LabCorp Announces 2020 First Quarter Results
- Q1 revenue of
$2.82 billion , up 1% over$2.79 billion last year - Q1 diluted EPS of (
$3.27 ), which include goodwill and other asset impairments of$4.43 per share - Q1 adjusted EPS of
$2.37 , which were negatively impacted by an estimated$0.55 per share from the COVID-19 pandemic - Q1 free cash flow of
$97 million , up 36% over$72 million last year LabCorp withdraws 2020 guidance and temporarily suspends its share repurchase program due to the unpredictability of the ongoing COVID-19 pandemicLabCorp maintains a strong liquidity position and expects to deliver solid adjusted EPS and free cash flow in 2020
“First and foremost, we are extremely proud of our dedicated and mission-driven colleagues around the world who are working tirelessly to develop and process COVID-19 diagnostic tests, to generate insights about the virus through innovative partnerships with leading companies like Adaptive Biotechnologies and Microsoft,
Consolidated Results
First Quarter Results
Revenue for the quarter was
Operating loss for the quarter was
Net losses for the quarter were
Operating cash flow for the quarter was
At the end of the quarter, the Company’s cash balance and total debt were
First Quarter Segment Results
The following segment results exclude amortization, restructuring charges, special items, impairments, and unallocated corporate expenses.
Revenue for the quarter, adjusting out the increase in accounts receivable reserves as a result of the COVID-19 pandemic, was
Total volume (measured by requisitions) decreased by 4.4% as organic volume declined by 6.1%, partially offset by acquisition volume of 1.6%. The decline in organic volume includes the estimated negative impact from COVID-19 of 7.3% due to reduced demand for testing, which declined 50% to 55% versus the Company's normal daily levels at the end of the quarter. This reduction in demand impacted testing volumes broadly and was marginally offset by an increase in demand for COVID-19 tests. In addition, organic volume was negatively impacted by lower consumer genetics demand, mostly offset by an additional one-half revenue day and favorable weather. Revenue per requisition increased by 3.4% due to mix and acquisitions, partially offset by the negative impact from PAMA and the
Adjusted operating income for the quarter was
Covance Drug Development
Revenue for the quarter was
Adjusted operating income for the quarter was
Net orders and net book-to-bill during the trailing twelve months were
Outlook for 2020
Given the ongoing and rapidly changing nature of the COVID-19 pandemic, there is significant uncertainty regarding the duration and severity of the pandemic as well as any future government restrictions. As a result, the Company is withdrawing its 2020 financial guidance provided on
The Company has provided below some details on how COVID-19 is impacting
COVID-19 Impact on Performance and Mitigating Actions LabCorp is Taking
In
In Covance Drug Development, performance has been challenged by COVID-19 due to actions clients are taking that are slowing clinical trial progress and the associated testing as well as reductions in trial site access in certain countries and interruptions in the supply chain that can temporarily delay study activity.
The Company is taking numerous actions to help mitigate the financial impact from the COVID-19 pandemic. Some of these actions include reducing our cash outflows through delaying certain capital expenditures, temporarily suspending its share repurchase program, and applying a heightened threshold to acquisition activity. The Company is also taking actions regarding its workforce including implementing furloughs; delaying hiring; reducing temporary and contract workers, intern positions, and overtime; suspending discretionary merit adjustment for all employees; and suspending 401(k) contributions for all
