Revenue Growth and Performance - Company's revenues from continuing operations increased by 2.5% to $12.2 billion in 2023, driven by acquisitions (1.7%), organic revenue growth (0.6%), and favorable foreign currency translation (0.2%)[328] - Organic revenue growth of 0.6% was driven by an 8.7% increase in Base Business, partially offset by an 8.1% decrease in COVID-19 Testing[328][329] - Dx revenues increased by 2.3% to $9,415.1 in 2023, with organic Base Business contributing 10.7% growth, partially offset by a 10.5% decline in COVID-19 Testing[337] - BLS revenues increased by 2.9% to $2,774.2 in 2023, driven by organic Base Business growth (1.6%) and favorable foreign currency translation (1.5%)[339] - BLS backlog expected to convert to revenue in the next 12 months is $2,470.0, representing 30.0% of current BLS revenues[339] Cost and Expense Analysis - Cost of revenues increased by 7.9% to $8,796.7 in 2023, with cost of revenues as a percentage of revenues rising to 72.3% due to reduced COVID-19 Testing revenues and higher personnel expenses[344] - Selling, general and administrative expenses increased by 14.7% to $2,021.4 in 2023, primarily due to spin-off-related costs and higher personnel expenses[346] - General corporate expenses increased by 37.4% to $644.1 million in 2023, driven by spin-off transaction costs, personnel costs, and R&D expenses[366] - Interest expense increased by 11.0% to $199.6 million in 2023 compared to $179.8 million in 2022, primarily due to higher interest rates on variable rate debt and increased borrowings[354] - Equity method income, net decreased by 125.9% to $5.4 million in 2023 from $(1.4) million in 2022, driven by the sale of a joint venture interest and acquisition of another joint venture[356] - Other, net increased to $15.5 million in 2023 from $(32.2) million in 2022, primarily due to $46.1 million in transition services fees charged to Fortrea[358] - Income tax expense decreased to $188.5 million in 2023 from $233.9 million in 2022, with the effective tax rate rising to 33.1% due to goodwill impairment[360] Segment Performance - Dx segment operating income decreased by 21.4% to $1,591.3 million in 2023, with operating margin declining 510 basis points to 16.9%, driven by lower COVID-19 testing and higher personnel costs[364] - BLS segment operating income increased by 1.8% to $396.3 million in 2023, with operating margin slightly down by 10 basis points to 14.3%, due to demand growth and LaunchPad savings[365] Spin-off and Financial Transactions - Company completed the spin-off of Fortrea on June 30, 2023, with Fortrea distributing $1,600.0 in cash to the Company, which was used for share repurchases and debt repayment[330][333] - Fortrea issued $570.0 of 7.500% senior secured notes due 2030 and entered into three floating SOFR credit facilities totaling $1,520.0 prior to the spin-off[332] - The company amended its revolving credit facility to a five-year facility with a principal amount of up to $1,000.0 million, with an option to increase by an additional $500.0 million, subject to lender agreement[381] Share Repurchases and Dividends - The company repurchased 4.8 million shares of its Common Stock in 2023 at an average price of $206.85 per share, totaling $1,000.0 million, and accrued $9.0 million in excise tax related to the repurchase[384] - In 2022, the company repurchased 4.7 million shares of its Common Stock at an average price of $233.48 per share, totaling $1,100.0 million[385] - The company paid $254.0 million in Common Stock dividends for the year ended December 31, 2023, and announced a cash dividend of $0.72 per share for Q1 2024, totaling approximately $61.5 million[386] Cash Flow and Capital Expenditures - Net cash provided by operating activities decreased by $562.5 million to $1,202.3 million in 2023, primarily due to lower COVID-19 testing earnings and higher working capital[374] - Capital expenditures were $453.6 million in 2023, representing 3.7% of revenues, with expected 2024 expenditures at approximately 3.5% of revenues[376] - Net cash used in financing activities increased to $1,559.0 million in 2023, driven by $1,000.0 million in share repurchases and $300.0 million in senior note repayments[377] Goodwill and Asset Impairments - Company recorded $349.0 in goodwill and other asset impairments in 2023, primarily due to $333.6 of goodwill impairment for the Early Development reporting unit[348] - The company recorded a goodwill impairment of $333.6 million in the BLS segment due to lower demand in the ED reporting unit, which is expected to continue into early 2024[416] Foreign Exchange and Currency Risk - Approximately 12.9% of the company's revenues for 2023 were denominated in currencies other than the U.S. dollar, with significant exposure to the Canadian dollar, Swiss franc, euro, and British pound[424] - A hypothetical 10% change in average exchange rates would have impacted income before taxes by approximately $24.1 million in 2023[424] - The company had 9 open foreign exchange forward contracts with a notional value totaling approximately $305.8 million at the end of 2023[425] - The company is party to USD to Swiss Franc cross-currency swap agreements with a notional amount of $600.0 million, maturing in 2024 and 2025[426] - The company entered into fixed-to-variable interest rate swap agreements for the 2.70% senior notes due 2031 with an aggregate notional value of $500.0 million[429] - The company's financial statements are reported in USD, and fluctuations in exchange rates affect the translation of revenues and expenses denominated in foreign currencies[424] - The company's gross accumulated currency translation adjustments were $183.1 million at the end of 2023, compared to $(336.4) million at the end of 2022[424] Debt and Interest Rate Management - The company's debt is subject to variable interest rates, and it manages interest rate risk through a mix of fixed and variable rate debt, including interest rate swaps[427] Legal and Contingent Liabilities - The company's legal reserve is determined using historical loss rates and trends in settlements and defense costs, with reserves established for probable and estimable loss contingencies[422] Revenue Recognition - The company's Dx segment recognizes revenue when diagnostic testing is complete and results are reported, with revenues distributed among four payer portfolios: clients, patients, Medicare and Medicaid, and third-party payers[392] - The company's BLS segment recognizes revenue over time based on the extent of progress towards completion of performance obligations, with contracts typically taking the form of fixed-price or fee-for-service arrangements[400] Goodwill and Intangible Asset Assessment - The company assesses goodwill and indefinite-lived intangibles for impairment annually or when events indicate that the carrying amount may not be recoverable, with an option to perform a qualitative assessment before a quantitative test[410] Liquidity and Financial Position - The company believes it has sufficient liquidity to meet its short-term and long-term cash needs for the next 12 months, based on current and projected cash flows and availability under its revolving credit facility[390] - The company provided letters of credit aggregating approximately $91.3 million as of December 31, 2023, primarily for insurance programs[389] - The company's contractual value of the noncontrolling interest put in its Ontario subsidiary totaled $15.5 million at December 31, 2023[389]

Financial Performance - Q4 2023 - Revenue increased to $3,033.3 million, a 3.5% increase compared to $2,929.8 million in Q4 2022[5] - Adjusted Operating Income decreased by 4.3% to $394.9 million from $412.6 million in the same period last year[5] - Adjusted EPS increased by 8.2% to $3.30, compared to $3.05 in Q4 2022[5] - Free Cash Flow from Continuing Operations decreased by 18.5% to $414.2 million from $508.1 million in Q4 2022[5] Financial Performance - Full Year 2023 - Revenue increased by 2.5% to $12,161.6 million compared to $11,863.9 million in 2022, driven by acquisitions net of divestitures of 1.7%, organic revenue of 0.6%, and favorable foreign currency translation of 0.2%[11] - Adjusted Operating Income decreased by 21.1% to $1,714.9 million from $2,172.6 million in the previous year[11] - Adjusted EPS decreased by 18.6% to $13.56 from $16.66 in 2022[11] - Free Cash Flow from Continuing Operations decreased by 43.9% to $748.7 million from $1,335.5 million in 2022[11] Segment Performance - Q4 2023 - Diagnostics Laboratories revenue increased by 2.6% to $2,346.9 million[13] - Biopharma Laboratory Services revenue increased by 7.1% to $694.8 million[13] - Diagnostics Laboratories Adjusted Operating Income decreased by 8.6% to $353.7 million[13] - Biopharma Laboratory Services Adjusted Operating Income increased by 14.5% to $109.0 million[13] Segment Performance - Full Year 2023 - Diagnostics Laboratories revenue increased by 2.3% to $9,415.1 million[33] - Biopharma Laboratory Services revenue increased by 2.9% to $2,774.2 million[33] - Diagnostics Laboratories Adjusted Operating Income decreased by 21.4% to $1,591.3 million[33] - Biopharma Laboratory Services Adjusted Operating Income increased by 1.8% to $396.3 million[33] Biopharma Laboratory Services - Backlog - As of December 31, 2023, the backlog was $8.25 billion, with $2.47 billion expected to convert to revenue in the next twelve months[21] 2024 Financial Guidance - Labcorp Enterprise revenue is projected to be between $12.73 billion and $12.95 billion, representing a 4.7% to 6.5% increase versus 2023 results[69] - Adjusted EPS is projected to be between $14.30 and $15.40, representing a 5.5% to 13.6% increase versus 2023 results[69] - Free Cash Flow from Continuing Operations is projected to be between $1.00 billion and $1.15 billion, representing a 12.6% to 29.5% increase versus 2023 results[69]

PART I. FINANCIAL INFORMATION [Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Unaudited condensed consolidated financial statements for Q3 and 9M 2023 are presented, covering balance sheets, operations, cash flows, and notes, detailing the Fortrea spin-off [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (as of Sep 30, 2023 vs. Dec 31, 2022) | Account | Sep 30, 2023 ($ million) | Dec 31, 2022 ($ million) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **16,886.0** | **20,155.1** | **(16.2%)** | | Cash and cash equivalents | 727.9 | 320.6 | +127.0% | | Goodwill, net | 6,331.9 | 6,123.7 | +3.4% | | Assets of discontinued operations | — | 4,264.3 | (100.0%) | | **Total Liabilities** | **8,993.5** | **10,039.6** | **(10.4%)** | | Long-term debt, less current portion | 4,427.6 | 5,038.8 | (12.1%) | | Liabilities of discontinued operations | — | 898.9 | (100.0%) | | **Total Shareholders' Equity** | **7,873.1** | **10,096.6** | **(22.0%)** | - The significant decrease in total assets and liabilities is primarily due to the spin-off of Fortrea, now classified as discontinued operations. As of September 30, 2023, there are no assets or liabilities of discontinued operations, compared to over **$4.2 billion** in assets and nearly **$0.9 billion** in liabilities at year-end 2022[9](index=9&type=chunk)[21](index=21&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Statement of Operations Summary (YoY Comparison) | Metric ($ million, except EPS) | Q3 2023 | Q3 2022 | YoY Change | 9M 2023 | 9M 2022 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | **3,056.8** | **2,866.8** | **+6.6%** | **9,128.3** | **8,934.2** | **+2.2%** | | Gross Profit | 851.2 | 886.2 | (4.0%) | 2,543.5 | 2,910.8 | (12.6%) | | Operating Income | 252.3 | 374.0 | (32.5%) | 848.4 | 1,408.0 | (39.7%) | | Earnings from continuing operations | 183.6 | 277.3 | (33.8%) | 547.2 | 966.4 | (43.4%) | | Net Earnings | 183.6 | 353.2 | (48.0%) | 586.0 | 1,204.2 | (51.3%) | | **Diluted EPS (Continuing Ops)** | **$2.11** | **$3.06** | **(31.0%)** | **$6.19** | **$10.45** | **(40.8%)** | - While revenues increased year-over-year for both the third quarter and nine-month periods, operating income and net earnings from continuing operations declined significantly, primarily due to higher cost of revenues and selling, general, and administrative expenses[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary (Nine Months Ended Sep 30) | Cash Flow Activity ($ million) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 748.1 | 1,302.3 | (42.6%) | | Net cash used