Labcorp Holdings Inc. Q1 FY2022 Earnings Call

Good day, and thank you for standing by. Welcome to the Labcorp's First Quarter 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now hand the conference over to your speaker today, Chas Cook, Vice President, Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Labcorp'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 Investor Relations section of our website at www.labcorp.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 company's businesses, operating and financial results, cash flows and/or financial condition, including the COVID-19 pandemic and the general economic and market conditions, our response to the COVID-19 pandemic, future business strategies, expected savings and synergies and opportunities for future growth. Each of the forward-looking statements is 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 quarterly 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'll turn the call over to Adam Schechter.

Thank you, Chas, 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 US 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 4.4% versus last year as both routine and esoteric testing saw a significant uptick after an initial slowdown in January. In Drug Development, our book-to-bill remains strong at 1.23 on a trailing 12-month basis. Our backlog increased to $15.2 billion, an increase of 8.7% 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 CTTS, 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 70,000 per day for the quarter. Testing rates have since declined and we expect the decline to continue for the remainder of the year. Time to results for COVID PCR tests is currently one day on average. We are maintaining our ability to process 300,000 PCR tests per day, pending supplies and labor, to help the country remain prepared for potential new waves of infections or new variants as a public health emergency persists. I'll now highlight examples of progress on our strategy. In oncology, 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 PGDx, and the integration is going smoothly. PGDx's 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 PGDx's kitted solutions will allow Labcorp to expand genomic profiling globally and help our pharmaceutical clients identify more personalized treatments for patients. In addition, we recently announced a new collaboration with Xcell Biosciences to advance the development of cell and gene therapy research. This follows our previous investment in the company and is designed to help clients more effectively bring innovative cell and gene therapies to market. Next, Labcorp continues to intensify its customer focus and embed data and digitalization throughout the business. In February, we launched our innovative Labcorp on-demand digital health platform. We have a pipeline of tests focused on preventive wellness and health monitoring, 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 for people with advanced liver fibrosis due to NASH. This test helps provide an assessment of the risk of liver disease progression and allows for earlier intervention that can support better patient outcomes. And we became the first US commercial laboratory to offer quantitative tests for detecting and measuring unintentional gluten consumption, which can help with the management of celiac disease. Labcorp continues to be committed to pursuing short- and long-term high-growth opportunities. During the quarter, we entered into and expanded several strategic relationships with hospitals and health systems. Last month, we announced our strategic relationship with Prisma Health, the largest health system in South Carolina. As part of the arrangement, Labcorp agreed to acquire select outreach business assets and provide ongoing technical support to their hospital laboratories. This allows us to offer Prisma's patients and providers the benefit of enhanced care across multiple pinnacle areas. We also expanded our relationship with AtlantiCare 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 the outreach business of St. Dominic Hospital in Jackson, Mississippi. This builds on our 2020 acquisition of the outreach program of Franciscan Missionaries of Our Lady Health System. As I previously reported in February, we entered into a comprehensive laboratory relationship with Ascension, one of the US 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 for this 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 to 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 sustainability journey, including our pursuit of a science-based target 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 in the communities where we live and work. The report is available through our Investor Relations website, and I'd encourage you to read it to better understand Labcorp's 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 earlier this month, Labcorp initiated a quarterly dividend and announced a cash dividend of $0.72 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, Glenn 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 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, a decrease of 6.3% 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 4.5% 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 20.4% 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 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 EPS, which exclude amortization, restructuring charges and special items, was $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 $1.7 billion 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 600,000 shares as part of our $1 billion accelerated share repurchase program, which was completed on April 1. At the end of the quarter, we had $1.5 billion of share repurchase authorization remaining. Now I'll review our segment performance. Given 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 ED; clinical trial testing solutions, or CTTS; and clinical development and commercialization services, or CDCS. 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 0.5%. COVID testing revenue was down 43% compared to COVID testing last year, while the Base Business grew 5.6% compared to the Base Business last year. Relative to the first quarter of 2019, the compound annual growth rate for Base Business revenue was 3.7%, primarily due to organic growth. Total volume decreased 5% compared to last year as organic volume decreased by 5.3%, partially offset by acquisition volume of 0.3%. COVID testing volume was down 38% compared to COVID testing last year, while Base Business volume grew 4.4% 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 testing of 6.3%, partially offset by acquisitions of 0.2% and organic Base Business growth of 0.1%. Base Business price/mix was up 1.2% compared to the Base Business last year, benefiting from an increase in tests per session, esoteric 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 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 1.5% compared to last year due to organic Base Business growth of 4.3% and acquisitions net of divestitures of 0.1%, partially offset by lower COVID testing of 1.7% and foreign currency translation of 1.2%. Base Business revenue compared to Base Business last year grew 3.3% or 4.5% on a constant currency basis. The growth was led by ED. We also experienced good growth in CDCS, although constrained by Omicron and the conflict in Ukraine. CTTS 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 testing, reduced COVID vaccine and therapeutic work, the impact from the conflict in Ukraine, higher personnel expenses, 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 to decline 1.5% to 5.5% 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 testing is expected to decline 60% to 70%. We expect Diagnostics revenue to decline 11.5% 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 COVID 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 4.5%, primarily driven by organic growth. We expect Drug Development revenue to grow 6% to 8.5% 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 addition, the guidance change reflects the conflict in Ukraine, which was partially offset by the benefit of the acquisition of PGDx. This guidance range of 6% to 8.5% 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 6.5% to 9% compared to 2021. We expect to benefit from growth in all three businesses, led by ED and CDCS. 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 $0.38 compared to the prior guidance. Our guidance range is now $18.25 to $21. Free cash flow guidance remains unchanged at $1.7 billion to $1.9 billion. For additional comparison purposes, we've 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 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.

