Labcorp Announces 2022 Second Quarter Results

Company To Spin-Off Clinical Development Business

• Revenue: Q2 of $3.7 billion versus $3.8 billion last year
• Diluted EPS: Q2 of $3.87 versus $4.76 last year
• Adjusted EPS: Q2 of $4.96 versus $6.13 last year
• Free Cash Flow: Q2 of $429 million versus $390 million last year
• Launched innovative diagnostics for skin cancer, neurodegenerative disease, fertility and COVID-19
• Full-Year 2022 Guidance: Adjusted EPS raised to $19.00 to $21.25

Labcorp (NYSE: LH), a leading global life sciences company, today announced results for the second quarter ended June 30, 2022, and updated full-year guidance.

“Labcorp continued to execute well during the second quarter,” said Adam Schechter, chairman and CEO of Labcorp. “We remained dedicated to providing customers with the highest quality science and service while overcoming inflationary and macroeconomic challenges through our accelerated LaunchPad efforts. We also made significant progress against our strategy and today announced plans to spin-off our Clinical Development business, resulting in two independent businesses poised for strong, sustainable growth.”

Labcorp introduced several innovative diagnostics in the quarter and expanded its drug development capabilities to serve customers in Europe, the Middle East, Africa and Japan. Through Labcorp OnDemand, the company launched at-home collection kits for diabetes, men’s fertility, and for COVID-19, flu and RSV. Labcorp also made available a new skin cancer test for physicians that can also be used during clinical trials. And in July, the company began offering a test to help physicians diagnose conditions including concussions, Alzheimer’s and Parkinson’s.

Furthering its commitment to the fight against COVID-19, Labcorp maintained adequate capacity for current and future testing needs while providing innovations to assist in pandemic response efforts. To help address the monkeypox outbreak, the company collaborated with the Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration to bring the CDC’s test to doctors and hospitals across the United States.

The company also advanced important strategic partnerships and acquisitions during the quarter, and its previously announced arrangement with Ascension is progressing through normal regulatory approvals.

On July 14, 2022, the company announced a quarterly cash dividend of $0.72 per share of common stock, payable on September 9, 2022, to stockholders of record at the close of business on August 18, 2022.

Spin-Off of the Clinical Development Business

In a separate press release issued this morning, Labcorp announced that its Board of Directors has authorized the company to pursue a spin-off of the company's wholly owned Clinical Development business to Labcorp shareholders through a tax-free transaction. The spin-off will result in two independent, publicly traded companies, each poised for sustainable growth:

• Labcorp: A leading global laboratory services business comprising the company's routine and esoteric labs, central labs and early development research labs, all of which are leaders with deep scientific expertise, vast health data and insights, and an extensive, advanced global laboratory network.
• The Clinical Development Business: A leading, global Contract Research Organization (CRO) providing Phase I-IV clinical trial management, market access and technology solutions to pharmaceutical and biotechnology organizations.

Labcorp is targeting completion of the planned spin-off in the second half of 2023. Labcorp leadership will discuss the planned spin-off in further detail on the company's conference call today at 9:00 a.m. ET.

Consolidated Results

Second Quarter Results

Revenue for the quarter was $3.70 billion, a decrease of (3.7%) from $3.84 billion in the second quarter of 2021. The decrease was due to organic revenue of (3.4%) and foreign currency translation of (1.1%), partially offset by acquisitions net of divestitures of 0.8%. The (3.4%) decrease in organic revenue was driven by a (4.8%) decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 1.4% increase in the company's organic Base Business. Base Business includes Labcorp's operations except for COVID-19 Testing.

Operating income for the quarter was $525.9 million, or 14.2% of revenue, compared to $704.1 million, or 18.3%, in the second quarter of 2021. The company recorded amortization, restructuring charges, and special items, which together totaled $130.2 million in the quarter, compared to $135.8 million during the same period in 2021. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $656.1 million, or 17.7% of revenue, compared to $839.9 million, or 21.9%, in the second quarter of 2021. The decrease in 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.