for investing activities | (840.9) | (1,378.9) | (39.0%) | | Net cash provided by (used in) financing activities | 387.2 | (949.6) | N/A | | **Net increase (decrease) in cash** | **297.9** | **(1,062.8)** | **N/A** | - Cash from operating activities decreased significantly year-over-year. Net cash from financing activities was positive in 2023, driven by **$1.5 billion** in cash provided by discontinued financing activities related to the Fortrea spin-off, which offset cash used for a **$1.0 billion** share repurchase and dividend payments[18](index=18&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) - On June 30, 2023, Labcorp completed the spin-off of its Clinical Development and Commercialization Services business, Fortrea Holdings Inc. (Fortrea), with Fortrea's historical results now presented as Discontinued Operations and the remaining Drug Development segment renamed Biopharma Laboratory Services (BLS)[21](index=21&type=chunk)[94](index=94&type=chunk) - In connection with the spin-off, Fortrea made cash payments of approximately **$1.6 billion** to Labcorp[29](index=29&type=chunk) - For the nine months ended September 30, 2023, the company acquired several businesses for approximately **$516.7 million** in cash, adding **$230.5 million** in goodwill[38](index=38&type=chunk)[43](index=43&type=chunk) - The company is involved in a patent infringement lawsuit where a jury awarded **$272.0 million** in damages, with the court adding **$100.0 million** in enhanced damages, which the company strongly disagrees with and is appealing[75](index=75&type=chunk) Segment Revenue and Operating Income (Nine Months Ended Sep 30, 2023) | Segment | Revenues ($ million) | Operating Income ($ million) | Operating Margin | | :--- | :--- | :--- | :--- | | Diagnostics Laboratories (Dx) | 7,068.3 | 1,237.5 | 17.5% | | Biopharma Laboratory Services (BLS) | 2,079.4 | 287.2 | 13.8% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, including revenue growth, COVID-19 testing impact, segment performance, margin compression, liquidity, capital resources, and Fortrea spin-off proceeds utilization [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Q3 2023 Revenue Performance vs. Q3 2022 | Metric | Change | | :--- | :--- | | Total Revenue | +6.6% | | Organic Revenue | +3.7% | | Acquisitions, net | +2.2% | | Foreign Currency | +0.7% | | Organic Base Business | +10.1% | | COVID-19 Testing | (6.3%) | 9M 2023 Revenue Performance vs. 9M 2022 | Metric | Change | | :--- | :--- | | Total Revenue | +2.2% | | Organic Revenue | +0.3% | | Acquisitions, net | +1.8% | | Foreign Currency | +0.1% | | Organic Base Business | +10.0% | | COVID-19 Testing | (9.6%) | - For Q3 2023, Dx segment operating margin decreased to **16.5%** from **19.9%** year-over-year, primarily due to reduced higher-margin COVID-19 testing and the mix impact from the Ascension lab management agreement[130](index=130&type=chunk) - For Q3 2023, BLS segment operating income increased by **3.8%** to **$109.0 million**, driven by demand growth and LaunchPad savings, partially offset by higher personnel expenses and NHP-related constraints[130](index=130&type=chunk)[131](index=131&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) - Net cash provided by continuing operating activities for the first nine months of 2023 was **$622.7 million**, a significant decrease from **$1,157.6 million** in the same period of 2022, primarily due to lower earnings from COVID-19 testing and spin-related items[155](index=155&type=chunk)[157](index=157&type=chunk) - The company received approximately **$1.6 billion** in cash from the Fortrea spin-off, using **$1.0 billion** for an Accelerated Share Repurchase (ASR) program and intending to use approximately **$300 million** to pay down maturing debt[110](index=110&type=chunk)[159](index=159&type=chunk) - On August 8, 2023, the company entered into ASR agreements to repurchase **$1.0 billion** of its common stock, receiving an initial **3.7 million** shares[161](index=161&type=chunk)[162](index=162&type=chunk) - As of September 30, 2023, the company had **$727.9 million** in cash and **$910.0 million** available under its revolving credit facility[160](index=160&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company details market risk exposure, primarily foreign currency and interest rates, noting **13.7%** of nine-month revenue in foreign currencies and derivative instrument usage - Approximately **13.7%** of revenues for the nine months ended September 30, 2023, were denominated in currencies other than the U.S. Dollar, with significant exposures to the Canadian dollar, Swiss Franc, Euro, and British Pound[168](index=168&type=chunk) - The company uses derivative financial instruments, including foreign currency forward contracts and interest rate and cross-currency swap agreements, to manage market risk[167](index=167&type=chunk) - To hedge against changes in the fair value of its **2.70%** senior notes due 2031, the company has fixed-to-variable interest rate swap agreements with a notional value of **$500.0 million**[173](index=173&type=chunk) [Controls and Procedures](index=39&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including CEO and CFO, concluded disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective[174](index=174&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[175](index=175&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the detailed discussion of legal matters from Note 9 of the financial statements, covering claims, lawsuits, and governmental inquiries - Information regarding legal proceedings is incorporated by reference from Note 9 (Commitments and Contingencies) to the condensed consolidated financial statements[176](index=176&type=chunk) [Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) The company updates risk factors, highlighting new risks from the Fortrea spin-off, including potential failure to achieve benefits, adverse tax consequences, and financial institution failures - A new risk factor was added regarding dependency on U.S. and international financial institutions, noting that their default or failure could adversely affect the company's business and financial condition[178](index=178&type=chunk) - The company highlights risks that the Fortrea spin-off may not achieve intended results, could adversely impact business relationships, and may result in unexpected costs or liabilities[179](index=179&type=chunk)[180](index=180&type=chunk) - To preserve the tax-free status of the Fortrea spin-off, the company's ability to engage in certain capital-raising or strategic transactions may be limited or restricted for a period[181](index=181&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company details share repurchase activity, including the **$1 billion** ASR agreements initiated in August 2023, with **3.7 million** shares repurchased and **$531.5 million** remaining authorized Share Repurchases under ASR (Q3 2023) | Period | Total Shares Repurchased (millions) | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | July 1 - July 31 | — | — | | August 1 - August 31 | 3.7 | 267.34 | | September 1 - September 30 | — | — | - As of September 30, 2023, the company had **$531.5 million** remaining under its board authorization for share repurchases, with no expiration date[183](index=183&type=chunk) [Other Information](index=41&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the third quarter of 2023 - During the third quarter of 2023, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement[184](index=184&type=chunk) [Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including an employment separation agreement, executive certifications, and Interactive Data Files (XBRL) - The exhibits filed with this report include CEO and CFO certifications pursuant to Sarbanes-Oxley rules and Inline XBRL documents[185](index=185&type=chunk)

Financial Data and Key Metrics Changes - In the third quarter, revenue totaled $3.1 billion, representing a 6.6% increase compared to the previous year, primarily driven by organic growth and acquisitions, partially offset by lower COVID testing [46][97] - Adjusted earnings per share (EPS) was $3.38, down 16% from last year due to reduced COVID testing earnings, while base business adjusted EPS increased approximately 10% [54][76] - Operating cash flow from continuing operations was $276 million, burdened by approximately $56 million of spin-related items [54][99] Business Line Data and Key Metrics Changes - Diagnostics laboratories revenue was $2.3 billion, a 6.2% increase year-over-year, driven by organic growth of 3.4% and acquisitions contributing 3% [55][101] - Biopharma Laboratory Services revenue increased by 7.9% to $719 million, primarily due to organic revenue growth of 4.9% and foreign currency impact of 3.3% [101] - COVID testing revenue decreased by 87%, significantly impacting overall revenue and margins [55][76] Market Data and Key Metrics Changes - The backlog at the end of the quarter was $7.8 billion, with an expectation of approximately $2.4 billion converting to revenue over the next 12 months [57] - The trailing 12 months book-to-bill ratio was 1.12, indicating a healthy demand despite some cancellations in early development [57][105] Company Strategy and Development Direction - The company aims to drive growth by expanding its base business and integrating hospital and health system partnerships, focusing on specialty testing and companion diagnostics [64][51] - The Launchpad initiative is expected to deliver $350 million in savings over three years, contributing to margin improvement [98][129] - The company is strategically positioned to capitalize on growth in cell and gene therapy, consumer markets, and international expansion through innovative specialty testing [96] Management's Comments on Operating Environment and Future Outlook - The management noted a challenging labor environment but highlighted improvements in retention rates, with expectations for continued progress [28][29] - The company anticipates a 5% to 8% overall enterprise revenue growth from 2023 to 2026, with a focus on maintaining margins despite headwinds from PAMA and reduced COVID testing [50][88] - Management expressed confidence in the strength of the diagnostic business, even during potential recessionary periods, due to its broad-based demand [133] Other Important Information - The company finalized several strategic partnerships, including agreements with Tufts Medicine and Baystate Health, enhancing its presence in key markets [48][66] - The adjusted operating income for diagnostics laboratories was $386 million, or 16.5% of revenue, compared to $440 million or 19.9% last year, reflecting the impact of lower COVID testing [74] Q&A Session Summary Question: Can you comment on the reimbursement negotiations with payers versus CMS? - Management indicated that laboratory developed tests represent less than 10% of volume but are crucial for new specialty areas, emphasizing the importance of getting these tests to patients quickly [5][6] Question: What is the current status of managed care contracting? - Management reported being in a good position with finalized or near-finalized contracts, expecting flat to slightly positive outcomes as they move into the next year [122] Question: How is the labor environment affecting operations? - Management acknowledged a tough labor environment but noted improvements in retention rates and ongoing efforts to manage costs effectively [27][28] Question: What are the expectations for the early development business? - Management stated that early development is a small part of the business, with ongoing evaluations and a focus on strategic partnerships to enhance growth [30][31] Question: How does the company view the impact of PAMA on margins? - Management built in an $80 million downside into the base case for PAMA, with expectations for margin improvement in subsequent years [88][132]

labcorp Each of the forward-looking statements is subject to change based on various important factors, many of which are beyond the company's control, including without limitation, (i) the failure to receive tax-free treatment with respect to the spin-off for U.S. federal income purposes; (ii) potential difficulties with employee retention; (iii) the trading price of the company's stock, competitive actions and other unforeseen changes and general uncertainties in the marketplace; (iv) changes in governmen ...

