Earnings Call Transcript - LH Q4 2022

Operator, Operator

Good day, and thank you for being with us. Welcome to the Q4 and Full Year 2022 Labcorp Conference Call. Please note that today's conference is being recorded. I will now turn the conference over to your speaker today, Chas Cook, Head of Investor Relations. You may begin.

Chas Cook, Head of Investor Relations

Thank you, operator. Good morning, and welcome to Labcorp's fourth 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 business 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 2023 guidance and the related assumptions, the proposed spinoff of the clinical development business, 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 general economic and market conditions, future business strategies, expected savings and synergies, including from the LaunchPad initiatives, acquisitions and other transactions and opportunities for future growth. Each of the forward-looking statements are 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 other 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.

Adam Schechter, Chairman and CEO

Thank you, Chas. Good morning, everyone. It's a pleasure to be here with you today to discuss our fourth quarter results as well as the progress that we've made towards our strategy. 2022 ended strong for Labcorp with accelerated revenue growth in Diagnostics and continued strong underlying fundamentals in drug development. Drug development continued to have a tough year-over-year comparison, mostly due to less COVID-related work. In 2022, we took decisive actions to navigate a challenging operating environment. We advanced our strategy with the announcement of the planned spin of our clinical development business, and we closed several important hospital laboratory partnerships. I'll now discuss our fourth quarter performance. In the quarter, revenue totaled $3.7 billion. Adjusted earnings per share was $4.14 and free cash flow was $536 million. The base business remains strong. On a constant currency basis, excluding COVID testing revenue, enterprise base business revenue grew 6% in the fourth quarter versus prior year. Growth in diagnostics-based business revenue in the fourth quarter was strong due to both routine and esoteric testing and revenue from the Ascension partnership. COVID PCR testing volumes declined during the quarter as expected, totaling 1.4 million tests performed and averaging 16,000 per day. Looking forward, our Diagnostic business will accelerate with 10.5% to 12.5% base business growth, benefiting by around 5 percentage points with a full year of our Ascension partnership. For Drug Development, fourth quarter base business revenue in constant currency declined 1% versus prior year. Early development and clinical development both grew but were offset by lower central laboratory revenue due mostly to COVID-related work. Drug Development ended the quarter with a strong trailing 12-month book-to-bill of 1.27. Looking forward, we expect the momentum to continue in drug development orders, and we expect that site enrollment in kids returns will continue to increase throughout the year. We also anticipate the drug development business to return to 5% to 7% growth with a stronger second half than first half due to early development and the annualization of an FSP contract loss. Finally, in the quarter, the Board authorized a $1 billion increase to the company's share repurchase program bringing our remaining total share repurchase authorization to $1.5 billion. Glenn will provide more detail on our quarterly results and will review full year 2023 guidance in just a moment. Moving now to an update on the planned spin of our clinical development business. We have been pleased with the positive response from customers and employees, and we remain on track to complete the spin in mid-2023, subject to satisfying certain customary conditions. Recently, we unveiled Fortrea as the name of the clinical development business post spin. You can learn more by visiting fortrea.com. Also, in January, Tom Pipe joined Labcorp as President and CEO of our Clinical Development business. Tom will serve as Chief Executive Officer and Chairman of the Board of Fortrea, upon completion of the spin. Tom brings significant CRO experience, including serving as CEO of a public CRO. He has worked with many of our customers, and he knows the business well. We welcome Tom and look forward to working with him as we continue making progress towards the completion of the spin. Upon completion through a tax-free transaction, we will have two strong independent companies, Labcorp and Fortrea, which will emerge to the transaction with the ability to better meet customer needs to drive sustainable and profitable growth and deliver attractive shareholder returns. In the coming months, we plan to announce the Board of Directors of Fortrea, including the lead independent Director and other members of the executive leadership team. We also intend to host an Analyst Day in advance of the spin, and I look forward to working with Tom on timing. I'll now move to our enterprise strategy. We made significant advances on our strategy in 2022. We accelerated and closed several hospital and health system partnerships and acquisitions during the year. Most recently, we completed the integration of certain Ascension assets and operations. Labcorp now provides laboratory management services for nearly 100 hospitals across the Ascension hospital system. We are pleased with the smooth transition, and we want to thank our partners at Ascension for enabling our teams to help deliver the best patient care possible. In addition to Ascension, we entered strategic relationships with RWJBarnabas Health, AtlantiCare, Prisma Health and St. Dominic's during the year. The pipeline for hospital and local laboratory acquisition and investment is robust and will be a key area of opportunity for growth in 2023 and beyond. We also made progress in using digital technology and data to deliver better outcomes for patients. By significantly improving our web, mobile and digital channels, we've made it easier for customers to access critical data and health information. Using digital technology and artificial intelligence, we are reimagining our result reports to provide deeper insights, scientific expertise and clinical information to guide patient care. Additionally, we're encouraged by increased customer adoption of Labcorp's Diagnostic assistant, a tool that equips positions with the information they need to improve tariffs. Also, our investment in call center automation is improving the customer experience by enabling patients and providers to get answers faster through self-service features. Turning to oncology. We continue to expand our oncology capabilities to serve clinicians and drug development customers. In the fourth quarter, we launched a liquid biopsy test called Labcorp Plasma Focus. This test is used to match cancer patients with FDA-approved therapies using the patient's circulating tumor DNA taken from a blood draw. This is the first new product coming from Labcorp's acquisition of Personal Genome Diagnostics in 2022. Today, Labcorp offers customers and patients access to the most comprehensive oncology portfolio in the market. Our teams are evaluating and executing our growth opportunities in areas such as neurodegenerative, autoimmune and liver disease as well as cell and gene therapy and more. In 2022, our team supported over 5,000 clinical trials, worked at over 90% of new FDA approvals and launched over 130 new tests. In the area of neurodegenerative disease, for example, we launched new tests to assist the diagnosis and treatment of Alzheimer's, multiple sclerosis and Parkinson's disease. We anticipate more innovative launches in 2023. Finally, we made progress in our direct-to-consumer business. In 2022, we introduced Labcorp On-Demand, a platform aimed at providing consumers with easy and convenient access to our leading diagnostic tests. We now offer over 45 tests that cover over 100 biomarkers to help consumers monitor their health, stay current with wellness screening, plan for families and manage a broad range of chronic conditions. The progress we made this year is a direct result of the commitment of our employees who fuel our confidence in the outlook for 2023. We are recognized by Forbes list of the world's best large employers in 2022, and we also earned the top score on the 2022 Disability Equality Index. Attracting and retaining the best talent is key to our success, and we remain focused on being an employer of choice and destination for talent. As I look to 2023, I'm optimistic about the growth and strategic opportunities before us. Our business fundamentals remain strong, and we are well positioned for the future.