Our first question comes from Brian Tanquilut with Jefferies.

Thank you for the question, and great job on the quarter. Considering some of the specific challenges you've mentioned and the detailed information you've provided regarding Covance, could you elaborate on how we should view its progression throughout the year? Also, since large pharma has been an area of focus for you alongside oncology, could you share your exposure there and how it might influence growth rates beyond 2022?

We had a solid quarter in our Drug Development segment, despite facing some known challenges. Early in the year, we anticipated that the first quarter would be the most difficult due to the effects of Omicron, which we observed across both our Drug Development and Diagnostics divisions. The encouraging news is that each month showed improvement for both sectors. The impact of Omicron affected different parts of our business in varying ways. For instance, our central laboratory business was the most significantly affected and experienced the effects first. In the Diagnostics segment, we saw those effects primarily in the U.S., but those issues resolved quickly. After January, we noted a rapid recovery in our Base Business and Diagnostics. However, Drug Development, particularly the central laboratory segment, had a different experience as it operates globally, and we continued to see effects from Omicron in certain regions of Europe. Towards the end of the quarter, the situation in Ukraine also played a role. Looking ahead for the remainder of the year, we feel optimistic as March showed improvements compared to January and February, and we are currently on a positive trajectory. While we anticipate some ongoing challenges related to Ukraine in the second quarter, we expect to maintain progress as the year unfolds.

Our next question comes from Jack Meehan with Nephron Research.

So I have a couple of questions on the Drug Development business. The first is on margins. So understand some of the pressures you talked about at the start of 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 pronounced than others have reported. So was curious to get your thought as to what might have been unique to the Labcorp business that drove kind of more pressure than others.

As I mentioned earlier, we started experiencing some pressure at the beginning of the year. In February, we acknowledged this. Our CTTS, or central laboratory business, is quite large, larger than most competitors. The most significant impact from Omicron was felt in that area. For instance, our CTTS growth rate, which we are now breaking down by segment, was lower than other segments due to the strong performance in the first quarter of last year. We were ready to handle central laboratory work similar to last year's first quarter since we anticipated the impact of Omicron in December and January, and tried to keep as many people as possible prepared for a potential surge in volume from boosters. However, the volume from boosters this year was much lower than what we experienced from the initial vaccines last year. Additionally, in our early development business, we faced inflationary pressures, particularly in utilities, research, and product costs. We plan to offset these pressures with price increases and cost reductions. As I mentioned at the start of the year, inflation hits all at once, and it takes time to adjust and reduce costs. Throughout the quarter, we observed improvements across all our business segments on a month-over-month basis. Therefore, we are confident about maintaining a good trajectory for the remainder of the year.