Financial Performance - Q2 2023 - Revenue increased by 3.8% to $3,033.7 million compared to $2,923.0 million in 2Q22[23] - Adjusted operating income decreased by 18.2% to $448.3 million from $547.8 million in 2Q22[23] - Adjusted EPS decreased by 15.5% to $3.42 from $4.04 in 2Q22[23] - Free cash flow decreased by 56.5% to $177.4 million from $408.2 million in 2Q22[23] Financial Performance - Year to Date (Six Months Ended June 30, 2023) - Revenue increased slightly by 0.1% to $6,071.5 million compared to $6,067.5 million in the same period of 2022[24] - Adjusted operating income decreased by 29.4% to $896.1 million from $1,269.3 million in the first half of 2022[24] - Adjusted EPS decreased by 27.9% to $6.88 from $9.54 in the first half of 2022[24] - Free cash flow decreased by 65.2% to $228.7 million from $657.2 million in the first half of 2022[24] Segment Performance - Q2 2023 - Diagnostics Laboratories revenue was $2,340.8 million[25] - Biopharma Laboratory Services revenue was $699.0 million[25] - Diagnostics Laboratories adjusted operating income was $409.7 million with a margin of 17.5%[25] - Biopharma Laboratory Services adjusted operating income was $104.6 million with a margin of 15.0%[25] Segment Performance - Year to Date (Six Months Ended June 30, 2023) - Diagnostics Laboratories revenue was $4,723.6 million, a 0.3% increase year-over-year[26] - Biopharma Laboratory Services revenue was $1,360.3 million, a 1.6% decrease year-over-year[26] - Diagnostics Laboratories adjusted operating income was $851.2 million, a 29.0% decrease year-over-year[26] - Biopharma Laboratory Services adjusted operating income was $178.2 million, a 5.7% decrease year-over-year[26] Biopharma Laboratory Services Metrics - Trailing twelve-month net orders as of June 30, 2023, were $3.3 billion with a net book-to-bill ratio of 1.23x[32] - Backlog as of June 30, 2023, was $8.0 billion, with an estimated $2.5 billion expected to convert to revenue in the next twelve months[32] 2023 Outlook - Total Labcorp Enterprise revenue is projected to be between $12.04 billion and $12.22 billion, representing a 1.5% to 3.0% increase compared to 2022 results[57] - Base Business revenue is projected to be between $11.93 billion and $12.07 billion, representing an 11.3% to 12.6% increase compared to 2022 results[57] - COVID-19 Testing revenue is projected to be between $0.13 billion and $0.16 billion, representing an 89.0% to 85.0% decrease compared to 2022 results[57]

```markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Presents unaudited condensed consolidated financial statements, detailing financial position, performance, cash flows, and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the company's financial position, including assets, liabilities, and shareholders' equity, highlighting discontinued operations impact Balance Sheet Summary | Metric | June 30, 2023 (millions) | December 31, 2022 (millions) | | :----- | :----------------------- | :--------------------------- | | Cash and cash equivalents | $1,930.6 | $320.6 | | Total current assets | $5,120.9 | $4,625.0 | | Total assets | $17,718.7 | $20,155.1 | | Total current liabilities | $2,183.3 | $3,078.5 | | Total liabilities | $8,913.9 | $10,039.6 | | Total shareholders' equity | $8,785.0 | $10,096.6 | - The **decrease in total assets and liabilities** is primarily attributed to the classification of Fortrea's assets and liabilities as **discontinued operations** as of December 31, 2022[9](index=9&type=chunk)[21](index=21&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Presents the company's financial performance, highlighting revenues, expenses, and net earnings from continuing and discontinued operations Statements of Operations Summary | Metric | 3 Months Ended June 30, 2023 (millions) | 3 Months Ended June 30, 2022 (millions) | Change (millions) | Change (%) | | :----- | :-------------------------------------- | :-------------------------------------- | :---------------- | :--------- | | Revenues | $3,033.7 | $2,923.0 | +$110.7 | +3.8% | | Operating income | $266.3 | $428.8 | -$162.5 | -37.9% | | Net earnings attributable to Laboratory Corporation of America Holdings | $188.9 | $358.6 | -$169.7 | -47.3% | | Diluted earnings per common share | $2.12 | $3.87 | -$1.75 | -45.2% | | Metric | 6 Months Ended June 30, 2023 (millions) | 6 Months Ended June 30, 2022 (millions) | Change (millions) | Change (%) | | :----- | :-------------------------------------- | :-------------------------------------- | :---------------- | :--------- | | Revenues | $6,071.5 | $6,067.5 | +$4.0 | +0.1% | | Operating income | $596.1 | $1,034.0 | -$437.9 | -42.4% | | Net earnings attributable to Laboratory Corporation of America Holdings | $401.8 | $850.2 | -$448.4 | -52.7% | | Diluted earnings per common share | $4.51 | $9.11 | -$4.60 | -50.5% | - **Net earnings** and EPS saw **significant declines** year-over-year for both the three and six-month periods, largely influenced by the **spin-off of Fortrea** and **reduced COVID-19 testing revenues**[11](index=11&type=chunk)[106](index=106&type=chunk)[115](index=115&type=chunk) [Condensed Consolidated Statements of Comprehensive Earnings](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Earnings) Details comprehensive earnings components, including net earnings and other comprehensive income (loss) items like foreign currency translation adjustments Comprehensive Earnings Summary | Metric | 3 Months Ended June 30, 2023 (millions) | 3 Months Ended June 30, 2022 (millions) | | :----- | :-------------------------------------- | :-------------------------------------- | | Net earnings | $189.1 | $358.9 | | Foreign currency translation adjustments | $51.7 | $(241.1) | | Other comprehensive earnings (loss), net of tax | $52.5 | $(240.6) | | Comprehensive earnings attributable to Laboratory Corporation of America Holdings | $241.4 | $118.0 | | Metric | 6 Months Ended June 30, 2023 (millions) | 6 Months Ended June 30, 2022 (millions) | | :----- | :-------------------------------------- | :-------------------------------------- | | Net earnings | $402.4 | $851.0 | | Foreign currency translation adjustments | $99.8 | $(315.7) | | Other comprehensive earnings (loss), net of tax | $101.5 | $(313.6) | | Comprehensive earnings attributable to Laboratory Corporation of America Holdings | $503.3 | $536.6 | - **Foreign currency translation adjustments significantly improved** from a **loss in 2022 to a gain in 2023**, **positively impacting comprehensive earnings** despite lower net earnings[14](index=14&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Outlines changes in shareholders' equity, including net earnings, other comprehensive income/loss, dividends, stock issuances, and the Fortrea spin-off impact Shareholders' Equity Summary | Metric | Balance at December 31, 2022 (millions) | Balance at June 30, 2023 (millions) | | :----- | :------------------------------------ | :-------------------------------- | | Retained earnings | $10,581.7 | $8,836.2 | | Accumulated other comprehensive loss | $(493.2) | $(153.7) | | Total shareholders' equity | $10,096.6 | $8,785.0 | - The Fortrea Holdings Inc. spin-off resulted in a **significant reduction in retained earnings** by **$2,018.1 million** and a **positive adjustment to accumulated other comprehensive loss** by **$238.0 million**[17](index=17&type=chunk) - **Dividends declared** for the six months ended June 30, 2023, totaled **$129.0 million**[17](index=17&type=chunk)[166](index=166&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Details cash flows from operating, investing, and financing activities, showing changes in cash and cash equivalents Cash Flow Summary | Metric | 6 Months Ended June 30, 2023 (millions) | 6 Months Ended June 30, 2022 (millions) | | :----- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by operating activities | $472.6 | $928.5 | | Net cash used for investing activities | $(353.3) | $(815.6) | | Net cash provided by (used in) financing activities | $1,484.4 | $(497.4) | | Net increase (decrease) in cash and cash equivalents | $1,610.0 | $(403.9) | | Cash and cash equivalents at end of period | $1,930.6 | $978.3 | - The **substantial increase in cash from financing activities** in 2023 was primarily due to **$1,609.1 million** provided by **discontinued financing activities**, related to the **Fortrea spin-off**[19](index=19&type=chunk)[162](index=162&type=chunk) - **Net cash provided by operating activities decreased** by **$455.9 million**, primarily due to **lower cash earnings**[19](index=19&type=chunk)[160](index=160&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering accounting policies and significant events - The Company completed the **spin-off of Fortrea Holdings Inc.** on **June 30, 2023**, with Fortrea's historical operating results presented as **discontinued operations**[21](index=21&type=chunk)[108](index=108&type=chunk)[112](index=112&type=chunk) - Labcorp operates in two segments: **Diagnostics Laboratories (Dx)** and **Biopharma Laboratory Services (BLS)**, contributing approximately **77%** and **23%** of revenues, respectively, for the three months ended June 30, 2023[22](index=22&type=chunk) - During the six months ended June 30, 2023, the Company closed **two acquisitions for $136.9 million**, expanding its presence in the northeastern U.S. and Canada[39](index=39&type=chunk) [1. Basis of Financial Statement Presentation](index=10&type=section&id=1.%20BASIS%20OF%20FINANCIAL%20STATEMENT%20PRESENTATION) Describes the company's business, the Fortrea spin-off's impact on financial reporting, segment reporting, consolidation, and foreign currency translation - Labcorp is a **global leader** in innovative and comprehensive laboratory services, with segments in **Diagnostics Laboratories (Dx)** and **Biopharma Laboratory Services (BLS)**[20](index=20&type=chunk)[22](index=22&type=chunk) - The **spin-off of Fortrea Holdings Inc.** on **June 30, 2023**, resulted in Fortrea's historical operating results being presented as **Discontinued Operations**[21](index=21&type=chunk) - **Recent SEC amendments** include **new rules for 10b5-1 trading plans (effective Q2 2023)**, **daily repurchase activity disclosure (effective Q4 2023)**, and **cybersecurity disclosures (effective for 2023 Annual Report)**[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) [2. Discontinued Operations](index=11&type=section&id=2.%20DISCONTINUED%20OPERATIONS) Details the Fortrea Holdings Inc. spin-off, including share distribution, Fortrea's debt issuance, cash payments to Labcorp, and financial impact - Labcorp completed the **pro-rata spin-off of Fortrea Holdings Inc.