Glenn Eisenberg, Executive Vice President and CFO

Thank you, Adam. I'll begin by reviewing our fourth quarter results, then discuss our performance in each segment, and finish with our full year guidance for 2023. Additional business information can also be found in our supplemental deck on our Investor Relations website. For the quarter, revenue was $3.7 billion, down 9.4% from last year due to decreased COVID testing and adverse foreign currency impacts. This decrease was partially balanced by organic base business growth and acquisitions. COVID testing revenue declined by 79% compared to the previous year, while our base business grew by 4.8%. Organically, in constant currency, base business growth was 4.7%, aided by the Ascension lab management agreement, which contributed around 4% of this organic growth. Although the outreach business acquired from Ascension is categorized as an acquisition, the lab management agreement is counted as organic growth. Operating income for the quarter totaled $91 million, or 2.5% of revenue. During this quarter, we incurred $61 million in amortization and $88 million in restructuring charges and special items, mostly related to acquisitions, LaunchPad initiatives, and the proposed spin-off of Fortrea. The company also recorded a $270 million goodwill and asset impairment primarily linked to early development due to short-term labor and supply issues, representing about 2% of Labcorp's goodwill and intangible assets. Excluding these items, adjusted operating income was $510 million, or 13.9% of revenue, down from $902 million, or 22.2%, last year. The decline in adjusted operating income and margin was largely due to reduced COVID testing. While the benefits from LaunchPad savings and reduced personnel expenses were nearly offset by lower COVID-related demand and rising costs, the LaunchPad initiative is expected to yield $350 million in savings over the three-year period ending in 2024. The adjusted tax rate for the quarter was 20%, compared to 24.6% last year, primarily due to the geographical mix of earnings, as well as increased R&D tax credits and year-end adjustments for completed tax returns. We anticipate our 2023 full year adjusted tax rate to be around 24%. Net earnings for the quarter were $76 million, or $0.86 per diluted share, while adjusted EPS was $4.14, down from $6.77 last year due to lower earnings from COVID testing. Operating cash flow was $654 million for the quarter, compared to $698 million a year ago, with the drop attributed to lower COVID testing revenues, although there was a partial offset from higher base business earnings. Capital expenditures totaled $118 million, down from $150 million last year, representing 3.5% of base business revenue, and we expect this trend to continue into 2023. Free cash flow for the quarter was $536 million, leading to a full-year total of $1.5 billion. In this quarter, we invested $150 million in acquisitions, paid $64 million in dividends, and repurchased $300 million of stock, equivalent to about 1.4 million shares. At the end of the quarter, we had $532 million left in our share repurchase authorization. The Board has recently approved an additional $1 billion in share repurchases, bringing our total available authorization to around $1.5 billion. Over the full year, we invested $1.2 billion in acquisitions, $195 million in dividends, and repurchased $1.1 billion of stock. We maintain a strong pipeline of potential acquisitions that could augment our organic growth, and we believe our shares are undervalued, making our share repurchase program a crucial aspect of our capital allocation strategy. By year-end, we reported $430 million in cash and $5.3 billion in debt, with our leverage at 1.9 times gross debt to trailing 12 months EBITDA. Excluding earnings from COVID testing, our leverage stood at approximately 2.5 times, aligning with our target of 2.5 to 3 times. Now, I will discuss our segment performance, starting with Diagnostics. Revenue for this quarter was $2.3 billion, down 12.8% from last year, mainly due to organic revenue declining by 14.3%, with COVID testing impacts being partially offset by acquisition growth of 1.7%. COVID testing revenue fell 79% from last year's figures, though the base business saw an organic growth of 8.6%. The Ascension lab management agreement contributed about 7% to this growth; however, unfavourable weather conditions and fewer revenue days reduced this growth by around 1.2%. Comparing to the fourth quarter of 2019, the compound annual growth rate for base revenue was 6.9%. Total volume decreased by 11.8% from last year, as organic volume fell by 13.8%, with acquisitions providing a 2% increase. The volume decline was driven primarily by COVID testing. Base business volume increased by 3% from the previous year, with acquisition benefits contributing 2.4%, although it was somewhat hindered by adverse weather and fewer revenue days, estimated to constrain growth by approximately 1.2%. Price/mix fell by 1% from last year, affected by lower COVID testing (6.4%), foreign currency (0.3%), and acquisitions (0.2%), but this