, obviously affected others as well, but while we were call it flat in revenue.
On a constant currency basis in that business. If you backed out the vaccine related in the Ukraine, we'd be 7% to 8%.
Call it.
Organic constant currency growth rate, which would be more in line with what we would've expected the business to do.
And can you just.
Remind us when we think about the margin kind of like three <unk>.
Clinical and central lab versus clinical.
So we don't break out the margins for the businesses as you saw in the additional material that we've provided.
We went out and looked obviously.
At our peers and what's provided and just looking at what additional information we felt the revenue breakout by business was important and beneficial because you get to see the magnitude that it is for each of the pieces as well as now tracking the growth profile from a margin standpoint, you know our belief and obviously our peers that do similarly look at it on a segment basis.
Because there's so much that our shared assets between the businesses.
That we feel that providing it as a trend if you will on the.
On this segment is a more meaningful number and then as you look at the growth rates of the different pieces, you can kind of get a sense of how we're leveraging <unk>.
Overall in the businesses.
Okay. Thank you.
Thank you. Our next question comes from Eric Coldwell with.
Baird Your line is open.
Thanks very much.
I feel like we're falling a bit short on the disclosures on why the lab or the CRO margin is.
Is as poor as it is this quarter I'm, hoping we can get into some details on that.
I guess the first question you talk about early development having.
Some inflation cost and it sounded like maybe some.
Research model supply access pricing issues.
Are you ready.
Suffering from it being at a disadvantage for not having your own animal model business is that is that one of the bigger issues in early development that you don't have the same supply that perhaps some of your larger peers have.
Yes.
Eric I appreciate the comment and obviously if the the 11, 6% margin obviously, it's down from where we've been so you know when you look at the pieces of it. So the research product is a meaningful part of it. So we're incurring much higher costs for that and so as Adam commented earlier from a timing standpoint, we now have to go through change.
Orders, but effectively we believe that we can pass on those higher cost to the customers and a lot of contracts that is explicit with the research products to do that so one of the reasons why we're constrained in the quarter was that higher expense without being able to transfer over we also talked about utility costs. So just general inflationary but wouldn't.
Diminish as well just the impact from the Ukraine from the vaccine.
And also you know the first quarter historically has been a lighter quarter relative to how we end the year and then each quarter, we pick up so as we commented to that first of all our full expectation for the full year continues to be that we will see margins higher than the prior year. Our expectation frankly is that margins should be higher year.
On year, beginning in the second quarter and going forward and what gives us the confidence and Adam alluded to this earlier is that when you look at the run rate that we ended in March even though we still have some of those headwinds are passing on some of those costs, where frankly at a margin level that gives us high degree of confidence even for the next quarter, but let alone for the full year.
That youll start to see margins back to <unk>.
Comparable comparable.
Comparable to the prior year with hopefully up a little bit from each of the quarters as we go forward.
And if I could just stay on the same vein for one follow up.
Seen same topic, it's related to central lab, obviously shipping freight transports gone up I'm not sure to what extent <unk> been able to pass on those costs, but we also heard this morning from icon that in there in their lab operations. They did have some supply component issues.
More particularly around complex oncology components in central lab kits.
Suspect.
Face to similar experience, but I was hoping you could give some color on on that experience what youre seeing if it had an impact how long you might expect that to continue if so.
Yes, Sir.
If you look at the supply there are issues in supply chain.
Say for the last six months or so, but we were able to find other ways to meet the demand in those kits, but it didn't mean at times that were higher.
<unk> margins because for example, if it is not a typical case you have to do some additional work to get it approved and sometimes you have to do those manually. So we were doing a lot more kits manually than we typically would particularly if you have to put a replacement.
But the good news is we were able to keep up with the demand from our pharma customers were able to meet their needs, which was important to us but there certainly was some short term impact as we're doing a lot more kits manually than we historically would do and when you do more fixed manually then you put in more quality assurance, where you check more of the kits to ensure that they are going out.
Appropriately. So there is some expense incurred with that but it didn't impact our customers and what I would say Eric the most important thing to me is that we saw the progression in the margin.
By month, we don't provide monthly margins, but we looked at it very closely so it's that that gives me the confidence that we're on the right track and that we're able to meet the commitments that we've set forth.
Okay.
Thanks, very much Peter.
And Eric just one last thing on just the supply issue.
What we've seen is because we run primarily have on adjusted time inventory level within our Cts, our central lab business and obviously when we started to see the global supply chain issues. It had an impact on US we have now built up those level of inventories now for three to six months you know given the still the uncertainties of what's going on globally. So we'll carry that.
Higher inventory to obviously make sure we can be focused on meeting the customer's demand and doing it efficiently and having our diagnostic business, where a lot of the tubes and the things that you need or very similar.
We're able to use suppliers across the businesses when appropriate as well.
Understood. Thanks, very much thanks art.