** on **June 30, 2023**, distributing one share of Fortrea common stock for every Labcorp share held[30](index=30&type=chunk) - Fortrea issued **$570.0 million** in **senior secured notes** and entered into **$1,520.0 million** in **credit facilities**, using proceeds to fund a **$1,600.0 million** cash payment to Labcorp[31](index=31&type=chunk) Discontinued Operations Financials | Metric | 3 Months Ended June 30, 2023 (millions) | 3 Months Ended June 30, 2022 (millions) | 6 Months Ended June 30, 2023 (millions) | 6 Months Ended June 30, 2022 (millions) | | :----- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenues | $766.5 | $773.9 | $1,506.6 | $1,529.0 | | Operating income | $31.9 | $97.1 | $43.1 | $179.8 | | Net earnings attributable to Laboratory Corporation of America Holdings | $33.9 | $90.9 | $38.8 | $161.9 | [3. Revenues](index=14&type=section&id=3.%20REVENUES) Provides a breakdown of the company's revenues by segment (Dx and BLS) and payer/customer groups, along with details on accounts receivable and unearned revenue Revenue by Segment (3 Months) | Segment | % of Total Revenues (3 Months Ended June 30, 2023) | | :------ | :----------------------------------------------- | | Dx | 77% | | BLS | 23% | Revenue by Segment (6 Months) | Segment | % of Total Revenues (6 Months Ended June 30, 2023) | | :------ | :----------------------------------------------- | | Dx | 78% | | BLS | 22% | Accounts Receivable and Unearned Revenue | Metric | June 30, 2023 (millions) | December 31, 2022 (millions) | | :----- | :----------------------- | :--------------------------- | | Accounts receivable | $1,904.8 | $1,785.5 | | Unbilled services | $137.8 | $211.8 | | Unearned revenue | $349.7 | $310.6 | [4. Business Acquisitions](index=15&type=section&id=4.%20BUSINESS%20ACQUISITIONS) Details the company's acquisition activities, including two acquisitions in the first half of 2023 and measurement period adjustments for 2022 acquisitions - In the first six months of 2023, Labcorp completed **two acquisitions** for **$136.9 million**, adding **$50.8 million** in goodwill and **$84.1 million** in identifiable intangible assets[39](index=39&type=chunk) - In the first six months of 2022, the Company acquired **several businesses** for **$554.9 million**, including **$332.8 million** in goodwill and **$325.3 million** in identifiable intangible assets, **primarily to enhance liquid biopsy capabilities and diagnostic footprint**[40](index=40&type=chunk) [5. Earnings Per Share](index=16&type=section&id=5.%20EARNINGS%20PER%20SHARE) Explains the calculation of basic and diluted earnings per share, including reconciliation and the impact of potentially dilutive common shares Diluted Earnings Per Share | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Diluted earnings per common share continuing operations | $1.74 | $2.89 | $4.08 | $7.38 | | Diluted earnings per common share discontinued operations | $0.38 | $0.98 | $0.43 | $1.73 | | Diluted earnings per common share | $2.12 | $3.87 | $4.51 | $9.11 | - **Potentially dilutive common shares not included** in diluted EPS calculation due to their **antidilutive impact** were **0.5 million** for the three months ended June 30, 2023, and **0.4 million** for the six months ended June 30, 2023[45](index=45&type=chunk) [6. Goodwill and Intangible Assets](index=17&type=section&id=6.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Details changes in goodwill and identifiable intangible assets, including acquisitions, foreign currency impacts, and estimated future amortization expense Goodwill Changes by Segment | Segment | Balance as of December 31, 2022 (millions) | Goodwill acquired during the period (millions) | Foreign currency impact and other adjustments to goodwill (millions) | Balance as of June 30, 2023 (millions) | | :------ | :--------------------------------------- | :------------------------------------------- | :----------------------------------------------------------------- | :------------------------------------- | | Dx | $4,533.5 | $50.8 | $(16.3) | $4,568.0 | | BLS | $1,590.2 | — | $24.0 | $1,614.2 | | Total | $6,123.7 | $50.8 | $7.7 | $6,182.2 | - The Company recorded **impairment charges** of **$2.8 million** in intangible assets for the three months ended June 30, 2023, and **$5.0 million** in **capitalized software costs and other intangible assets** for the six months ended June 30, 2023[122](index=122&type=chunk)[144](index=144&type=chunk) - **Estimated amortization expense** for intangible assets is **$107.6 million** for the remainder of fiscal 2023, **$210.8 million** in fiscal 2024, and **$201.4 million** in fiscal 2025[49](index=49&type=chunk) [7. Debt](index=18&type=section&id=7.%20DEBT) Provides a breakdown of short-term and long-term debt, including senior notes and credit facilities, and discusses interest rate swap agreements and debt covenant compliance Short-Term Debt | Metric | June 30, 2023 (millions) | December 31, 2022 (millions) | | :----- | :----------------------- | :--------------------------- | | 4.00% senior notes due 2023 | $300.0 | $300.0 | | Total short-term borrowings and current portion of long-term debt | $301.4 | $301.3 | Long-Term Debt | Metric | June 30, 2023 (millions) | December 31, 2022 (millions) | | :----- | :----------------------- | :--------------------------- | | 2.30% senior notes due 2024 | $400.0 | $400.0 | | 3.25% senior notes due 2024 | $600.0 | $600.0 | | 3.60% senior notes due 2025 | $1,000.0 | $1,000.0 | | Total long-term debt | $5,042.4 | $5,038.8 | - The Company maintains a **$1,000.0 million** **senior revolving credit facility**, expiring April 30, 2026, with **no outstanding balances** as of June 30, 2023[51](index=51&type=chunk) [8. Preferred Stock and Common Shareholders' Equity](index=18&type=section&id=8.%20PREFERRED%20STOCK%20AND%20COMMON%20SHAREHOLDERS'%20EQUITY) Provides information on authorized and outstanding common and preferred stock, details changes in common shares, and outlines the share repurchase program and dividend declarations - As of June 30, 2023, **88.7 million** common shares were **issued and outstanding**, up from **88.2 million** at December 31, 2022[55](index=55&type=chunk) - The Company has an **outstanding authorization to repurchase** up to **$1,531.5 million** of common stock, with no expiration date. **No repurchases were made** in the three months ended June 30, 2023[56](index=56&type=chunk)[184](index=184&type=chunk) - **Dividends paid** for the six months ended June 30, 2023, totaled **$129.0 million**. A **cash dividend** of **$0.72 per share** was announced for the third quarter, payable September 8, 2023[57](index=57&type=chunk)[166](index=166&type=chunk) [9. Commitments and Contingencies](index=19&type=section&id=9.%20COMMITMENTS%20AND%20CONTINGENCIES) Discusses various legal claims and actions the company is involved in, including class actions, government inquiries, and patent infringement lawsuits - The Company is involved in **various legal actions**, including **class actions**, **government inquiries** (e.g., Medicaid billing, non-human primate shipments, non-invasive prenatal screening tests, urine drug testing), and a **patent infringement lawsuit**[59](index=59&type=chunk)[64](index=64&type=chunk)[65](index=65&type=chunk) - A **jury awarded** **$272.0 million** in damages for patent infringement to Ravgen Inc. in September 2022, with an additional **$100.0 million** in **enhanced damages** awarded in May 2023. The Company is **appealing this decision**[75](index=75&type=chunk) - The Company records an **aggregate legal reserve** based on historical loss rates and trends, and establishes separate reserves for **probable and reasonably estimable loss contingencies** exceeding the aggregate reserve[62](index=62&type=chunk) [10. Fair Value Measurements](index=24&type=section&id=10.%20FAIR%20VALUE%20MEASUREMENTS) Explains the company's fair value measurements for financial assets and liabilities, categorizing them by input observability, and details specific instruments Fair Value Measurements Summary | Balance Sheet Classification | Fair Value as of June 30, 2023 (millions) | Level 1 (millions) | Level 2 (millions) | Level 3 (millions) | | :--------------------------- | :---------------------------------------- | :----------------- | :----------------- | :----------------- | | Noncontrolling interest put | $15.5 | — | $15.5 | — | | Cross currency swaps | $68.4 | — | $68.4 | — | | Interest rate swaps | $78.4 | — | $78.4 | — | | Cash surrender value of life insurance policies | $106.3 | — | $106.3 | — | | Deferred compensation liability | $101.1 | — | $101.1 | — | | Contingent consideration | $69.0 | — | — | $69.0 | - Contingent accrued earn-out business acquisition consideration liabilities are measured at fair value using **Level 3 valuations**, based on **significant unobservable inputs**[88](index=88&type=chunk) - The fair market value of senior notes was approximately **$5,007.7 million** as of June 30, 2023, classified as **Level 2 instruments**[89](index=89&type=chunk)[90](index=90&type=chunk) [11. Supplemental Cash Flow Information](index=25&type=section&id=11.%20SUPPLEMENTAL%20CASH%20FLOW%20INFORMATION) Provides additional details on cash paid for interest and income taxes, and non-cash financing and investing activities Supplemental Cash Flow Data | Metric | Six Months Ended June 30, 2023 (millions) | Six Months Ended June 30, 2022 (millions) | | :----- | :-------------------------------------- | :-------------------------------------- | | Cash paid for interest | $109.5 | $95.5 | | Cash paid for income taxes, net of refunds | $133.3 | $277.8 | - **Non-cash financing and investing activities** included a **$16.5 million** **change in accrued property, plant and equipment** for the six months ended June 30, 2023[92](index=92&type=chunk) [12. Business Segment Information](index=25&type=section&id=12.%20BUSINESS%20SEGMENT%20INFORMATION) Presents financial information for the Dx and BLS segments, including revenues and operating earnings, after recasting historical results to exclude Fortrea - The Company's segments are **Diagnostics Laboratories (Dx)** and **Biopharma Laboratory Services (BLS)**, with **segment performance evaluated by the CEO (CODM)** excluding certain corporate charges[93](index=93&type=chunk)[95](index=95&type=chunk)[151](index=151&type=chunk) Segment Performance (3 Months) | Segment | Three Months Ended June 30, 2023 (millions) | Three Months Ended June 30, 2022 (millions) | Change (%) | | :------ | :---------------------------------------- | :---------------------------------------- | :--------- | | Dx Revenues | $2,340.8 | $2,255.4 | +3.8% | | BLS Revenues | $699.0 | $677.9 | +3.1% | | Dx Operating Income | $409.7 | $515.6 | -20.5% | | BLS Operating Income | $104.6 | $93.0 | +12.5% | - **Dx operating income decreased** by **20.5%** for the three months ended June 30, 2023, primarily due to **reduced COVID-19 Testing**, while **BLS operating income increased** by **12.5%** from **demand growth and LaunchPad savings**[132](index=132&type=chunk)[133](index=133&type=chunk) [13. Subsequent Events](index=26&type=section&id=13.