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Text: More information is included in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and in the company's other filings with the SEC.
It's a pleasure to be with you today.
Labcorp is carrying on our mission to improve health and improve lives by harnessing the power of science, technology and innovation.
In doing so, we're able to execute against our strategy, to deliver strong results for stakeholders and to effectively respond to global challenges like the pandemic.
Our company rounded out a historic 2021 with another strong quarter that sets the stage for further success in 2022 and beyond.
In the fourth quarter, revenue totaled $4.1 billion, adjusted earnings per share reached $6.77, and free cash flow was $548 million.
For the full year, revenue was $16.1 billion, adjusted earnings per share totaled $28.52, and free cash flow reached $2.6 billion.
Our base business continued its progress during the quarter, with diagnostics and drug development revenue growing 8.8% and 8.2%, respectively.
In diagnostics, base business organic volume increased as esoteric and routine procedures continued their year-over-year growth.
drug development ended the year with a solid trailing 12-month net book-to-bill of 1.25 and a strong backlog of $15 billion, representing a $579 million increase in the third quarter.
Also decentralized clinical trial awards were up 62% over the prior year.
Moving to the pandemic.
Our ongoing response remains an example of how innovation can drive success.
For nearly two years, Labcorp has dedicated significant resources to stemming the spread of the virus.
We are proud of the progress we've made thus far, though the rise of variants like Omicron and surges in infection rates make it clear that our work is not over.
We continue to leverage Labcorp's comprehensive capabilities to expand testing access, to identify and monitor new variants and to advance vaccine and therapy development.
In the fourth quarter, COVID testing volumes were greater than anticipated.
We have performed over 74 million tests for COVID to date, of which approximately 8.6 million were in the fourth quarter.
This heightened demand continued into the new year, although volume is significantly less now than in December or in January.
Time to results for COVID PCR test remained one to two days on average even during the latest surge.
As we've done throughout the pandemic, we are keeping capacity levels high to quickly respond to spikes and testing needs.
We are continuing to invest in equipment, elevated staffing levels and our supply chain.
In addition, we remain prepared and staffed to support additional drug development work for vaccines including boosters or additional therapies.
The company's COVID-related innovations in the quarter included the rollout of observed self-collection for COVID PCR testing at over 1,000 patient service centers.
And at the start of the fourth quarter, we announced the receipt of FDA Emergency Use Authorization for a combined COVID and flu at-home collection kit.
These offerings are reflective of our work to make COVID testing faster, easier and more accessible.
I'll now turn to our enterprise strategy, where we made significant progress in 2021.
I'll provide a few highlights that will give you a sense of our growth and our forward momentum.
In oncology, we made significant strides in fortifying our position as a leader by expanding diagnostic offerings and clinical trial opportunities.
At the same time, we followed through on our commitment to improve cancer care access.
Last year, we formed our oncology business unit, and we introduced our enterprise oncology offering.
Genomic profiling of tumors is key to identifying the best targeted therapy for oncology patients.
In December, we announced our agreement to acquire Personal Genome diagnostics or PGDx.
The company has a strong portfolio of innovative liquid biopsy and tissue-based products which complement our existing capabilities.
Through PGDx' kitted solutions, we can provide oncologists access to tumor profiling at the hospitals where the patients are treated or centralized to one of our laboratories.
These solutions may also enable us to expand tumor profiling globally to help our pharmaceutical sponsors find the right novel treatment for patients.
We expect the transaction to close in the first quarter of this year.
Other exciting expansions of our oncology test menu included clonoSEQ, the first and only FDA-cleared test for monitoring residual blood cancer; and OmniSeq INSIGHT, a pan-cancer tissue-based sequencing test for people with late-stage solid tumors.
All of these offerings can help physicians make more informed decisions about treatments for their patients and help bring new medicines to market for cancer.
In 2021, we intensified our customer focus and embedded technology and data throughout our business.
This included improvements to the patient experience in our service centers.
These upgrades focused on creating a seamless journey from appointment scheduling to service center visits to easier access to results.
Our acquisition of Ovia Health enhanced our position as an important source of information for women's health which we support through diagnostic, genetic and specialty testing expertise as well as clinical trials.
We will continue to identify opportunities to enhance Ovia Health's innovative platform that provides family planning, pregnancy and parenting support.
Additionally, we began to deploy Labcorp Diagnostic Assistant.
This new tool delivers a detailed view of a patient's lab history along with clinical insights directly to the point of care to inform diagnostic decisions.