was partially compensated by a 5.9% growth in the base business. Year-over-year, base business price/mix increased by 7.6%, reflecting the advantage from the Ascension lab management agreement that provided about 7% growth. For Diagnostics, adjusted operating income stood at $387 million, representing 16.9% of revenue, down from $776 million or 29.6% last year. The decline in adjusted operating income and margin stemmed from reduced COVID testing, where the margin was around 50% this quarter, down from approximately 70% last year. We anticipate the COVID margin to remain around 50% throughout the public health emergency, after which a decline is expected, yet still above the segment average. Base business margin experienced a decline of approximately 30 basis points due to Ascension’s influence, higher personnel costs, and other inflationary pressures, although this was partially offset by organic growth and LaunchPad savings. Excluding the Ascension impact, margins would have risen by about 50 basis points. Now I will discuss the performance of Drug Development. Revenue for this quarter was $1.4 billion, a decrease of 4.1% from last year, largely due to foreign currency fluctuations of 3.1%. Organic base business revenue fell by 1.4% compared to last year due to lower COVID-related work and the Ukraine-Russia crisis. Excluding these factors, organic base business revenue increased by 3.7%. The central lab segment faced the most challenges and observed an 11.5% decline in revenues. However, excluding the impacts, organic constant currency revenue rose by 4.7%, and on a comparable basis, early development rose by 3.4%, while clinical development increased by 3.2%. Reported Drug Development revenue for the fourth quarter grew by a compound annual rate of 5.1% against the fourth quarter of 2019. The adjusted operating income for this segment was $209 million, or 15% of revenue, slightly up from $206 million, or 14.2%, last year. The increase in adjusted operating income and margin was a result of LaunchPad savings and lowered personnel costs, though this was partly offset by diminished COVID-related demand, the Ukraine-Russia crisis, and inflationary expenses. We concluded the quarter with a backlog of $16.3 billion, expecting about $4.9 billion of this backlog to convert into revenue over the next year. Now, regarding our 2023 full year guidance, which is based on foreign exchange rates as of December 31, 2022, the complete guidance incorporates the anticipated effects of capital allocation, targeting free cash flow for acquisitions, share repurchases, and dividends. Our guidance assumes that Fortrea will remain part of Labcorp for the entire year. Following its expected spin in the middle of the year, we may provide revised guidance. We predict enterprise revenue growth to be between 1% and 4% compared to 2022, including base business growth anticipated at 8.5% to 10.5% while expecting a decline in COVID testing of 75% to 90%, which assumes an average PCR volume ranging from 5,000 to 12,000 tests per day for the year. Diagnostics revenue is projected to decrease by 2% to rise by 1.5% compared to 2022, with the base business expected to grow at rates between 10.5% and 12.5%, benefiting from around 5% growth attributed to Ascension. When considering the midpoint of our base business guidance, the compound annual growth rate against 2019 is 6.4%, including about 2% due to Ascension. We expect Diagnostics base business margins to see slight improvement in 2023 compared to 2022, even with the adverse mix impact from Ascension. Drug Development revenue is anticipated to grow between 5% and 7% compared to 2022, factoring in a positive impact from foreign currency of 20 basis points. The midpoint of our guidance suggests a compound annual growth rate of 7.2% compared to 2019 primarily driven by organic growth. We have increased the number of NHP vendors with multiyear agreements to ensure supply; however, lead times may negatively affect early drug development revenues by $80 million to $100 million early in the year. Consequently, we expect initial quarter revenue growth in drug development to lag behind the yearly average. We also foresee drug development margins increasing in 2023 compared to 2022, with the first quarter expected to align comparably with the first quarter of 2022 due to early development supply constraints. Our guidance for adjusted EPS is set between $16 and $18, down from $19.94 in 2022. The reduction in adjusted EPS is primarily due to COVID testing, while the base business adjusted EPS at the midpoint implies about 13% growth. We project free cash flow to be between $1 billion and $1.2 billion, compared to $1.5 billion in 2022, with the decrease attributed to lower COVID testing. In conclusion, we anticipate driving continued profitable growth in our base business. Despite the expected ongoing decline in COVID testing volumes throughout the year, we plan to utilize our free cash flow generation for acquisitions that will enhance our organic growth, while also returning capital to shareholders through our share repurchase program and dividends.