Can you discuss the effects that the lockdowns in China might be having on the business? How are you managing your labs in that region? Has it affected your access to large molecules or large models in any way?

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 and doing everything we can to help them. In fact, we have some employees that are basically living in the laboratories right now so that they can continue to keep the work going while the lockdowns are occurring. We have not seen 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 has not inhibited our ability to do the studies that we need to do at this point in time, Jack.

Our next question comes from Ricky Goldwasser with Morgan Stanley.

So a couple of questions here. First on ..., and just kind of like thinking, you talked about kind of like these headwinds in the quarter, sort of COVID, Ukraine and then inflation. Can you just maybe quantify each of these areas of headwinds? I think 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 packet, you compare lab volumes to 2019 baseline, which is very helpful. Can you just give us a little bit more color on the core volume performance versus 2019 by market? I think ... is down 50 basis points on volume 1Q '22 versus 1Q '19. If you can talk about what you're seeing versus baseline by market or on an organic basis as well.

I will start with the lab volumes, and then I'll ask Glenn to provide some insights regarding the quantifications you inquired about. In terms of Diagnostics, we reported strong quarterly revenue of approximately $2.5 billion. The Base Business revenue increased by about 5.6% compared to last year, and when looking at the compounded rate from 2019, it grew by 3.9%. Our Base Business volume also rose about 4.4% compared to last year. It’s essential to note that when comparing the volume to 2019, we remained largely flat. As you might remember, Ricky, we indicated in February that our Base Business was down 8% compared to 2019 in January. This highlights the strength we experienced in February and March, showcasing a significant recovery which instills confidence. There were no notable differences between our esoteric and non-esoteric business, nor did we see substantial geographic shifts. There were some fluctuations with Omicron in the northeast, which later transitioned to the southeast, but nothing critical to highlight. Overall, we observed a robust rebound in our Base Business throughout February and March, reflected in the fact that we were flat for the quarter compared to 2019, especially after January's 8% decline relative to January 2019.

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 compound annual growth rate to be just down to 0.5%, 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, call it, 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. And Ukraine probably closer to rounding to around $10 million. So when we think that both of those primarily impacted the CTTS 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 and 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 have expected the business to do.

And can you just remind us, when we think about the margin, it's kind of like a preclinical central lab versus clinical.

So we don't break out the margins for the businesses. As you saw in the additional material that we provided, we went out and looked, obviously, at our peers and what's provided and just looking at what additional information. And 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, our belief, and obviously, our peers that do similarly, look at it on a segment basis because there's so much that are shared assets between the businesses that we feel that providing it as a trend, if you will, on the 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 overall in the businesses.

Our next question comes from Eric Coldwell with Baird.

I feel like we're lacking sufficient disclosures regarding the reasons for the lab or CRO margin being poor this quarter. I'm hoping we can explore that in more detail. My first question is about the early development and the inflation costs you mentioned, as well as some potential issues with research model supply pricing. Are you at a disadvantage due to not having your own animal model business? Is that one of the significant challenges in early development, as you may not have the same supply access that some of your larger peers do?

The margin of 11.6% is clearly lower than what we have achieved in the past. When breaking down the factors, the research product plays a significant role, as we are facing substantially higher costs associated with it. As Adam mentioned earlier, we are now having to manage change orders, which is a timing issue. However, we believe we can pass on these increased costs to our customers, and many contracts explicitly allow for this with research products. The higher expenses created some constraints this quarter because we couldn't transfer those costs over. Additionally, we discussed the impact of utility costs and general inflation, along with effects stemming from the situation in Ukraine related to the vaccine. Historically, the first quarter has been lighter compared to how we close the year, and we tend to see improvements in subsequent quarters. As we’ve noted, we still expect full-year margins to be higher than last year, with an anticipation that margins will increase year-on-year starting in the second quarter and continuing thereafter. Our confidence stems from the run rate we observed in March, despite facing some headwinds in transferring costs. We're currently at a margin level that gives us strong confidence not just for the next quarter but also for the full year, where we expect margins to align with or improve from the previous year in each subsequent quarter.