Liquidity
The Company expects to deliver solid adjusted EPS and free cash flow in 2020. As of
Use of Estimated COVID-19 Impact
The Company has provided in this press release the Company's estimates for the net impact from COVID-19 on the Company's revenue, operating income, operating margin, and Diagnostics' volume. These estimates were determined using methodologies and assumptions that vary depending on the specific segment and situation. For
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 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
beginning at
About
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements, including, but not limited to, statements with respect to expectations for 2020 and the related assumptions, 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, statements relating to our responses to and the expected future impacts of the COVID-19 pandemic, on our business more generally as well as on general economic, business, and market conditions, future business strategies, expected savings and synergies (including from the LaunchPad initiative and from acquisitions), and the 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, the impact of the COVID-19 pandemic and its impact on our business and financial condition and on general economic, business, and market conditions, our ability (or inability) to execute on our plans to respond to the COVID-19 pandemic, competitive actions and other unforeseen changes and general uncertainties in the marketplace, changes in government regulations, including healthcare reform, customer purchasing decisions, including changes in payer regulations or policies, other adverse actions of governmental and third-party payers, changes in testing guidelines or recommendations, federal, state, and local government responses to the COVID-19 pandemic, the effect of public opinion on the Company’s reputation, adverse results in material litigation matters, the impact of changes in tax laws and regulations, failure to maintain or develop customer relationships, our ability to develop or acquire new products and adapt to technological changes, failure in information technology, systems or data security, adverse weather conditions, the number of revenue days in a financial period, employee relations, personnel costs, and 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 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 our 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
- End of Text -
- Tables to Follow -
|
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Millions, except per share data) |
||||||||
|
|
|
Three Months Ended |
||||||
|
|
|
2020 |
|
2019 |
||||
|
Revenues |
|
$ |
2,823.8 |
|
|
$ |
2,791.2 |
|
|
|
|
|
|
|
||||
|
Cost of revenues |
|
2,095.8 |
|
|
2,001.5 |
|
||
|
|
|
|
|
|
||||
|
Gross profit |
|
728.0 |
|
|
789.7 |
|
||
|
|
|
|
|
|
||||
|
Selling, general and administrative expenses |
|
395.5 |
|
|
393.8 |
|
||
|
Amortization of intangibles and other assets |
|
62.3 |
|
|
57.1 |
|
||
|
|
|
437.4 |
|
|
— |
|
||
|
Restructuring and other charges |
|
25.4 |
|
|
20.6 |
|
||
|
|
|
|
|
|
||||
|
Operating income (loss) |
|
(192.6 |
) |
|
318.2 |
|
||
|
|
|
|
|
|
||||
|
Other income (expense): |
|
|
|
|
||||
|
Interest expense |
|
(55.0 |
) |
|
(56.7 |
) |
||
|
Equity method income (loss), net |