Net earnings for the quarter were $358.6 million compared to $467.4 million in the second quarter of 2021. Diluted EPS were $3.87 in the quarter compared to $4.76 during the same period in 2021. Adjusted EPS (excluding amortization, restructuring charges, and special items) were $4.96 in the quarter compared to $6.13 in the second quarter of 2021.

Operating cash flow for the quarter was $572.5 million compared to $487.2 million in the second quarter of 2021. The increase in operating cash flow was due to higher cash earnings and favorable working capital. Capital expenditures totaled $143.3 million compared to $97.2 million a year ago. As a result, free cash flow (operating cash flow less capital expenditures) was $429.2 million compared to $390.0 million in the second quarter of 2021.

At the end of the quarter, the company’s cash balance and total debt were $1.1 billion and $5.4 billion, respectively. During the quarter, the company invested $99.8 million on acquisitions, paid out $66.7 million in dividends, and repurchased $400.0 million of stock representing approximately 1.7 million shares.

Year-To-Date Results

Revenue was $7.6 billion, a decrease of (5.1)% from $8.0 billion, in the first six months of 2022. The decrease was due to lower organic revenue of (4.9%) and foreign currency translation of (0.7%), partially offset by acquisitions net of divestitures of 0.6%. The (4.9%) decrease in organic revenue was a (7.4%) decrease in COVID-19 Testing, partially offset by a 2.5% increase in the Company's organic Base Business.

Operating income was $1,213.8 million, or 16.0% of revenue, compared to $1,762.0 million, or 22.0%, in the first six months of 2021. The company recorded amortization, restructuring charges, special items, and impairments, which together totaled $236.3 million in the first six months of 2022 compared to $259.8 million during the same period in 2021. Adjusted operating income (excluding amortization, restructuring charges, special items, and impairments) was $1,450.1 million, or 19.1% of revenue, compared to $2,021.8 million, or 25.3%, in the first six months of 2021. The decrease in operating income and margin was primarily due to lower COVID-19 Testing and higher personnel costs, partially offset by a recovery in the Base Business.

Net earnings were $850.2 million compared to $1,237.0 million in the first six months of 2021. Diluted EPS were $9.11 in the first six months of 2022 compared to $12.58 during the same period in 2021. Adjusted EPS (excluding amortization, restructuring charges, special items, and impairments) were $11.07 in the first six months of 2022 compared to $14.92 during the same period in 2021.

Operating cash flow was $928.5 million compared to $1,644.8 million in the first six months of 2021. The decrease in operating cash flow was due to lower cash earnings and unfavorable working capital. Capital expenditures totaled $260.5 million compared to $192.6 million during the same period in 2021. As a result, free cash flow (operating cash flow less capital expenditures) was $668.0 million compared to $1,452.2 million in the first six months of 2021.

Second Quarter Segment Results

The following segment results exclude amortization, restructuring charges, special items, and unallocated corporate expenses.

Diagnostics

Revenue for the quarter was $2.26 billion, a decrease of (4.7%) from $2.37 billion in the second quarter of 2021. The decrease was primarily due to organic revenue of (5.7%), partially offset by acquisitions of 1.2%. The (5.7%) decrease in organic revenue was due to a (7.8%) decrease in COVID-19 Testing, partially offset by a 2.1% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 3.9%.

Total volume (measured by requisitions) decreased by (2.7%) as organic volume decreased by (3.1%) and acquisition volume contributed 0.4%. Organic volume was impacted by a (5.6%) decrease in COVID-19 Testing, partially offset by a 2.6% increase in Base Business. Price/mix decreased by (2.0%) due to a decrease in COVID-19 Testing of (2.2%) and a decline in organic Base Business of (0.4%), partially offset by acquisitions of 0.8%. Base Business volume was up 3.4% compared to the Base Business last year, while price/mix was up 0.5%.