And if I could just stay on the same vein and one follow-up, same topic, it's related to central lab. Obviously, shipping, freight transports gone up. I'm not sure to what extent you've been able to pass on those costs, but we also heard this morning from ... that in their lab operations, they did have some supply component issues, more particularly around complex oncology components in central lab kits. I suspect you've faced a similar experience, but I was hoping you could give some color on that experience, what you're seeing. If it had an impact, how long you might expect that to continue if so?

So if you look at the supply, there were issues in the supply chain, I'd 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 there were higher impact to margins because, for example, if it's not a typical kit, 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 piece in there. But the good news is we were able to keep up with the demand from our pharma customers. We're 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 kits manually, then you put in more quality assurance where you check more of the kits to ensure if they're going out appropriately. So there is some expense that's 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 month-by-month. We don't provide monthly margins, but we look 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.

And Eric, just one last thing regarding the supply issue. We've observed that because we primarily operate on a just-in-time inventory basis within our central lab business, the global supply chain disruptions have affected us. We've since increased our inventory levels for the next three to six months due to ongoing uncertainties in the global situation. We will maintain this higher inventory to ensure that we can efficiently meet our customers' demands.

And having our Diagnostic business where a lot of the tubes and the things that you need are very similar, we're able to use supplies across the businesses when appropriate as well.

Our next question comes from Rachel Vatnsdal with JPMorgan.

This is Noah on for Rachel. I just wanted to dig in a little bit more into the backlogs. And could you maybe provide any additional color on your current customer base and as well as your backlog and sort of the composure by end market for like pre-revenue biotech versus pharma companies? And then maybe any additional metrics that you can think of, of how we should think about that percent trending throughout the year and going forward?

First of all, I'd say that the RFPs that are coming through are very strong. And if you look at our cancellation rates, they're very low. So we feel very good about the flow of business and the flow of RFPs and the flow of the trials coming. Our trailing 12-month book-to-bill was strong at 1.23. As you may recall, I say that we need to be at 1.20 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 midsized biotech than we do large pharma. If you look at our CTTS, which is our central lab, or CDCS, 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 seeing. We feel good about the backlog that we're seeing. And we're confident that the backlog supports the long-term guidance that we provided.

And you're seeing that sort of continue ...

Yes, I expect that to continue, that we'll continue to have a strong book-to-bill that will continue to be above the 1.2 threshold that we anticipate to be. So I feel good about that.

Our next question comes from Derik De Bruin with Bank of America.

This is Jon, on for Derik. Appreciate the new disclosures, but I wanted to ask what your underlying assumptions are for the full year in your ED, CTTS and CDCS. We know that your early stage and late stage should be going faster than central lab. But yes, wanted to look into your assumptions there. And also in mid-April, FDA issued a warning about the possibility of false results from NIPT. I was wondering what sort of exposure you have there through Sequenom, that'd be great.

I'll begin with NIPT. The revenue generated from this is very minimal. It's a screening test used in the United States, but its impact is negligible. We will ensure that the test remains accessible to physicians interested in using it, but it does not affect our overall business performance. Regarding the individual segments, we anticipate that the clinical segment, specifically the CDCS business, will experience the fastest revenue growth since we are not the market leader there, which provides us with greater growth potential. In contrast, the CTTS segment will show the slowest growth as we hold a significant market share in that area, limiting our growth opportunities. The ED business falls in between, ranking around first or second, with growth rates fluctuating compared to CDCS.

We have a question from Patrick Donnelly with Citi.

Obviously, a lot covered on the CRO piece. So maybe I'll ask on the lab side. Just on the COVID assumptions, 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 seasonality? I'm just trying to figure out the best way to model that piece.

As we said, for the first quarter, we averaged 70,000 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's 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's a whole range of possibilities on how you can get to that range. So one of the possibilities is, as you say, there's 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 there's not an uptick in November, the price would be at 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 there. My assumption is that the emergency declaration will continue through this year. We'll see if that occurs or not and I think volume will continue to decline throughout the year.

Thank you. And there are no other questions in the queue. I'd like to turn the call back to Adam for closing remarks.

Thank you, Catherine. So first of all, thank you again for joining us today. I'm really encouraged by our progress and the important work of our more than 75,000 employees around the world. I can tell you they are our greatest asset and we're focused on supporting our employees that are facing additional complexities and difficult situations. We have people in Shanghai, Ukraine, Russia, and we're really making sure that we're thinking about them as they 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.