Thank you. Our next question comes from Rachel <unk> with J P. Morgan Your line is open.
Hi, This is now on to Rachel.
I just wanted to dig in a little bit more into the.
Backlog Sam could you maybe provide any additional color on your current customer base and as far as your backlog.
And sort of the composer by end market or pre revenue biotech versus pharma companies and then.
Maybe any additional metrics that you can think of how we should think about that percent trending.
Throughout the year and going forward.
Yep I know first of all I would say that.
The rfps that are coming through are very strong and if you look at our cancellation rates are very low. So we feel very good about the flow of business and the flow of rfps in the flow of the trials coming.
Our trailing 12 month book to Bill was strong at 123 as you may recall that we need to be at 120 or slightly higher and we remain at that number.
And then if you look at our backlog, we have $15 2 billion, which was almost a 9% increase versus the prior year. Our net orders were $7 2 billion. If you look across the businesses. The breakdown by customer type is a little bit different. So for example in early development, we have more biotech and.
Smaller to midsize biotech than we do large pharma if you look at our Cts, which is a central lab or CDC <unk>, which is our.
Clinical business, we tend to have more pharma than we do the small biotechs or the middle sized biotechs, but I would say across the three businesses. We feel good about the rfps that we're saying we feel good about the backlog that we're seeing and we're confident that the backlog supports the long term guidance that we've provided.
Awesome, Thank you and Youre seeing that.
Sort of continue.
I am sorry with Fresenius.
I expect that to continue that we will continue to have a strong book to bill that will continue to be above the $1. Two threshold that we anticipate the base. So I feel good about that.
Awesome. Thank you.
Thank you. Our next question comes from Derik de Bruin with Bank of America. Your line is open.
Hey, Good morning. This is John on for Derik I appreciate that this new disclosure here.
But I wanted to ask what your underlying assumptions are for the full year in your E. D C TTS MTBC yet.
We know that your early stage and late stage should be growing faster than central lab, but.
I wanted to look into your assumptions there and also in mid April .
<unk> issued a warning about the possibility of false results from an ITT.
I was wondering what sort of exposure you have there through <unk>.
That would be great.
Yeah, So I'll start with.
T.
Very small very very very small amount of revenue.
It's a test that we do for screening and it's utilized.
In the United States, but its not very large at all so we'll continue to make sure that we are.
Have the test available that we.
Are making it available to physicians that are looking to use those tests, but it's not there's no impact in terms of our overall total business with regard to the individual segments. We believe the fastest growth segment and revenue is going to be clinical at CCT S. Oversea Dcs business.
Those were not necessarily the market leader, there and we have the ability to grow fastest there. If you look at the slowest growing business of the three it'll be Cts because we are the market leader there.
Have a large market share in that business. So theres not as much room for growth and then the <unk> business is somewhere in between because we're number one to two and then sometimes it grows a little bit faster than.
The Cvs, but that goes back and forth.
Understood. Thank you.
Thank you.
And as a reminder, if you would like to ask a question press Star One we have a question from Patrick Donnelly with Citi. Your line is open.
Hey, guys. Thanks for taking the questions.
Obviously, a lot covered on <unk>. So maybe I'll just ask on the lab side just on the Covid assumptions.
Assumptions I appreciate the transparency on the range. There can you just talk about the cadence through the year are you assuming kind of a bump near the end of the year around flu season. How are you thinking about that kind of as we go out even in the endemic phase in terms of the seasonality I'm just trying to figure out the best way to model that piece. Thank you yeah no. Thanks, Patrick for the question.
As we said for the first quarter, we averaged 70000 tests per day.
And by the end of the quarter that was down significantly than where it was at the beginning of the quarter and we expect there is going to continue to be a decline through the year. The reason that we give a range and we've given a range of down 60% to 70% versus last year is because there is a whole range of possibilities on how you can get to that range. So one of the possible.
<unk> is as you say theres a uptick in November around the flu season, but at that point in time, if there's not the emergency declaration the price might be lower.
If the emergency declaration continues but theres not an uptick in November the price would be where it is now so the bottom line is the 60% to 70% range that we've given has a whole bunch of ways that you can stay within their my assumption is that the emergency declaration will continue through this year, we'll see if that occurs.
And I think volume will continue to decline throughout the year.
Great. Thank you.
Thank you and there are no other questions in the queue I'd like to turn the back call back to Adam for closing remarks. Thank you Catharine. So first of all thank you again for joining us today I'm really encouraged.
Encouraged by our progress and the important work of our more than 75000 employees around the world I can tell you is our greatest asset and we're focused on supporting our employees that are facing additional complexities in difficult situations. We have people in Shanghai, Ukraine, Russia and were really making sure that we're thinking about.
MSA face these complexities.
We look forward to speaking with you soon and we appreciate your time today. So thank you.
This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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