|
(6.6 |
) |
|
3.0 |
|
||
|
Investment income |
|
2.6 |
|
|
0.6 |
|
||
|
Other, net |
|
(16.1 |
) |
|
(10.4 |
) |
||
|
|
|
|
|
|
||||
|
Earnings (loss) before income taxes |
|
(267.7 |
) |
|
254.7 |
|
||
|
|
|
|
|
|
||||
|
Provision for income taxes |
|
49.2 |
|
|
68.8 |
|
||
|
|
|
|
|
|
||||
|
Net earnings (loss) |
|
(316.9 |
) |
|
185.9 |
|
||
|
Less: Net earnings attributable to the noncontrolling interest |
|
(0.3 |
) |
|
(0.3 |
) |
||
|
|
|
|
|
|
||||
|
Net earnings (loss) attributable to |
|
$ |
(317.2 |
) |
|
$ |
185.6 |
|
|
|
|
|
|
|
||||
|
Basic earnings (loss) per common share |
|
$ |
(3.27 |
) |
|
$ |
1.88 |
|
|
|
|
|
|
|
||||
|
Diluted earnings (loss) per common share |
|
$ |
(3.27 |
) |
|
$ |
1.86 |
|
|
|
|
|
|
|
||||
|
Weighted average basic shares outstanding |
|
97.2 |
|
|
98.6 |
|
||
|
|
|
|
|
|
||||
|
Weighted average diluted shares outstanding |
|
97.2 |
|
|
99.5 |
|
||
|
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in Millions) |
||||||||
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|
|
|
|
|||||
|
ASSETS |
|
|
|
|||||
|
|
|
|
|
|||||
|
Current assets: |
|
|
|
|||||
|
Cash and cash equivalents |
$ |
323.6 |
|
|
$ |
337.5 |
|
|
|
Accounts receivable, net of allowance for doubtful accounts of |
1,482.2 |
|
|
1,543.9 |
|
|||
|
Unbilled services |
478.1 |
|
|
481.4 |
|
|||
|
Supplies inventory |
254.0 |
|
|
244.7 |
|
|||
|
Prepaid expenses and other |
353.2 |
|
|
373.7 |
|
|||
|
Total current assets |
2,891.1 |
|
|
2,981.2 |
|
|||
|
|
|
|
|
|||||
|
Property, plant and equipment, net |
2,609.6 |
|
|
2,636.6 |
|
|||
|
|
7,388.5 |
|
|
7,865.0 |
|
|||
|
Intangible assets, net |
3,905.1 |
|
|
4,034.5 |
|
|||
|
Joint venture partnerships and equity method investments |
67.0 |
|
|
84.9 |
|
|||
|
Deferred income taxes |
6.5 |
|
|
8.8 |
|
|||
|
Other assets, net |
430.6 |
|
|
435.4 |
|
|||
|
Total assets |
$ |
17,298.4 |
|
|
$ |
18,046.4 |
|
|
|
|
|
|
|
|||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|||||
|
|
|
|
|
|||||
|
Current liabilities: |
|
|
|
|||||
|
Accounts payable |
$ |
568.7 |
|
|
$ |
632.3 |
|
|
|
Accrued expenses and other |
828.1 |
|
|
942.4 |
|
|||
|
Unearned revenue |
432.9 |
|
|
451.0 |
|
|||
|
Short-term operating lease liabilities |
202.7 |
|
|
206.5 |
|
|||
|
Short-term finance lease liabilities |
8.2 |
|
|
8.4 |
|
|||
|
Short-term borrowings and current portion of long-term debt |
417.4 |
|
|
415.2 |
|
|||
|
Total current liabilities |
2,458.0 |
|
|
2,655.8 |
|
|||
|
|
|
|
|
|||||
|
Long-term debt, less current portion |
5,790.2 |
|
|
5,789.8 |
|
|||
|
Operating lease liabilities |
609.8 |
|
|
596.6 |
|
|||
|
Financing lease liabilities |
89.3 |
|
|
91.1 |
|
|||
|
Deferred income taxes and other tax liabilities |
943.1 |
|
|
942.8 |
|
|||
|
Other liabilities |
369.4 |
|
|
383.2 |
|
|||
|
Total liabilities |
10,259.8 |
|
|
10,459.3 |
|
|||
|
|
|
|
|
|||||
|
Commitments and contingent liabilities |
|
|
|
|||||
|
Noncontrolling interest |
18.5 |
|
|
20.1 |
|
|||
|
|
|
|
|
|||||
|
Shareholders’ equity: |
|
|
|
|||||
|
Common stock, 97.1 and 97.2 shares outstanding at |
9.0 |
|
|
9.0 |
|
|||
|
Additional paid-in capital |
— |
|
|
26.8 |
|
|||
|
Retained earnings |
7,529.0 |
|
|
7,903.6 |
|
|||
|
Less common stock held in treasury |
— |
|
|
— |
|
|||
|
Accumulated other comprehensive loss |
(517.9 |
) |
|
(372.4 |
) |
|||
|
Total shareholders’ equity |
7,020.1 |
|
|
7,567.0 |
|
|||
|
Total liabilities and shareholders’ equity |
$ |
17,298.4 |
|
|
$ |
18,046.4 |
|
|
|
LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions) |
||||||||
|
|
Three Months Ended |
|||||||
|
|
2020 |
|
2019 |