%20SUBSEQUENT%20EVENTS) Discloses significant events that occurred after the reporting period, including agreements to acquire outreach laboratory businesses and manage hospital laboratories - After June 30, 2023, Labcorp agreed to acquire select assets of **Legacy Health's outreach laboratory business** and **manage its inpatient hospital laboratories**[98](index=98&type=chunk) - The Company completed the acquisition of certain assets of **Enzo Biochem, Inc. in New Jersey** and entered into an agreement to acquire **Tufts Medicine's outreach laboratory business** and select operating assets[98](index=98&type=chunk) - The **combined purchase price** for these subsequent acquisitions was approximately **$385.0 million**[98](index=98&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on the company's financial condition and results of operations, including forward-looking statements, the Fortrea spin-off, and analysis of revenues, expenses, and segment performance - **Total revenues** for the six months ended June 30, 2023, increased by **0.1%** to **$6,071.5 million**, driven by **acquisitions** (**1.6%**) partially offset by **lower organic revenue** (**1.3%**) and **unfavorable foreign currency** (**0.2%**)[106](index=106&type=chunk)[136](index=136&type=chunk) - The **1.3% decrease in organic revenue** for the six months was due to an **11.2% decrease in COVID-19 PCR and antibody testing**, partially offset by a **9.9% increase in the organic Base Business**[106](index=106&type=chunk)[136](index=136&type=chunk) - The **Fortrea spin-off** was completed on **June 30, 2023**, with Fortrea making a cash distribution of approximately **$1,600.0 million** to Labcorp, which intends to use proceeds for a **$1,000.0 million** **accelerated share repurchase program** and **$300.0 million** debt paydown[108](index=108&type=chunk)[111](index=111&type=chunk)[162](index=162&type=chunk) [Forward-Looking Statements](index=27&type=section&id=FORWARD-LOOKING%20STATEMENTS) Highlights that the report contains forward-looking statements subject to various risks and uncertainties, where actual results could differ materially - **Forward-looking statements** are subject to risks including **changes in government regulations**, **reimbursement policies**, **anti-fraud and abuse laws**, **privacy and security laws**, and **increased competition**[101](index=101&type=chunk)[103](index=103&type=chunk) - Risks also include the **inability to attract and retain personnel**, **failure to develop new technologies**, **business interruptions** from natural disasters or crises, and the **impacts of the COVID-19 pandemic**[103](index=103&type=chunk)[105](index=105&type=chunk) - The recently completed **spin-off of Fortrea Holdings Inc.** poses risks related to **achieving intended benefits**, **potential tax-free treatment issues**, **adverse impacts on relationships** with customers/suppliers/employees, and **increased costs**[105](index=105&type=chunk)[181](index=181&type=chunk) [General](index=30&type=section&id=GENERAL) Provides an overview of the company's revenue performance, highlighting the impact of acquisitions, organic growth, and the decline in COVID-19 testing Revenue Overview (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (millions) | Change (%) | | :----- | :-------------- | :-------------- | :---------------- | :--------- | | Revenues | $6,071.5 | $6,067.5 | +$4.0 | +0.1% | - **Revenue growth** was driven by **acquisitions** (**1.6%**), offset by **lower organic revenue** (**1.3%**) and **unfavorable foreign currency translation** (**0.2%**)[106](index=106&type=chunk) - The **decrease in organic revenue** was primarily due to an **11.2% decline in COVID-19 testing**, partially mitigated by a **9.9% increase in the organic Base Business**[106](index=106&type=chunk) [Separation of Fortrea Holdings Inc.](index=30&type=section&id=Separation%20of%20Fortrea%20Holdings%20Inc.) Details the completion of the Fortrea spin-off, the distribution of shares, Fortrea's debt issuance, cash payments to Labcorp, and the intended use of these proceeds - Labcorp completed the **spin-off of Fortrea Holdings Inc.** on **June 30, 2023**, **distributing 100% of Fortrea's common stock** to Labcorp shareholders[108](index=108&type=chunk)[109](index=109&type=chunk) - Fortrea issued **$570.0 million** in **senior secured notes** and secured **$1,520.0 million** in **credit facilities**, which funded a **$1,600.0 million** **cash payment to Labcorp**[110](index=110&type=chunk)[111](index=111&type=chunk) - Labcorp plans to use the **$1,600.0 million** proceeds for a **$1,000.0 million** **accelerated share repurchase program** and to **pay down $300.0 million of debt** maturing this year[111](index=111&type=chunk)[162](index=162&type=chunk) [Results of Operations (Three months ended June 30, 2023, compared with three months ended June 30, 2022)](index=30&type=section&id=RESULTS%20OF%20OPERATIONS%20(dollars%20in%20millions)) Analyzes the company's financial performance for the three months ended June 30, 2023, compared to the same period in 2022, focusing on revenue drivers, cost changes, and segment operating income - **Total revenues increased** by **3.8%** to **$3,033.7 million**, driven by **2.0% organic growth** (**9.8% Base Business increase**, **7.8% COVID-19 Testing decrease**) and **1.6% from acquisitions**[114](index=114&type=chunk) - **Cost of revenues as a percentage of revenues increased** to **72.2%** from **67.8%**, primarily due to **reduced COVID-19 Testing revenues** and **higher personnel costs**[119](index=119&type=chunk) - **Operating income decreased** by **37.9%** to **$266.3 million**, with **Dx operating income down 20.5%** due to **COVID-19 decline**, and **BLS operating income up 12.5%** from **demand growth and LaunchPad savings**[132](index=132&type=chunk)[133](index=133&type=chunk) [Revenues (3 months)](index=30&type=section&id=Revenues%20(3%20months)) Analyzes revenue performance for the three months ended June 30, 2023, by segment, highlighting organic growth, acquisition impact, and COVID-19 testing trends Revenues by Segment (3 Months) | Segment | 2023 (millions) | 2022 (millions) | Change (%) | | :------ | :-------------- | :-------------- | :--------- | | Dx | $2,340.8 | $2,255.4 | +3.8% | | BLS | $699.0 | $677.9 | +3.1% | | Total | $3,033.7 | $2,923.0 | +3.8% | - **Dx organic revenue increased** by **1.8%**, driven by an **11.9% increase in Base Business**, partially offset by a **10.1% decrease in COVID-19 Testing**[115](index=115&type=chunk) - **BLS organic revenue increased** by **2.1%**, but was negatively impacted by approximately **5.0%** due to **non-human primate (NHP) related constraints** in its Early Development business[118](index=118&type=chunk) [Cost of Revenues (3 months)](index=31&type=section&id=Cost%20of%20Revenues%20(3%20months)) Examines the cost of revenues for the three months ended June 30, 2023, and its percentage of revenues, noting impacts from COVID-19 testing and personnel costs Cost of Revenues (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Cost of revenues | $2,191.5 | $1,980.5 | +10.7% | | As a % of revenues | 72.2% | 67.8% | +4.4 pp | - The **increase in cost of revenues as a percentage of revenues** was primarily due to a **reduction in COVID-19 Testing revenues** and **higher personnel costs**[119](index=119&type=chunk) [Selling, General and Administrative Expenses (3 months)](index=31&type=section&id=Selling,%20General%20and%20Administrative%20Expenses%20(3%20months)) Reviews selling, general, and administrative expenses for the three months ended June 30, 2023, and their percentage of revenues, noting impacts from COVID-19 testing and spin-off costs SG&A Expenses (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | SG&A expenses | $505.8 | $432.4 | +17.0% | | As a % of revenues | 16.7% | 14.8% | +1.9 pp | - The **increase in SG&A as a percentage of revenues** was mainly due to **reduced COVID-19 Testing revenues** and **spin-off transaction costs**[120](index=120&type=chunk) [Amortization of Intangibles and Other Assets (3 months)](index=31&type=section&id=Amortization%20of%20Intangibles%20and%20Other%20Assets%20(3%20months)) Details amortization expense for intangibles and other assets for the three months ended June 30, 2023, reflecting additional amortization from recent acquisitions Amortization Expense (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Amortization | $51.5 | $49.8 | +3.4% | - The increase reflects **additional amortization for assets acquired** after June 30, 2022[121](index=121&type=chunk) [Goodwill and Other Asset Impairments (3 months)](index=31&type=section&id=Goodwill%20and%20Other%20Asset%20Impairments%20(3%20months)) Reports goodwill and other asset impairment charges for the three months ended June 30, 2023, compared to the prior year Impairment Charges (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Impairment charges | $2.8 | — | +100.0% | - The Company recorded **$2.8 million** in **intangible asset impairment charges** in Q2 2023, compared to none in Q2 2022[122](index=122&type=chunk) [Restructuring and Other Charges (3 months)](index=31&type=section&id=Restructuring%20and%20Other%20Charges%20(3%20months)) Outlines restructuring and other charges for the three months ended June 30, 2023, including severance and facility closure costs Restructuring Charges (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Charges | $15.8 | $31.5 | -49.8% | - Charges in Q2 2023 included **$5.2 million** for **severance** and **$8.9 million** for **facility closures**, a **significant decrease from $31.5 million** in Q2 2022[123](index=123&type=chunk)[125](index=125&type=chunk) [Interest Expense (3 months)](index=32&type=section&id=Interest%20Expense%20(3%20months)) Analyzes interest expense for the three months ended June 30, 2023, noting impacts from higher interest rates and increased borrowings Interest Expense (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Interest expense | $(49.8) | $(42.3) | +17.7% | - The increase in **interest expense** was primarily due to **higher interest rates on variable rate debt** and **increased borrowings under the Credit Facility**[126](index=126&type=chunk) [Equity Method Income (3 months)](index=32&type=section&id=Equity%20Method%20Income%20(3%20months)) Examines equity method income for the three months ended June 30, 2023, noting changes due to joint venture profitability Equity Method