Adjusted operating income for the quarter was $515.6 million, or 22.9% of revenue, compared to $663.2 million, or 28.0%, in the second quarter of 2021. The decrease in adjusted operating income and adjusted operating 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.

Drug Development

Revenue for the quarter was $1.45 billion, a decrease of (2.9)% from $1.50 billion in the second quarter of 2021. The decrease was due to foreign currency translation of (2.6%) and lower COVID-19 Testing of (0.6%), partially offset by acquisitions net of divestitures of 0.2% and organic Base Business growth of 0.1%. Organic Base Business growth was impacted by reduced COVID-19 related work, the Ukraine/Russia crisis, and lower pass-throughs.

Adjusted operating income for the quarter was $213.3 million, or 14.7% of revenue, compared to $221.1 million, or 14.8%, in the second quarter of 2021. Adjusted operating income and margin decreased primarily due to COVID-19 Testing, a reduction in COVID-19 related work, the Ukraine/Russia crisis, and inflationary costs. These impacts were partially offset by organic Base Business growth and LaunchPad savings. In addition, personnel expense was lower due to cost reduction actions and variable compensation.

Net orders and net book-to-bill during the trailing twelve months were $7.15 billion and 1.23, respectively. Backlog at the end of the quarter was $15.21 billion, an increase of 6.5% compared to last year. The company expects approximately $4.84 billion of its backlog to convert into revenue in the next twelve months.

Outlook for 2022

Labcorp is updating 2022 full year guidance to reflect its second quarter performance and full-year outlook. The following guidance assumes foreign exchange rates effective as of June 30, 2022, for the remainder of the year. Enterprise level guidance includes the estimated impact from currently anticipated capital allocation, including acquisitions, share repurchases and dividends.

Use of Adjusted Measures

The company has provided in this press release and accompanying tables “adjusted” financial information that has not been prepared in accordance with GAAP, including adjusted net income, adjusted EPS (or adjusted net income per share), adjusted operating income, adjusted operating margin, free cash flow, and certain segment information. The company believes these adjusted measures are useful to investors as a supplement to, but not as a substitute for, GAAP measures, in evaluating the company’s operational performance. The company further believes that the use of these non-GAAP financial measures provides an additional tool for investors in evaluating operating results and trends, and growth and shareholder returns, as well as in comparing the company’s financial results with the financial results of other companies. However, the company notes that these adjusted measures may be different from and not directly comparable to the measures presented by other companies. Reconciliations of these non-GAAP measures to the most comparable GAAP measures and an identification of the components that comprise "special items" used for certain adjusted financial information are included in the tables accompanying this press release.

The company today is providing an investor relations presentation with additional information on its business and operations, which is available in the investor relations section of the company's website at http://www.labcorp.com. Analysts and investors are directed to the website to review this supplemental information.

A conference call discussing Labcorp's quarterly results will be held today at 9:00 a.m. ET and is available by dialing 800-715-9871 (646-307-1963 for international callers). The conference ID is 4124787. A telephone replay of the call will be available through August 11, 2022, and can be heard by dialing 800-770-2030 (609-800-9909 for international callers). The conference ID for the replay is 4124787. A live online broadcast of Labcorp’s quarterly conference call on July 28, 2022, will be available at Labcorp Investor Relations website beginning at 9:00 a.m. ET. This online broadcast will be archived and accessible through July 14, 2023.