|||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|||||
|
Net earnings (loss) |
$ |
(316.9 |
) |
|
$ |
185.9 |
|
|
|
|
|
|
|
|||||
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: |
|
|
|
|||||
|
Depreciation and amortization |
144.6 |
|
|
135.5 |
|
|||
|
Stock compensation |
17.9 |
|
|
25.5 |
|
|||
|
Operating lease right-of-use asset expense |
57.2 |
|
|
61.2 |
|
|||
|
|
437.4 |
|
|
— |
|
|||
|
Deferred income taxes |
5.1 |
|
|
17.1 |
|
|||
|
Other |
43.3 |
|
|
7.0 |
|
|||
|
Change in assets and liabilities (net of effects of acquisitions and divestitures): |
|
|
|
|||||
|
Decrease (increase) in accounts receivable |
46.7 |
|
|
(90.8 |
) |
|||
|
Increase in unbilled services |
(1.1 |
) |
|
(26.4 |
) |
|||
|
(Increase) decrease in supplies inventory |
(10.6 |
) |
|
3.4 |
|
|||
|
(Increase) decrease in prepaid expenses and other |
(3.0 |
) |
|
7.2 |
|
|||
|
Decrease in accounts payable |
(56.5 |
) |
|
(28.8 |
) |
|||
|
(Decrease) increase in deferred revenue |
(11.2 |
) |
|
5.6 |
|
|||
|
Decrease in accrued expenses and other |
(149.1 |
) |
|
(136.6 |
) |
|||
|
Net cash provided by operating activities |
203.8 |
|
|
165.8 |
|
|||
|
|
|
|
|
|||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|||||
|
Capital expenditures |
(106.6 |
) |
|
(94.2 |
) |
|||
|
Proceeds from sale of assets |
7.0 |
|
|
3.9 |
|
|||
|
Proceeds from sale or distribution of investments |
0.9 |
|
|
0.4 |
|
|||
|
Investments in equity affiliates |
(7.9 |
) |
|
(3.3 |
) |
|||
|
Acquisition of businesses, net of cash acquired |
— |
|
|
(47.3 |
) |
|||
|
Net cash used for investing activities |
(106.6 |
) |
|
(140.5 |
) |
|||
|
|
|
|
|
|||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|||||
|
Proceeds from revolving credit facilities |
151.7 |
|
|
133.2 |
|
|||
|
Payments on revolving credit facilities |
(151.7 |
) |
|
(133.2 |
) |
|||
|
Net share settlement tax payments from issuance of stock to employees |
(22.0 |
) |
|
(19.4 |
) |
|||
|
Net proceeds from issuance of stock to employees |
26.9 |
|
|
24.7 |
|
|||
|
Purchase of common stock |
(100.0 |
) |
|
(100.1 |
) |
|||
|
Other |
(7.7 |
) |
|
(8.4 |
) |
|||
|
|
|
|
|
|||||
|
Net cash used for financing activities |
(102.8 |
) |
|
(103.2 |
) |
|||
|
|
|
|
|
|||||
|
Effect of exchange rate changes on cash and cash equivalents |
(8.3 |
) |
|
(0.1 |
) |
|||
|
|
|
|
|
|||||
|
Net decrease in cash and cash equivalents |
(13.9 |
) |
|
(78.0 |
) |
|||
|
Cash and cash equivalents at beginning of period |
337.5 |
|
|
426.8 |
|
|||
|
|
|
|
|
|||||
|
Cash and cash equivalents at end of period |
$ |
323.6 |
|
$ |
348.8 |
|||
|
Condensed Combined Non-GAAP Pro Forma Segment Information (Dollars in Millions) |
||||||||
|
|
Three Months Ended |
|||||||
|
|
2020 |
|
2019 |
|||||
|
|
|
|
|
|||||
|
Revenues |
$ |
1,702.0 |
|
|
$ |
1,722.0 |
|
|
|
|
|
|
|
|||||
|
Adjusted Operating Income |
$ |
254.2 |
|
|
$ |
310.4 |
|
|
|
Adjusted Operating Margin |
14.9 |
% |
|
18.0 |
% |
|||
|
|
|
|
|
|||||
|
Covance Drug Development |
|
|
|
|||||
|
Revenues |
$ |
1,143.8 |
|
|
$ |
1,074.7 |
|
|
|
|
|
|
|
|||||
|
Adjusted Operating Income |
$ |
150.8 |
|
|
$ |
138.0 |
|
|
|
Adjusted Operating Margin |
13.2 |
% |
|
12.8 |
% |
|||
|
|
|
|
|
|||||
|
Consolidated |
|
|
|
|||||
|
Revenues |
$ |
2,823.8 |
|
|
$ |
2,791.2 |
|
|
|
|
|
|
|
|||||
|
Adjusted Segment Operating Income |
$ |
405.0 |
|
|
$ |
448.4 |
|
|
|
Unallocated corporate expense |
$ |
(39.1 |
) |
|
$ |
(37.0 |
) |
|
|
Consolidated Adjusted Operating Income |
$ |
365.9 |
|
|
$ |
411.4 |
|
|
|
Adjusted Operating Margin |
12.9 |
% |
|
14.7 |
% |
|||
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.