We opened an automated kit production line in Belgium in the spring.
And in the fourth quarter, we opened an integrated laboratory in Singapore, which strengthens our bioanalytical services in the Asia Pacific region.
And just this month, we announced the launch of Labcorp OnDemand which builds on the success of Pixel by Labcorp.
This suite of health tests and services offers easy and convenient access to a wide variety of trusted tests.
It's another way that Labcorp is meeting people where they are and offering more options for people to stay healthy.
We pursued numerous opportunities throughout the year that have long-term and high-growth potential.
We did this through tuck-in deals and strategic acquisitions including: OmniSeq, Ovia Health, PGDx, and Myriad Autoimmune's Vectra test which analyzes biomarkers to measure rheumatoid arthritis.
Yesterday, we announced a comprehensive strategic agreement with Ascension, one of the largest health systems in the United States.
Through our new long-term relationship with Ascension, we will manage its hospital-based laboratories in 10 states, and we will purchase select assets of its outreach laboratory business for approximately $400 million.
We expect the first year annualized revenues to be between $550 million and $600 million from the combined hospital business and lab asset acquisition.
While operating margins are expected to be less than segment margins initially, they are expected to improve each year.
The transaction is expected to be accretive to our earnings and cash flow in year 1 and should return its cost of capital by year 2.
This is a notable opportunity for us and one of the most significant deals of its kind in the sector.
It expands our clinical services in several states across the country, and it builds on our strong track record of building similar relationships.
The deal with Ascension also underscores our ability to help health systems manage industrywide shifts.
As part of the collaboration, we will explore clinical trial and oncology opportunities that enhance patient access.
We look forward to this new partnership and ultimately to welcoming new colleagues to Labcorp.
We also reached agreements with other hospitals and hospital systems including Minnesota-based North Memorial Health.
We continue to be excited about our robust M&A pipeline and expect more activity in the coming months.
In 2021, we provided the highest-quality service to customers and patients, and we made meaningful investments in our people.
In fact, Labcorp has consistently been recognized for the impact of our work and for the value we place on our employees.
We were recently named again to Fortune magazine's list of World's Most Admired Companies.
And for the fifth consecutive year, the Human Rights Campaign Foundation designated Labcorp as the best place to work for LGBTQ+ equality.
We were also deemed one of America's most responsible companies for 2022 by Newsweek.
Importantly, in 2021, management and the board of directors, working with outside advisors, thoroughly reviewed our structure and capital allocation.
As part of the comprehensive review of our structure, we had extensive discussions with third parties, and the board considered a wide range of options including significant acquisitions, divestitures, spinning off businesses as well as spinning and merging those businesses with strategic partners.
The board unanimously concluded that the company's existing structure is in the best interest of all stakeholders at this time.
That said, we continue to believe that Labcorp shares are not fully valued in the marketplace.
To that end, we announced several actions designed to further enhance shareholder value.
Among them are the initiation of a dividend starting in the second quarter of 2022 as well as a $2.5 billion share repurchase program, $1 billion of which is being repurchased on an accelerated basis.
We are also implementing a new LaunchPad business process improvement initiative that targets $350 million in savings over the next three years.
And today, in addition to giving 2022 guidance, we will also share a longer-term outlook.
And beginning with first quarter results, we will provide additional business insights through enhanced disclosures.
Moving forward, we are committed to profitable growth through investments in science, innovation and new technology.
As we execute on our strategy, management and board will continue to evaluate all avenues for enhancing shareholder value.
In conclusion, our strong base business performance, coupled with formidable progress against our strategic priorities in 2021, sets us up for long-term success.
This gives us great confidence in our longer-term, growth-oriented, bright outlook which Glenn will take you through, along with our 2022 guidance.
I am proud of what the team at Labcorp accomplished together in 2021, and I am excited for all that's to come this year and into the future as we continue to deliver for all of our stakeholders.
I'm going to start my comments with a review of our fourth quarter results, followed by a discussion of our performance in each segment, our 2022 full year guidance and then conclude with our longer-term outlook through 2024.
Revenue for the quarter was $4.1 billion, a decrease of 9.7% compared to last year due to declines in organic revenue of 10.3% and divestitures of 0.1%, partially offset by acquisitions of 0.6% and favorable foreign currency translation of 10 basis points.
The 10.3% decline in organic revenue was driven by a 15.3% decrease in COVID testing, partially offset by a 5% increase in the company's organic base business.
Operating income for the quarter was $731 million or 18% of revenue.