Operator, Operator

And our first question will come from Kevin Caliendo of UBS.

Kevin Caliendo, Analyst

There's a lot to discuss here. I'll begin with a couple of points. Is there any cost being incurred in the business right now ahead of the spin? I'm not referring to stranded costs or IT costs, but there are a few line items that suggest corporate expenses have increased. The intersegment eliminations also appear to be significantly higher. I'm trying to understand what is causing this and if there are any investments being made that might not be immediately visible. Secondly, this earnings forecast is very broad. Can you clarify if it is primarily influenced by COVID or by the timing of the spin? It's quite unusual to see such a wide range, and I'm curious what would differentiate the lower end from the higher end in terms of the factors driving that range.

Adam Schechter, Chairman and CEO

Yes. Kevin, and I'll take the second question first. I'll ask Glenn to provide some impact on your first question. So the range that we gave is $16 to $18, a midpoint of $17. And we kind of focus and targeting on that midpoint. But there are things, particularly around COVID, that could still happen where we've given a pretty broad range of COVID coming down between 75% and 90% is still very difficult to predict that. The second thing is we gave a range for NHP of $80 million to $100 million. Good news is we've started to receive supply, and we started to receive shipments, but it's still early as we get those shipments in and it takes time to get the steady starts up. And then the third thing I would say is, while we're waiting for supply, we're still hiring people. As you recall, last quarter, we noted that in early development, we needed to hire more people. So I'm not slowing down the hiring process while waiting for some of the supply shipments that we have. So those are some of the pushes and pulls, but I would focus on the midpoint more so than the lower end of the range, I think, is highly unlikely.

