Labcorp Sees Strong Organic Growth From Hospital Outsourcing Deals Overcoming COVID-19 Headwinds
Labcorp has reported its third-quarter results for 2023 results with total revenue of $3.06 billion, representing a notable 6.6% increase compared to the same period in the previous year. Analysts had been forecasting total revenue of $2.99 billion. The company’s noted that its base business excluding COVID-19 was exceptionally strong growing by an impressive 14.0% and 10.8% on an organic basis.
Looking at the company’s two business units, Diagnostic Laboratories revenue for was $2.34 billion, marking a 6.2% increase compared to the third quarter of 2022. Total volume, measured by requisitions, increased by 2.3%, with organic volume contributing a 3.4% increase. Excluding COVID-19, the Diagnostic Laboratories base business grew 16% far exceeding growth from major competitor Quest Diagnostics. However, organic base volume growth was similar for both companies. Looking at the components of growth, base organic volumes grew 3.6%, acquisition volume added 3.6%, and revenue per requisition increased 9.2%. Management noted that the Ascension lab management agreement was a major driver of growth, including contributing 6% to pricing, and annualized in September.
The company noted that it is actively sourcing new hospital outreach business and highlighted a number of transactions in the quarter. The company noted the acquisition of select operating assets of Tufts Medicine, the acquisition of select outreach laboratory assets of Providence Health & Services – Oregon. Additionally, Labcorp signed an agreement to acquire the outreach laboratory business and manage the hospital laboratories of Legacy Health and select operating assets of Baystate Health in the quarter.
Biopharma Laboratory Services revenue was $719.1 million for the quarter, reflecting an increase of 7.9% compared to the same period in the previous year. Trailing 12-month book-to-bill was 1.12, a little below other CROs who have reported so far and management noted some softness in the third quarter.
From a profitability perspective, adjusted operating income, excluding certain charges, was $423.9 million, or 13.9% of revenue. Adjusted EPS for the quarter were $3.38 vs. street forecasts of $3.32. Operating cash flow from continuing operations increased to $275.5 million compared to $253.0 million in the third quarter of 2022.
The company tightened its revenue growth guidance for the year to 1.9% to 2.7% compared to previous guidance of 1.5% to 3.0%. The company also tightened its adjusted EPS for the full year is expected to be in the range of $13.25 to $13.75. Management noted that for 2024 it is assuming the Patient Access to Medicare Act would be an $80 million headwind, unless it is delayed again. The company also noted that LDT regulation would impact less than 10% of total volume.