Income (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Equity method income, net | $0.9 | $1.4 | -33.8% | - The decrease in **equity method income** was due to **decreased profitability** of the Company's joint ventures[127](index=127&type=chunk) [Other, net (3 months)](index=32&type=section&id=Other,%20net%20(3%20months)) Details other, net income/expense for the three months ended June 30, 2023, highlighting changes in investment and foreign currency transaction losses Other, Net (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Other, net | $(16.9) | $(29.5) | -42.7% | - The change was primarily due to **lower investment losses** (**$4.1 million** in 2023 vs. **$6.2 million** in 2022) and **reduced foreign currency transaction losses** (**$11.2 million** in 2023 vs. **$23.5 million** in 2022)[128](index=128&type=chunk) [Income Tax Expense (3 months)](index=32&type=section&id=Income%20Tax%20Expense%20(3%20months)) Reviews income tax expense and effective tax rate for the three months ended June 30, 2023, noting factors influencing the rate Income Tax Expense (3 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Income tax expense | $49.8 | $92.1 | -46.0% | | As a % of earnings before income taxes | 24.3% | 25.6% | -1.3 pp | - The **effective tax rate** for Q2 2023 was **24.3%**, differing from the **21.0%** U.S. federal statutory rate due to state income taxes, executive compensation disallowance, and R&D tax credits[129](index=129&type=chunk) [Operating Income by Segment (3 months)](index=32&type=section&id=Operating%20Income%20by%20Segment%20(3%20months)) Presents operating income by segment for the three months ended June 30, 2023, highlighting drivers for Dx and BLS performance and corporate expenses Operating Income by Segment (3 Months) | Segment | 2023 Operating Income (millions) | 2022 Operating Income (millions) | Change (%) | 2023 Operating Margin | 2022 Operating Margin | Change (pp) | | :------ | :------------------------------- | :------------------------------- | :--------- | :-------------------- | :-------------------- | :---------- | | Dx | $409.7 | $515.6 | -20.5% | 17.5% | 22.9% | -5.4 pp | | BLS | $104.6 | $93.0 | +12.5% | 15.0% | 13.7% | +1.3 pp | - **Dx operating income decreased** due to **reduced COVID-19 Testing**, while **BLS operating income increased** due to **demand growth and LaunchPad savings**, despite NHP-related constraints[132](index=132&type=chunk)[133](index=133&type=chunk) - **General corporate and unallocated expenses increased** by **80.6%** to **$177.9 million**, primarily due to **spin-off transaction costs**, **personnel costs**, and **R&D**[134](index=134&type=chunk) [Six Months Ended June 30, 2023, compared with six months ended June 30, 2022](index=33&type=section&id=Six%20Months%20Ended%20June%2030,%202023,%20compared%20with%20six%20months%20ended%20June%2030,%202022) Compares the company's financial performance for the six months ended June 30, 2023, against the same period in 2022, covering revenue trends, cost structures, and segment profitability - **Total revenues increased** by **0.1%** to **$6,071.5 million**, driven by **acquisitions** (**1.6%**) but offset by **lower organic revenue** (**1.3%**) and **unfavorable foreign currency** (**0.2%**)[136](index=136&type=chunk) - **Cost of revenues as a percentage of revenues increased** to **72.1%** from **66.6%**, mainly due to **reduced COVID-19 Testing revenues** and **higher personnel expenses**[141](index=141&type=chunk) - **Total operating income decreased** by **42.4%** to **$596.1 million**, with **Dx operating income down 29.0%** and **BLS operating income down 5.7%**[152](index=152&type=chunk) [Revenues (6 months)](index=33&type=section&id=Revenues%20(6%20months)) Analyzes revenue performance for the six months ended June 30, 2023, by segment, highlighting organic growth, acquisition impact, and COVID-19 testing trends Revenues by Segment (6 Months) | Segment | 2023 (millions) | 2022 (millions) | Change (%) | | :------ | :-------------- | :-------------- | :--------- | | Dx | $4,723.6 | $4,709.5 | +0.3% | | BLS | $1,360.3 | $1,382.1 | -1.6% | | Total | $6,071.5 | $6,067.5 | +0.1% | - **Dx organic revenue decreased** by **1.6%** due to a **14.4% drop in COVID-19 Testing**, partially offset by a **12.8% increase in Base Business**[137](index=137&type=chunk) - **BLS revenues decreased** by **1.6%**, primarily due to a **1.1% organic decline**, negatively impacted by approximately **6.0%** from NHP-related constraints. BLS backlog expected to convert to revenue in the next 12 months is **$2,460.0 million**, representing **30.9%** of total backlog[139](index=139&type=chunk)[140](index=140&type=chunk) [Cost of Revenues (6 months)](index=34&type=section&id=Cost%20of%20Revenues%20(6%20months)) Examines the cost of revenues for the six months ended June 30, 2023, and its percentage of revenues, noting impacts from COVID-19 testing, Ascension agreement, and personnel costs Cost of Revenues (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Cost of revenues | $4,379.2 | $4,042.9 | +8.3% | | As a % of revenues | 72.1% | 66.6% | +5.5 pp | - The **increase in cost of revenues as a percentage of revenues** was primarily due to **reduced COVID-19 Testing revenues**, the **Ascension Management Service Agreement impact**, and **higher personnel expenses**[141](index=141&type=chunk) [Selling, General and Administrative Expenses (6 months)](index=34&type=section&id=Selling,%20General%20and%20Administrative%20Expenses%20(6%20months)) Reviews selling, general, and administrative expenses for the six months ended June 30, 2023, and their percentage of revenues, noting impacts from COVID-19 testing and spin-off costs SG&A Expenses (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | SG&A expenses | $963.0 | $854.4 | +12.7% | | As a % of revenues | 15.9% | 14.1% | +1.8 pp | - The **increase in SG&A as a percentage of revenues** was mainly due to **reduced COVID-19 Testing revenues** and **spin-off transaction costs**[142](index=142&type=chunk) [Amortization of Intangibles and Other Assets (6 months)](index=34&type=section&id=Amortization%20of%20Intangibles%20and%20Other%20Assets%20(6%20months)) Details amortization expense for intangibles and other assets for the six months ended June 30, 2023, reflecting additional amortization from recent acquisitions Amortization Expense (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Amortization | $104.9 | $100.0 | +4.9% | - The increase reflects **additional amortization for assets acquired** after June 30, 2022[143](index=143&type=chunk) [Goodwill and Other Asset Impairments (6 months)](index=34&type=section&id=Goodwill%20and%20Other%20Asset%20Impairments%20(6%20months)) Reports goodwill and other asset impairment charges for the six months ended June 30, 2023, compared to the prior year, including capitalized software costs Impairment Charges (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Impairment charges | $5.0 | $1.2 | +315.9% | - The Company recorded **$5.0 million** in **impairment charges in capitalized software costs and other intangible assets** in H1 2023, compared to **$1.2 million** in **other assets in Ukraine and Russia** in H1 2022[144](index=144&type=chunk) [Restructuring and Other Charges (6 months)](index=34&type=section&id=Restructuring%20and%20Other%20Charges%20(6%20months)) Outlines restructuring and other charges for the six months ended June 30, 2023, including severance and facility closure costs Restructuring Charges (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Charges | $23.3 | $35.0 | -33.3% | - Charges in H1 2023 included **$9.2 million** for **severance** and **$13.2 million** for **facility closures**, a **decrease from $35.0 million** in H1 2022[145](index=145&type=chunk)[146](index=146&type=chunk) [Interest Expense (6 months)](index=35&type=section&id=Interest%20Expense%20(6%20months)) Analyzes interest expense for the six months ended June 30, 2023, noting impacts from higher interest rates and increased borrowings Interest Expense (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Interest expense | $(100.5) | $(84.4) | +19.1% | - The increase in **interest expense** was primarily due to **higher interest rates on variable rate debt** and **increased borrowings under the Credit Facility**[147](index=147&type=chunk) [Equity Method Income (6 months)](index=35&type=section&id=Equity%20Method%20Income%20(6%20months)) Examines equity method income for the six months ended June 30, 2023, noting changes due to joint venture profitability Equity Method Income (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Equity method income, net | $(1.2) | $4.8 | -124.3% | - The decrease in **equity method income** was due to **decreased profitability** of the Company's joint ventures[148](index=148&type=chunk) [Other, net (6 months)](index=35&type=section&id=Other,%20net%20(6%20months)) Details other, net income/expense for the six months ended June 30, 2023, highlighting changes in investment and foreign currency transaction losses Other, Net (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Other, net | $(23.8) | $(45.2) | -47.2% | - The change was primarily due to **lower investment losses** (**$5.6 million** in 2023 vs. **$14.2 million** in 2022) and **reduced foreign currency transaction losses** (**$18.0 million** in 2023 vs. **$31.7 million** in 2022)[149](index=149&type=chunk) [Income Tax Expense (6 months)](index=35&type=section&id=Income%20Tax%20Expense%20(6%20months)) Reviews income tax expense and effective tax rate for the six months ended June 30, 2023, noting factors influencing the rate Income Tax Expense (6 Months) | Metric | 2023 (millions) | 2022 (millions) | Change (%) | | :----- | :-------------- | :-------------- | :--------- | | Income tax expense | $113.7 | $222.6 | -48.9% | | As a % of earnings before income taxes | 23.8% | 24.4% | -0.6 pp | - The **effective tax rate** for H1 2023 was **23.8%**, differing from the **21.0%** U.S. federal statutory rate due to state income taxes, executive compensation disallowance, and R&D tax credits[150](index=150&type=chunk) [Operating Income by Segment (6 months)](index=35&type=section&id=Operating%20Income%20by%20Segment%20(6%20months)) Presents operating income by segment for the six months ended June 30, 2023, highlighting drivers for Dx and BLS performance, corporate expenses, and LaunchPad savings Operating Income by Segment (6 Months) | Segment | 2023 Operating Income (millions) | 2022 Operating Income (millions) | Change (%) | 2023 Operating Margin | 2022 Operating Margin | Change (pp) | | :------ | :------------------------------- | :------------------------------- | :--------- | :-------------------- | :-------------------- | :---------- | | Dx | $851.2 | $1,198.7 | -29.0% | 18.0% | 25.5% | -7.4 pp | | BLS | $178.2 | $188.9 | -5.7% | 13.1% | 13.7% | -0.6 pp | - **Dx operating income decreased** by **29.0%** due to **reduced COVID-19 Testing** and **higher personnel costs**, while **BLS operating income decreased** by **5.7%** due to **NHP-related constraints** and **higher personnel costs**[153](index=153&type=chunk)[154](index=154&type=chunk) - **General corporate expenses increased** by **38.0%** to **$300.1 million**, primarily due to **spin-off transaction costs**, **personnel costs**, and **R&D**. The Company remains on track to deliver approximately **$350.0 million** of **net savings** from its three-year **LaunchPad initiative** by the end of 2024[155](index=155&type=chunk)[156](index=156&type=chunk) [Liquidity and Capital Resources](index=36&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES%20(dollars%20and%20shares%20in%20millions)) Discusses the company's liquidity position, cash flow generation, and capital allocation strategies, including the Fortrea spin-off proceeds for share repurchases and debt reduction - The Company's **principal source of liquidity is operating cash flow**, supplemented by debt offerings, and it believes current cash and borrowing capacity are **sufficient for the next twelve months**[157](index=157&type=chunk) Cash Flow Summary (Continuing Operations) | Metric | Six Months Ended June 30, 2023 (millions) | Six Months Ended June 30, 2022 (millions) | | :----- | :-------------------------------------- | :-------------------------------------- | | Net cash provided by operating activities from continuing operations | $347.2 | $904.6 | | Net cash used for investing activities from continuing operations | $(328.6) | $(802.5) | | Net cash used for financing activities from continuing operations | $(124.7) | $(497.4) | | Net decrease in cash and cash equivalents from continuing operations | $(99.8) | $(414.7) | - Cash and cash equivalents totaled **$1,930.6 million** at June 30, 2023, up from **$978.3 million** in 2022. The **$1,600.0 million** **cash distribution from Fortrea** will be used for a **$1,000.0 million** **accelerated share repurchase program** and **$300.0 million** debt paydown[159](index=159&type=chunk)[162](index=162&type=chunk) [Cash and Cash Equivalents](index=36&type=section&id=Cash%20and%20Cash%20Equivalents) Provides details on the company's cash and cash equivalents balance and composition Cash and Cash Equivalents Balance | Date | Amount (millions) | | :--- | :---------------- | | June 30, 2023 | $1,930.6 | | June 30, 2022 | $978.3 | - Cash and cash equivalents consist of highly liquid instruments with original maturities of three months or less[159](index=159&type=chunk) [Cash Flows from Operating Activities](index=36&type=section&id=Cash%20Flows%20from%20Operating%20Activities) Analyzes cash flows from operating activities, highlighting changes due to cash earnings Operating Cash Flow (Continuing Operations) | Period | Amount (millions) | | :----- | :---------------- | | 6 Months Ended June 30, 2023 | $347.2 | | 6 Months Ended June 30, 2022 | $904.6 | - **Cash provided by continuing operations decreased** by **$557.4 million** in H1 2023 compared to H1 2022, primarily due to **lower cash earnings**[160](index=160&type=chunk) [Cash Flows from Investing Activities](index=36&type=section&id=Cash%20Flows%20from%20Investing%20Activities) Examines cash flows from investing activities, noting changes in business acquisitions and capital expenditures Investing Cash Flow (Continuing Operations) | Period | Amount (millions) | | :----- | :---------------- | | 6 Months Ended June 30, 2023 | $(328.6) | | 6 Months Ended June 30, 2022 | $(802.5) | - **Net cash used for investing activities decreased** by **$473.9 million**, primarily due to a **decrease in business acquisitions** and **lower capital expenditures**[161](index=161&type=chunk) - **Capital expenditures were $181.5 million** in H1 2023, down from **$247.4 million** in H1 2022[161](index=161&type=chunk) [Cash Flows from Financing Activities](index=36&type=section&id=Cash%20Flows%20from%20Financing%20Activities) Details cash flows from financing activities, including share repurchases, dividends, and the Fortrea cash distribution Financing Cash Flow (Continuing Operations) | Period | Amount (millions) | | :----- | :---------------- | | 6 Months Ended June 30, 2023 | $(124.7) | | 6 Months Ended June 30, 2022 | $(497.4) | - The change in cash flows from financing activities was primarily due to **no share repurchase activity** in H1 2023 (compared to **$400.0 million** in H1 2022) and the **$1,600.0 million** **cash distribution from Fortrea**[162](index=162&type=chunk) - The Company has **$1,531.5 million** **remaining authorization for common stock repurchases**. **Dividends paid** for the six months ended June 30, 2023, totaled **$129.0 million**[165](index=165&type=chunk)[166](index=166&type=chunk) [Credit Ratings](index=37&type=section&id=Credit%20Ratings) Discusses the company's investment grade debt ratings and their impact on access to capital markets - The Company maintains **investment grade debt ratings** from Moody's and Standard & Poor's, which supports its **access to capital markets**[167](index=167&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Discusses the company's exposure to market risks, primarily foreign currency exchange rates and interest rates, and its risk management strategies - Labcorp is **exposed to market risks** from **foreign currency exchange rates** and **interest rates**, which it manages through a **risk management program** including **derivative financial instruments**[168](index=168&type=chunk) - Approximately **13.6%** of revenues for the six months ended June 30, 2023, were denominated in **non-USD currencies**, with **significant exposure** to the Canadian dollar, Swiss Franc, Euro, and British Pound[169](index=169&type=chunk) - A hypothetical **10%** change in average exchange rates would impact income before income taxes by approximately **$12.1 million** for the six months ended June 30, 2023[169](index=169&type=chunk) [Foreign Currency Exchange Rates](index=37&type=section&id=Foreign%20Currency%20Exchange%20Rates) Examines exposure to foreign currency exchange rates and the use of derivative instruments to hedge transaction and net investment risk - **13.6%** of revenues for H1 2023 were non-USD denominated, exposing the Company to **translation risk**[169](index=169&type=chunk) - The Company uses **foreign currency forward contracts** and **cross-currency swap agreements

Financial Data and Key Metrics Changes - Revenue for the quarter totaled $3 billion, an increase of 3.8% compared to last year, primarily due to organic base business growth and acquisitions, partially offset by lower COVID testing [54][85] - Adjusted EPS was $3.42, down 15% from last year due to lower COVID testing earnings, while base business adjusted EPS was up approximately 18% [30] - Free cash flow from continuing operations was $177 million, down from $548 million a year ago, primarily due to lower COVID testing earnings and spin-related items [59] Business Line Data and Key Metrics Changes - For Biopharma Laboratory Services, revenue grew 3.1% to $699 million, primarily due to organic revenue growth of 2.1% and foreign currency impact of 1.5% [84] - Diagnostics Laboratories revenue was $2.3 billion, an increase of 3.8% compared to last year, driven by organic growth of 1.8% and acquisitions of 2.2% [33] - The base business grew 12.7% compared to last year, while COVID testing revenue was down 88% [27] Market Data and Key Metrics Changes - The company expects Biopharma Laboratory Services revenue to grow 3% to 4.5% compared to 2022, with a midpoint of guidance reflecting around 9.5% growth in the second half of the year [86] - The base business is expected to grow 13.2% to 14.2%, including approximately 5% growth from the Ascension partnership [63] Company Strategy and Development Direction - The company is focused on expanding its partnerships with healthcare systems, as evidenced by recent collaborations with Jefferson Health and Legacy Health [17][19] - A $1 billion accelerated share repurchase program was announced, indicating a commitment to returning capital to shareholders [16] - The company is actively pursuing regional laboratory acquisitions to increase access to diagnostics and expand capabilities [20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the operational focus and financial flexibility to advance the company's strategy, with strong momentum in the base business [14] - The company anticipates that Early Development Research Laboratories will grow in the second half of the year, with no expected impact from NHP supply constraints [9][68] - Management noted that labor pressures remain, but turnover rates have improved compared to last year [75] Other Important Information - The company completed the spin-off of Fortrea on June 30, treating it as discontinued operations in the second quarter [26] - Capital expenditures totaled $103 million, down from $140 million last year, with expectations for capital expenditures to be approximately 3.5% of base business revenue for the full year [31] Q&A Session Summary Question: Visibility on improvement for Early Development Research Labs - Management indicated they are in good shape for the rest of the year with NHP supply and do not expect additional impacts [68] Question: Trends in reimbursement and value-based economics - Management noted that while there is stability in reimbursement trends, significant progress towards value-based contracts has not yet been achieved [70][95] Question: Labor market pressures and wage increases - Management acknowledged ongoing labor issues but noted improvements in turnover rates compared to last year, with wage inflation continuing to be a concern [75][133] Question: Tracking of Ascension partnership - Management reported that the integration with Ascension is progressing well, with revenue expectations at the higher end of initial estimates [120] Question: Expectations for PAMA and SALSA - Management provided insights on expectations for PAMA, indicating a stable outlook moving forward [142]