Glenn Eisenberg, Executive Vice President and CFO

Yes. No, just to follow-up on that. When you look at the guidance ranges for both of our base businesses, we keep those rates within, call it, 2 percentage points. And it's really the COVID given the volatility in COVID, we provide a wider range, which causes that overall EPS number to be a little bit wider. Kevin, when you talk about the spin costs, you'll see that we treat that as kind of an unusual item. Obviously, we're going through a spin. These are one-time costs. You'll see that in the reconciliation between, call it, our GAAP and our adjusted earnings, you'll see in the footnotes that we incurred around $29 million of cost during the quarter related to the spin. So again, those would be backed out of our adjusted numbers when you look at our enterprise and segment performance.

Kevin Caliendo, Analyst

Great. Can I ask a quick follow-up just on PAMA, the benefit you saw from PAMA and also the change in the code that occurred in December. That was obviously a positive benefit to the company. Did you reinvest those dollars? Or is all of that sort of you're letting that fall to the bottom line? How should we think about that in terms of the way you accounted for it or thought about it?

Adam Schechter, Chairman and CEO

Yes. When we provided our growth range, we noted two things. First, the diagnostic business is expected to grow between 10.5% and 12.5%, which is impressive. Additionally, when discussing margins, we anticipate a slight improvement even with the effects of Ascension. For instance, in the fourth quarter, our margins decreased by 30 basis points, with Ascension contributing an 80 basis point decline. Thus, the ability to mitigate the margin impact is attributed to the absence of PAMA implementation this year and some advantages from the draw fees.

Operator, Operator

And our next question will come from Jack Meehan of Nephron Research.

Jack Meehan, Analyst

My question is on just commercial payer negotiations. We're coming up on the 5-year anniversary of UnitedHealth announcement. I don't know if you want to address that directly, your national payers kind of broadly speaking, but are there any notable shifts you're seeing in the structure of your contracts? And just how do you feel about the ability to maintain price?

Adam Schechter, Chairman and CEO

Yes. We consistently collaborate with payers, regardless of whether it is a negotiation year. Our communication with them is ongoing and we work closely together. Over the past five years, we have experienced steady pressure, and while I anticipate this will continue, it is not intensifying; it remains consistent. We seek price concessions where possible, but overall, I would characterize the pressure as ongoing, similar to what we have encountered in the past.

Glenn Eisenberg, Executive Vice President and CFO

Jack, to add to that, when we consider price and mix, we've always mentioned that unit pricing is a challenge, but the growth of our esoteric offerings is outpacing that of our routine services. Therefore, the growth rate we project for 2023 in our guidance is based primarily on favorable volume increases, as well as favorable price and mix, despite the challenges presented by unit pricing.

Jack Meehan, Analyst

Got it. I heard your comments, Glenn, on the revenue pacing. Could you provide more details on EPS expectations, either as a percentage of the full year or any additional insights would be appreciated.

Glenn Eisenberg, Executive Vice President and CFO

Yes. It's interesting. If you go back and look to even pre-pandemic levels, 2023, even though we have some pluses and minuses, the trend in the earnings would come in similar. So I think that will give you roughly a good approximation. Interestingly enough, plus or minus, it comes in fairly quarter each time, but you'll see it's a little bit different in the first quarter, a little bit lower, a little bit higher throughout the rest of the year, but I think it will give you a good proxy.

Operator, Operator

Our next question will come from Erin Wright of Morgan Stanley.

Erin Wright, Analyst

Great. Could you give us a little bit more of a breakdown of what you're seeing across the different subsegments at Covance, the central lab business in terms of volume trends, RFP flow at the clinical level. And then on the early development side, what's your level also of commitment to early development business as you kind of retain that as part of your spin process here?