|
Reconciliation of Non-GAAP Measures (Dollars in millions, except per share data) |
|||||||||||
|
|
|
|
|
Three Months Ended |
|||||||
|
|
|
|
|
2020 |
2019 |
||||||
|
|
|
|
|||||||||
|
Adjusted Operating Income |
|
|
|||||||||
|
Operating Income |
$ |
(192.6 |
) |
$ |
318.2 |
|
|||||
|
Amortization of intangibles and other assets |
(a) |
62.3 |
|
57.1 |
|
||||||
|
Restructuring and other charges |
(b) |
|
25.4 |
|
20.6 |
|
|||||
|
Acquisition and disposition-related costs |
(c) |
8.4 |
|
11.1 |
|
||||||
|
LaunchPad system implementation costs |
(d) |
0.9 |
|
2.4 |
|
||||||
|
Executive transition expenses |
(e) |
|
2.8 |
|
1.4 |
|
|||||
|
COVID-19 related costs |
(f) |
|
|
21.9 |
|
— |
|
||||
|
|
(g) |
437.4 |
|
— |
|
||||||
|
Other |
|
(0.6 |
) |
0.6 |
|
||||||
|
Adjusted operating income |
$ |
365.9 |
|
$ |
411.4 |
|
|||||
|
|
|
|
|
||||||||
|
Adjustments impacting revenues |
(h) |
|
$ |
17.0 |
|
$ |
— |
|
|||
|
|
|
|
|
|
|
||||||
|
Adjusted operating margin |
12.9 |
% |
14.7 |
% |
|||||||
|
|
|
|
|
||||||||
|
Adjusted Net Income |
|
|
|
|
|
||||||
|
Net Income |
$ |
(317.2 |
) |
$ |
185.6 |
|
|||||
|
Impact of adjustments to operating income |
558.5 |
|
93.2 |
|
|||||||
|
Losses on venture fund investments, net |
(i) |
20.2 |
|
6.2 |
|
||||||
|
Income tax impact of adjustments |
(j) |
|
(29.4 |
) |
(24.3 |
) |
|||||
|
Adjusted net income |
$ |
232.1 |
|
$ |
260.7 |
|
|||||
|
|
|
|
|
|
|
||||||
|
Weighted average diluted shares outstanding |
97.9 |
|
99.5 |
|
|||||||
|
|
|
|
|
|
|
||||||
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Adjusted net income per share |
$ |
2.37 |
|
$ |
2.62 |
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(a) |
Amortization of intangible assets acquired as part of business acquisitions. |
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(b) |
Restructuring and other charges represent amounts incurred in connection with the elimination of redundant positions within the organization in connection with our LaunchPad initiatives and acquisitions or dispositions of businesses by the Company. |
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(c) |
Acquisition and disposition-related costs include due-diligence legal and advisory fees, retention bonuses and other integration and disposition related activities in connection with contemplated and completed transactions. |
|
(d) |
LaunchPad system implementation costs include non-capitalized costs associated with the implementation of a system as part of the LaunchPad business process improvement initiative. |
|
(e) |
Represents executive transition expenses related to various management reorganizations. |
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(f) |
Costs related to incremental operating expenses and receivables reserves incurred as a result of the COVID-19 pandemic. |
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(g) |
During the first quarter of 2020, the Company determined that certain goodwill and long-lived assets were impaired and that an additional valuation allowance on a note receivable from a business divestiture was necessary to reflect an increase in the collection risk. These charges were triggered by the current economic conditions as a result of the COVID-19 pandemic. |
|
(h) |
The Company estimates that, as a result of increases in unemployment and the potential financial difficulties of medical practices from the impact of the COVID-19 pandemic, receivable reserves needed to be increased in the |
|
(i) |
The Company makes venture fund investments in companies or investment funds developing promising technology related to its operations. The Company recorded net gains and losses for the quarter related to several distributions from venture funds, increases in the market value of investments, and impairments of other investments due to the underlying performance of the investments. |
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(j) |
Income tax impact of adjustments calculated based on the tax rate applicable to each item. |
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