During the quarter, we had $93 million of amortization and $79 million of restructuring charges and special items.
Excluding these items, adjusted operating income in the quarter was $902 million or 22.2% of revenue compared to $1.4 billion or 31.8% last year.
The decrease in adjusted operating income and margin was due to a reduction in COVID testing.
Excluding COVID testing, the base business compared to the base business last year experienced higher adjusted operating income and margins due to organic growth and LaunchPad savings, partially offset by higher personnel costs.
The tax rate for the quarter was 19.3%.
The adjusted tax rate excluding restructuring charges, special items and amortization, was 24.6% compared to 24.8% last year.
Going forward, we continue to expect the adjusted tax rate to be approximately 25% excluding any impact from potential tax reform.
Net earnings for the quarter were $553 million or $5.75 per diluted share.
Adjusted earnings per share which exclude amortization, restructuring charges and special items, were $6.77 in the quarter, down from $10.56 last year.
Operating cash flow was $698 million in the quarter compared to $775 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 $150 million compared to $99 million last year.
And as a result, free cash flow was $548 million in the quarter compared to $675 million last year.
During the quarter, we used $1 billion of our cash flow for our accelerated share repurchase program and invested $171 million on acquisitions.
Now, I'll review our segment performance, beginning with diagnostics.
Revenue for the quarter was $2.6 billion, a decrease of 16.9% compared to last year due to organic revenue being down 17.8%, partially offset by acquisitions of 0.7% and favorable foreign currency translation of 20 basis points.
The decrease in organic revenue was due to a 21.8% reduction from COVID testing partially offset by a 4.1% increase in the base business.
Relative to the fourth quarter of 2019, the compound annual growth rate for the base business revenue was 5% primarily due to organic growth.
Total volume decreased 8.7% compared to last year as organic volume decreased by 8.9% partially offset by acquisition volume of 0.3%.
The decrease in organic volume was due to a 14.6% decline in COVID testing partially offset by a 5.7% increase in the base business.
Price mix decreased 8.2% versus last year due to lower COVID testing of 7.2% and lower base business of 1.6% partially offset by acquisitions of 0.5% and currency of 0.2%.
Diagnostics organic base business revenue growth was 7.2% compared to its base business last year, with 8.1% coming from volume, partially offset by a 1% decline from price mix.
The price mix decline was primarily due to the recovery of our Canadian business which carries a lower average requisition price.
diagnostics adjusted operating income for the quarter was $776 million or 29.6% of revenue compared to $1.2 billion or 39.1% last year.
The decrease in adjusted operating income and margin was due to a reduction in COVID testing.
COVID testing margins were down compared to last year primarily due to a volume decline of approximately 50%, while the company continued to maintain capacity.
base business margins were higher compared to last year due to organic base business growth and LaunchPad savings partially offset by higher personnel costs.
diagnostics achieved its goal to deliver approximately $200 million of net savings from its three-year LaunchPad initiative.
Now, I'll review the performance of drug development.
Revenue for the quarter was $1.5 billion, an increase of 3.9% compared to last year due to organic base business growth of 7.9% and acquisitions of 0.3%, partially offset by lower COVID testing performed through its centralized business of 4% and divestitures of 0.3%.
Relative to the fourth quarter of 2019, the compound annual growth rate for base business revenue was 9.9% primarily driven by organic growth.
Adjusted operating income for the segment was $206 million or 14.2% of revenue compared to $248 million or 17.8% last year.
The decrease in adjusted operating income and margin was primarily due to lower COVID testing.
In the base business, higher personnel and other inflationary costs as well as investments in oncology capabilities were partially offset by organic growth and LaunchPad savings.
We continue to exclude the enterprise component of drug development bonus expense which is reflected in corporate unallocated and totaled $11 million for the quarter.
While margins were down in the quarter, they were up for the full year compared to 2020, and we expect margins to continue to increase in 2022.
For the trailing 12 months, net orders and net book-to-bill remained strong at $7.3 billion and 1.25, respectively.
Backlog at the end of the quarter was $15 billion, an increase of 8.7% compared to last year.
And we expect approximately $5 billion of this backlog to convert into revenue over the next 12 months.
Now, I'll discuss our 2022 guidance which assumes foreign exchange rates effective as of December 31, 2021, for the full year.
In addition, the guidance includes the softness we experienced in January due to Omicron which we expect will rebound through the rest of the quarter.