Adam Schechter, Chairman and CEO

Sure, thank you for the question. I'll begin with drug development and performance. In the fourth quarter, early development experienced a 5% growth on a constant currency basis. I usually mention the compound annual growth rate from 2019, which was around 6% CAGR from the fourth quarter of that year. For the clinical business, we observed about 2.5% growth in the quarter, also on a constant currency basis. Comparing this to the fourth quarter CAGR of 2019, which was about 5%, it’s important to note that both figures were negatively impacted by a 9% decline in the central laboratory business year over year, again on a constant currency basis. However, if you look at the central laboratory business in terms of CAGR since 2019, it actually grew by about 5%, indicating that this segment remains robust. As a reminder, in the fourth quarter of 2021, we were heavily engaged in booster vaccine work coinciding with the onset of the Omicron variant, which explains the challenging year-over-year comparison for the central laboratory business. Regarding requests for proposals, or RFPs, across segments, the flow remains solid and consistent without significant changes observed. My review of last year shows that cancellation rates have remained low, fluctuating slightly from one quarter to the next but generally stable. The key takeaway for me is the book-to-bill ratio, which was strong at 1.27. While we don’t typically disclose book-to-bill ratios by individual segment, all segments exceeded 1.2, giving us confidence as we proceed. Please go ahead; I’ll address your second question after your follow-up.

Erin Wright, Analyst

Oh, no, go ahead, go ahead.

Adam Schechter, Chairman and CEO

Okay. And then in terms of if you look at the ED business, we think it's a good business. It's a global business. We're looking to bring our innovative diagnostic test globally, and we think that they'll be able to help us do that with their global laboratory footprint. So we remain committed to that business, and we think it's a good business.

Erin Wright, Analyst

And I guess, just my follow-up, as you prepare for the spin, how we should be thinking about the priorities around capital deployment, the M&A pipeline as well as buybacks and how we should be thinking about that?

Adam Schechter, Chairman and CEO

Yes. After the spin, which is scheduled for the middle of this year, we will maintain a dividend. We anticipate getting dividends approved for Labcorp moving forward. We will also continue pursuing hospital and local laboratory deals, and our pipeline is quite full with a significant number of opportunities that we are currently evaluating. We expect to secure some of these this year. Additionally, we believe our shares are still significantly undervalued, so we have $1.5 billion authorized for share repurchases, which we will utilize as appropriate.

Operator, Operator

Our next question will come from Tim Daley of Wells Fargo.

Tim Daley, Analyst

Great. On the first one, I'm not trying to step on Tom's toes or anything here, but just isolating the drug development assets that will stay part of RemainCo. Could you just give us some color directionally as live magnitude, anything here on the EBITDA margins for early development in central lab, just how they looked at '22, not trying to ask for stranded cost adjustments or anything like that?

Glenn Eisenberg, Executive Vice President and CFO

Tim, this is Glenn. As you know, we break out the two segments and then with that, revenue, OI and margins. So for drug development, we provide that. We haven't broken out the pieces, if you will, because, again, of all the interrelationships and shared services and so forth. So part of the issue of doing the spin, obviously is now we're standing an independent company with where we have a lot of direct costs, but then we also have a lot of indirect costs. And we're working through, obviously, all those costs and including transition services that we would be providing for a period of time. So we're currently in the process of getting all the numbers done once we're complete with that, we'll obviously be sharing kind of the spinco view, both on the top line and the bottom line at the appropriate time, including in an anticipated investor Analyst Day, if you will, prior to the spin. And obviously, to the extent we have those financials done prior to that, we can also share them. But at this point, we've talked in the past about here's the segment average and that the businesses are for the plus or minus in line before you get to those independent standup costs.

Tim Daley, Analyst

I appreciate it. I thought I'd give it a shot. Regarding the early development business, if we exclude the $80 million to $100 million NHP headwind included in the guidance, would it still be growing in FY '23? What is the price assumption for the year?

Adam Schechter, Chairman and CEO

So the short answer is yes, it would be growing for the year with the $80 million to $100 million in there, growing nicely. And what was your second question, the...

Tim Daley, Analyst

The pricing assumption embedded in the EB business for '23?

Adam Schechter, Chairman and CEO

In terms of the pricing, I would first like to mention that we anticipate a significant increase in primary pricing due to supply issues. Consequently, you can expect improved pricing overall. To clarify, this pricing, particularly for primary offerings, will be passed on to customers, meaning it does not affect our margins negatively; however, it does not contribute to our margins since we do not receive a margin on that pricing.

Operator, Operator

And this concludes today's conference call. Thank you for participating. You may now disconnect.