[Financial Information](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements (unaudited)](index=2&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents the unaudited condensed consolidated financial statements for the quarter ended March 31, 2023, including balance sheets, statements of operations, comprehensive income, changes in shareholders' equity, and cash flows, along with related notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2023, total assets were **$20.20 billion**, a slight increase from **$20.16 billion** at year-end 2022, while total liabilities decreased from **$10.04 billion** to **$9.84 billion**, and total shareholders' equity increased from **$10.10 billion** to **$10.34 billion** Balance Sheet Summary (Millions of USD) | Item | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$20,200.0** | **$20,155.1** | | Total Current Assets | $4,695.0 | $4,625.0 | | Goodwill, net | $8,116.0 | $8,121.0 | | **Total Liabilities** | **$9,839.2** | **$10,039.6** | | Total Current Liabilities | $2,885.6 | $3,078.5 | | Long-term Debt (excluding current portion) | $5,052.3 | $5,038.8 | | **Total Shareholders' Equity** | **$10,341.5** | **$10,096.6** | [Condensed Consolidated Statements of Operations](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2023, revenue was **$3.78 billion**, down from **$3.90 billion** in the prior year, with net income attributable to the company significantly decreasing from **$491.6 million** to **$212.9 million**, and diluted earnings per share falling from **$5.23** to **$2.39** Operating Performance Summary (Millions of USD, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenue | $3,777.9 | $3,899.6 | | Gross Profit | $974.7 | $1,232.9 | | Operating Income | $341.0 | $687.9 | | Net Income Attributable to Company | $212.9 | $491.6 | | Diluted Earnings Per Share | $2.39 | $5.23 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2023, net cash provided by operating activities significantly decreased to **$121.2 million** from **$356.0 million** in Q1 2022, primarily due to lower net income, while net cash used in investing activities was **$99.7 million**, down from **$573.1 million** due to reduced acquisition spending, with cash and cash equivalents at period end totaling **$393.9 million** Cash Flow Summary (Millions of USD) | Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $121.2 | $356.0 | | Net Cash Used in Investing Activities | $(99.7) | $(573.1) | | Net Cash Used in Financing Activities | $(60.6) | $(17.7) | | Net Decrease in Cash and Cash Equivalents | $(36.1) | $(239.2) | | Cash and Cash Equivalents at Period End | $393.9 | $1,233.5 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the financial statements, covering basis of presentation, revenue recognition, business acquisitions, segment information, and legal contingencies, including the planned spin-off of the clinical development business (Fortrea), segment revenue contributions (Dx 63%, DD 37%), and details of various legal proceedings - The company announced plans to spin off its Clinical Development Services (CDCS) business into an independent publicly traded company, Fortrea, targeting completion by mid-2023[18](index=18&type=chunk)[95](index=95&type=chunk)[96](index=96&type=chunk) - In Q1 2023, the Diagnostics (Dx) and Drug Development (DD) segments contributed approximately **63%** and **37%** of revenue, respectively[17](index=17&type=chunk) - The company faces multiple legal proceedings, including a patent infringement case by Ravgen Inc., where a jury awarded **$272 million** in damages against the company, which is currently under appeal[64](index=64&type=chunk) - On May 3, 2023, the company entered into a comprehensive strategic partnership with Jefferson Health[85](index=85&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2023 financial performance, highlighting a **3.1%** year-over-year revenue decrease to **$3.78 billion**, primarily due to an **11.6%** decline in COVID-19 testing revenue, offset by **7.9%** organic growth in core business, with detailed analysis of Dx and DD segment performance, the impact of the upcoming Fortrea spin-off, and cost, expense, and profitability analysis [Results of Operations](index=28&type=section&id=RESULTS%20OF%20OPERATIONS) Total revenue in Q1 2023 decreased **3.1%** year-over-year to **$3.78 billion**, primarily due to a **3.6%** organic revenue decline from reduced COVID-19 testing, while Dx segment revenue fell **2.9%** due to an **18.4%** drop in COVID-19 testing revenue offsetting **13.7%** base business growth, and DD segment revenue decreased **4.0%** due to organic decline and unfavorable foreign exchange, leading to a **50.4%** drop in operating income to **$341 million** and significant margin contraction from lower COVID-19 testing revenue and increased SG&A, including spin-off costs Q1 2023 vs. Q1 2022 Performance Comparison (Millions of USD) | Metric | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$3,777.9** | **$3,899.6** | **(3.1)%** | | Dx Revenue | $2,382.8 | $2,454.1 | (2.9)% | | DD Revenue | $1,401.3 | $1,459.3 | (4.0)% | | **Total Operating Income** | **$341.0** | **$687.9** | **(50.4)%** | | Dx Operating Income | $441.5 | $683.1 | (35.4)% | | DD Operating Income | $123.9 | $168.6 | (26.5)% | - Diagnostics (Dx) segment revenue decreased **2.9%** to **$2.38 billion**, impacted by an **18.4%** decline in COVID-19 testing revenue[101](index=101&type=chunk) - Drug Development (DD) segment revenue decreased **4.0%** to **$1.40 billion**, affected by non-human primate (NHP) related restrictions and reduced COVID-related work[103](index=103&type=chunk) - Selling, General, and Administrative (SG&A) expenses increased **19.3%** to **$553.6 million**, primarily due to reduced COVID-19 testing revenue and spin-off transaction costs[106](index=106&type=chunk) [Liquidity and Capital Resources](index=34&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's primary liquidity source is operating cash flow, which significantly decreased to **$121.2 million** in Q1 2023 from **$356.0 million** in Q1 2022 due to lower profitability, while **$64.4 million** in dividends were paid with no share repurchases, and as of March 31, 2023, the company held **$393.9 million** in cash and a **$1.0 billion** revolving credit facility, deeming its liquidity sufficient for the next twelve months Cash Flow Summary (Millions of USD) | Item | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $121.2 | $356.0 | | Net Cash Used in Investing Activities | $(99.7) | $(573.1) | | Net Cash Used in Financing Activities | $(60.6) | $(17.7) | - As of March 31, 2023, the company had **$1.5315 billion** remaining under its share repurchase authorization[130](index=130&type=chunk)[145](index=145&type=chunk) - Dividends of **$64.4 million** were paid in Q1 2023[128](index=128&type=chunk)[131](index=131&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from foreign currency exchange rates and interest rate fluctuations, with approximately **14.2%** of Q1 2023 revenue denominated in non-USD currencies, where a hypothetical **10%** change in average exchange rates would impact pre-tax income by approximately **$6.1 million**, and these risks are managed using derivative financial instruments like foreign currency forward contracts and interest rate swaps - Approximately **14.2%** of Q1 2023 revenue was denominated in non-USD currencies[134](index=134&type=chunk) - A hypothetical **10%** change in average exchange rates is estimated to impact Q1 2023 pre-tax income by approximately **$6.1 million**[134](index=134&type=chunk) - The company uses foreign currency forward contracts (with a notional value of **$663.5 million** at quarter-end) and interest rate swaps to hedge risks[135](index=135&type=chunk)[139](index=139&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management, including the CEO and CFO, assessed the disclosure controls and procedures and concluded they were effective as of March 31, 2023, with no significant changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[140](index=140&type=chunk) - No significant changes in internal control over financial reporting occurred during the quarter[141](index=141&type=chunk) [Other Information](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) This section references detailed information on commitments and contingencies in Note 8 to the financial statements, which describes various legal proceedings, including class action lawsuits, intellectual property disputes, and government investigations, notably a patent infringement lawsuit by Ravgen Inc. where a jury awarded **$272 million** against the company, currently under appeal - This section refers to Note 8 of the financial statements for detailed information on the company's legal proceedings[142](index=142&type=chunk) - Key legal matters include government subpoenas, class action lawsuits, and a patent infringement case where a jury ruled against the company for **$272 million** in damages, currently under appeal[48](index=48&type=chunk)[64](index=64&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section supplements the risk factors from the 2022 Annual Report on Form 10-K, adding a new risk factor concerning the company's reliance on banking services from multiple financial institutions, where default or failure of these institutions could adversely affect the company's business and financial condition, especially if deposits exceed insured limits - A new risk factor has been added regarding the company's reliance on financial institutions and the potential impact of their failure[144](index=144&type=chunk) - The company's cash deposits at certain institutions exceed insured limits, posing a risk to fund access in the event of bank failure[144](index=144&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during the three months ended March 31, 2023, and as of that date, the Board of Directors still had an outstanding share repurchase authorization of up to **$1.5315 billion** with no expiration date - No common stock was repurchased in Q1 2023[145](index=145&type=chunk) - The company has an outstanding share repurchase authorization of up to **$1.5315 billion**[145](index=145&type=chunk) [Other Information](index=37&type=section&id=Item%205.%20Other%20Information) No other information is required to be reported for this period - No[146](index=146&type=chunk) [Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including credit agreement amendments, executive employment agreements, and CEO and CFO certifications required under the Sarbanes-Oxley Act - Lists filed exhibits, including credit agreement amendments, executive employment agreements, and CEO/CFO certification documents[148](index=148&type=chunk)

Laboratory Corporation of America Holdings (NYSE:LH) Q1 2023 Earnings Conference Call April 25, 2023 9:00 AM ET Company Participants Chas Cook – Head-Investor Relations Adam Schechter – Chairman and Chief Executive Officer Glenn Eisenberg – Executive Vice President and Chief Financial Officer Conference Call Participants Ann Hynes – Mizuho Group Jack Meehan – Nephron Research Kevin Caliendo – UBS Brian Tanquilut – Jefferies Patrick Donnelly – Citi Derek DeBruin – Bank of America Tim Daley – Wells Fargo Eric ...