About Labcorp

Labcorp is a leading global life sciences company that provides vital information to help doctors, hospitals, pharmaceutical companies, researchers, and patients make clear and confident decisions. Through our unparalleled diagnostics and drug development capabilities, we provide insights and accelerate innovations to improve health and improve lives. With more than 75,000 employees, we serve clients in more than 100 countries. Labcorp (NYSE: LH) reported revenue of $16.1 billion in 2021. Learn more about us at www.Labcorp.com or follow us on LinkedIn and Twitter @Labcorp.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements, including, but not limited to, statements with respect to (i) the estimated 2022 guidance and related assumptions, (ii) the proposed spin-off of the Clinical Development business (“CD”), including statements regarding the expectation that the transaction will be consummated, the anticipated timing of the transaction, benefits of the transaction, the expected tax treatment of the transaction, and opportunities for future growth; (iii) the impact of various factors on operating and financial results, including the projected impact of the COVID-19 pandemic on the company’s businesses, operating results, cash flows and/or financial condition, as well as general economic and market conditions, (iv) the company's responses to the COVID-19 pandemic, (v) future business strategies, (vi) expected savings and synergies (including from the LaunchPad initiative and from acquisitions), and (vii) opportunities for future growth.

Each of the forward-looking statements is subject to change based on various important factors, many of which are beyond the company’s control, including without limitation, (i) uncertainties as to the completion and timing of the transaction; (ii) the failure to obtain appropriate assurances regarding the tax-free nature of the spin-off; (iii) the receipt of regulatory approvals; (iv) the effect of the announcement or pendency of the transaction on the company’s business relationships, operating results, and business generally; (v) unexpected issues that arise in the continued planning for the transaction; (vi) the failure to have the Form 10 registration statement that will be filed with the SEC declared effective on a timely basis, or at all; (vii) risks that the proposed transaction disrupts current plans and operations of the company or CD; (viii) potential difficulties as a result of the transaction with the company or CD employee retention; (ix) risks related to diverting management’s attention from the company and CD’s ongoing business operations; (x) the ability of the company to successfully separate CD operations from the company’s ongoing operations; (xi) market receptiveness to effect transactions in the capital markets; (xii) market reaction to the announcement and planning for the transaction; (xiii) the trading price of the company’s stock, competitive actions and other unforeseen changes and general uncertainties in the marketplace; (xiv) changes in government regulations, including healthcare reform; (xv) customer purchasing decisions, including changes in payer regulations or policies; (xvi) other adverse actions of governmental and third-party payers; (xvii) changes in testing guidelines or recommendations; (xviii) federal, state, and local government responses to the COVID-19 pandemic; (xix) the impact of global geopolitical events; (xx) the effect of public opinion on the company’s reputation; (xxi) adverse results in material litigation matters; (xxii) the impact of changes in tax laws and regulations; (xxiii) failure to maintain or develop customer relationships; (xxiv) the company's ability to develop or acquire new products and adapt to technological changes; (xxv) failure in information technology, systems or data security; (xxvi) the impact of potential losses under repurchase agreements; (xxvii) adverse weather conditions; (xxviii) the number of revenue days in a financial period; (xxix) employee relations; (xxx) personnel costs; (xxxi) inflation; and (xxxii) the effect of exchange rate fluctuations. These factors, in some cases, have affected and in the future (together with other factors) could affect the company’s ability to implement the company’s business strategy, including the proposed spin-off, and actual results could differ materially from those suggested by these forward-looking statements. As a result, readers are cautioned not to place undue reliance on any of the forward-looking statements.

The company has no obligation to provide any updates to these forward-looking statements even if its expectations change. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. Further information on potential factors, risks and uncertainties that could affect operating and financial results is included in the company’s most recent Annual Report on Form 10-K and subsequent Forms 10-Q, including in each case under the heading RISK FACTORS, and in the company’s other filings with the SEC. The information in this press release should be read in conjunction with a review of the company’s filings with the SEC including the information in the company’s most recent Annual Report on Form 10-K, and subsequent Forms 10-Q, under the heading MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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- Tables to Follow -

The consolidated revenue and adjusted segment operating income are presented net of intersegment transaction eliminations and other amounts not used in determining segment performance. Adjusted operating income and adjusted operating margin are non-GAAP measures. See the subsequent reconciliation of non-GAAP financial measures.

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