The enterprise guidance also includes the impact from currently anticipated capital allocation, with free cash flow targeted to acquisitions, share repurchases and dividends which we will initiate in the second quarter.
We expect enterprise revenue to decline one and a half to six and a half percent compared to 2021.
This guidance range includes the expectation that the base business will grow seven and a half to 10%, while COVID testing is expected to decline 60% to 75%.
We expect diagnostics revenue to decline 11 and a half to 17 and a half percent compared to 2021.
This guidance range includes the expectation that the base business will growth three and a half to 6%.
COVID testing revenue is expected to decline 60% to 75%.
At the midpoint of our base business guidance range, the compound annual growth rate compared to 2019 would be 4.4% primarily driven by organic growth in both volume and price mix.
We expect drug development revenue to grow 7% to 9.5% compared to 2021.
This guidance includes the negative impact from foreign currency translation of 40 basis points.
This guidance range also includes the expectation that the base business will grow seven and a half to 10% compared to 2021.
Given the amount of capacity we have within diagnostics, we've assumed that no COVID testing will be performed in drug development central lab business in 2022.
We expect to benefit from broad-based growth in all three businesses, helping drive continued margin improvement in the segment.
At the midpoint of our base business guidance range, the compound annual growth rate compared to 2019 would be 11.3%.
Our adjusted earnings per share guidance is $17.25 to $21.25 compared to 2021 adjusted earnings per share of $28.52.
The adjusted earnings per share guidance reflects the expectation of lower COVID testing in 2022, while the base business continues to profitably grow.
Free cash flow is expected to be between $1.7 billion to $1.9 billion compared to $2.6 billion in 2021.
Now, I'll discuss our longer-term outlook which reflects our current view of the business from 2022 to 2024.
We expect enterprise base business organic revenue to grow at a compound annual growth rate of 4% to 7% compared to 2021.
We also expect revenue growth from acquisitions to represent additional annual growth of 2% to 3%.
We expect diagnostics base business organic revenue to grow at a two and a half to four and a half percent CAGR compared to 2021.
This outlook is higher than historical growth driven by a continued recovery in our base business relative to 2021, broad-based growth including hospitals and health systems and the lower incremental impact of PAMA in the outlook period.
We expect drug development base business organic revenue to grow at a 7% to 10% CAGR compared to 2021.
This outlook is higher than our historical growth, and we have added capacity and inorganic investments in the last few years in our faster-growing early development and late-stage clinical businesses.
As we continue to emphasize profitable growth, we expect enterprise margin expansion of 30 to 50 basis points on average annually through the outlook period compared to 2021 which was approximately 14 and a half percent.
This margin expansion is due in part to the company's LaunchPad initiative which is expected to deliver $350 million of cost savings over the time period to help offset inflationary costs.
And finally, we expect adjusted earnings per share to grow at an 11% to 14% CAGR compared to 2020 -- '19 adjusted earnings per share of $11.32.
We continue to use 2019 as the base year comparison for earnings growth to better reflect the earnings power of the company excluding COVID testing.
The adjusted earnings per share outlook reflects the expectation that both base businesses will continue to profitably grow organically.
In addition, we expect to benefit from capital allocation directed toward accretive acquisitions and share repurchases while keeping within our targeted gross debt leverage of two and a half to three times.
For additional comparison purposes, we've also included in the supplemental deck on our investor relations website a view of 2021 fourth quarter and full year results, 2022 guidance and our longer-term outlook.
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.
For 2022, we expect to drive continued profitable growth in our base business, while COVID testing volumes are expected to decline through the year.
In addition, our longer-term outlook is expected to deliver double-digit adjusted earnings per share growth driven by top-line growth, margin improvement and capital allocation.
Operator, we'll now take questions.

user
q4 earnings per share $5.75.
q4 adjusted earnings per share $6.77.
q4 revenue $4.1 billion.
labcorp- full-year 2022 guidance: adjusted earnings per share of $17.25 to $21.25 and free cash flow of $1.7 billion to $1.9 billion.
labcorp - longer-term outlook (2022-2024): base business organic revenue compound annual growth of 4%-7% versus 2021.
labcorp - longer-term outlook (2022-2024) base business average annual margin expansion of 30 bps to 50 bps versus 2021.
labcorp - longer-term outlook (2022-2024) adjusted earnings per share compound annual growth of 11%-14% versus 2019.
labcorp sees fy 2022 total labcorp enterprise revenue down 6.5% to down 1.5%.
labcorp sees fy 2022 total drug development revenue up 7.0% to up 9.5%.

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