Labcorp(LH) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the company's unaudited condensed consolidated financial statements for Q1 2024 and 2023 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (March 31, 2024 vs. December 31, 2023) | Item | March 31, 2024 (millions) | December 31, 2023 (millions) | Change (millions) | % Change | | :--------------------------------- | :-------------------------- | :--------------------------- | :---------------- | :------- | | Total Assets | $16,531.0 | $16,725.1 | $(194.1) | -1.2% | | Total Liabilities | $8,556.2 | $8,834.6 | $(278.4) | -3.1% | | Total Shareholders' Equity | $7,959.6 | $7,875.0 | $84.6 | 1.1% | | Cash and cash equivalents | $99.3 | $536.8 | $(437.5) | -81.5% | | Accounts receivable, net | $2,083.7 | $1,913.3 | $170.4 | 8.9% | | Short-term borrowings & current portion of long-term debt | $2,041.5 | $999.8 | $1,041.7 | 104.2% | | Long-term debt, less current portion | $3,047.6 | $4,054.7 | $(1,007.1) | -24.8% | - Total assets decreased by $194.1 million, primarily driven by a significant reduction in cash and cash equivalents, partially offset by an increase in accounts receivable[9] - Total liabilities decreased by $278.4 million, mainly due to a reclassification of $1,000.0 million in 3.60% senior notes from long-term debt to short-term borrowings, resulting in a substantial increase in short-term debt and a decrease in long-term debt[9][41] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | Change (millions) | % Change | | :------------------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Revenues | $3,176.6 | $3,037.8 | $138.8 | 4.6% | | Gross profit | $897.3 | $850.1 | $47.2 | 5.5% | | Operating income | $321.3 | $329.8 | $(8.5) | -2.6% | | Earnings from continuing operations before income taxes | $297.4 | $272.3 | $25.1 | 9.2% | | Net earnings attributable to Laboratory Corporation of America Holdings | $228.0 | $212.9 | $15.1 | 7.1% | | Diluted earnings per share (continuing operations) | $2.69 | $2.34 | $0.35 | 15.0% | - Revenues increased by 4.6% year-over-year, driven by organic growth and acquisitions; however, operating income slightly decreased by 2.6% due to higher selling, general, and administrative expenses and increased amortization[10][98][105][106] - Net earnings attributable to shareholders increased by 7.1%, and diluted EPS from continuing operations rose by 15.0%, reflecting improved earnings from continuing operations despite the operating income decline[10] Condensed Consolidated Statements of Comprehensive Earnings Condensed Consolidated Statements of Comprehensive Earnings (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | Change (millions) | % Change | | :---------------------------------------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Net earnings | $228.3 | $213.3 | $15.0 | 7.0% | | Foreign currency translation adjustments | $(124.3) | $48.1 | $(172.4) | -358.4% | | Other comprehensive earnings (loss), net of tax | $(126.1) | $49.0 | $(175.1) | -357.3% | | Comprehensive earnings attributable to Laboratory Corporation of America Holdings | $101.9 | $261.9 | $(160.0) | -61.1% | - While net earnings increased, comprehensive earnings attributable to shareholders significantly decreased by 61.1% due to substantial negative foreign currency translation adjustments in Q1 2024 compared to positive adjustments in Q1 2023[12] Condensed Consolidated Statements of Changes in Shareholders' Equity Condensed Consolidated Statements of Changes in Shareholders' Equity (March 31, 2024 vs. December 31, 2023) | Item | Balance at Dec 31, 2023 (millions) | Net Earnings (millions) | Other Comprehensive Earnings (Loss) (millions) | Dividends Declared (millions) | Stock Compensation & Issuance (millions) | Balance at Mar 31, 2024 (millions) | | :----------------------------------- | :--------------------------------- | :---------------------- | :--------------------------------------------- | :---------------------------- | :--------------------------------------- | :--------------------------------- | | Common Stock | $7.7 | — | — | — | — | $7.7 | | Additional Paid-in Capital | $38.4 | — | — | — | $43.6 | $82.0 | | Retained Earnings | $7,888.2 | $228.0 | — | $(60.9) | — | $8,055.3 | | Accumulated Other Comprehensive Loss | $(59.3) | — | $(126.1) | — | — | $(185.4) | | Total Shareholders' Equity | $7,875.0 | $228.0 | $(126.1) | $(60.9) | $43.6 | $7,959.6 | - Total shareholders' equity increased by $84.6 million from December 31, 2023, to March 31, 2024, primarily due to net earnings and stock compensation, partially offset by dividends declared and a significant increase in accumulated other comprehensive loss from foreign currency translation adjustments[15][49] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | 2024 (millions) | 2023 (millions) | Change (millions) | % Change | | :------------------------------------------------ | :-------------- | :-------------- | :---------------- | :------- | | Net cash provided by (used for) operating activities | $(29.8) | $121.2 | $(151.0) | -124.6% | | Net cash used for investing activities | $(393.1) | $(99.7) | $(293.4) | 294.3% | | Net cash used for financing activities | $(11.7) | $(60.6) | $48.9 | -80.7% | | Net decrease in cash and cash equivalents | $(437.5) | $(36.1) | $(401.4) | 1111.9% | | Cash and cash equivalents at end of period | $99.3 | $294.8 | $(195.5) | -66.3% | - The company experienced a significant shift from cash generation to cash usage in operating activities, moving from $121.2 million provided in Q1 2023 to $29.8 million used in Q1 2024, primarily due to lower cash earnings and timing of working capital requirements[17][123] - Investing activities saw a substantial increase in cash usage, primarily driven by higher business acquisitions ($259.2 million in Q1 2024 vs $0.2 million in Q1 2023) and increased capital expenditures ($133.8 million in Q1 2024 vs $78.2 million in Q1 2023)[17][124] Notes to Unaudited Condensed Consolidated Financial Statements 1. Basis of Financial Statement Presentation - Labcorp is a global leader in laboratory services, operating in two segments: Diagnostics Laboratories (Dx) and Biopharma Laboratory Services (BLS)[18][19] Revenue Contribution by Segment (Q1 2024 vs. Q1 2023) | Segment | Q1 2024 Revenue Contribution | Q1 2023 Revenue Contribution | | :-------- | :--------------------------- | :--------------------------- | | Dx | 78% | 78% | | BLS | 22% | 22% | 2. Discontinued Operations - On June 30, 2023, Labcorp completed the spin-off of Fortrea Holdings Inc (formerly Clinical Development and Commercialization Services business), which is presented as Discontinued Operations, net of tax, in the consolidated statement of operations[23][28] Fortrea's Financial Information (Three Months Ended March 31, 2023) | Item | Amount (millions) | | :------------------------------------------ | :---------------- | | Revenues | $740.1 | | Operating income | $11.2 | | Net earnings attributable to Labcorp | $4.9 | - Fortrea issued $570.0 million in senior secured notes and entered into $1,520.0 million in credit facilities in June 2023, with proceeds funding a $1,600.0 million cash payment to Labcorp[26] 3. Revenues Revenues by Segment and Payer/Customer Group (Q1 2024 vs. Q1 2023) | Payer/Customer Group | Q1 2024 (% of Total) | Q1 2023 (% of Total) | | :------------------------------------------------ | :------------------- | :------------------- | | Dx Segment | | | | Clients | 25% | 25% | | Patients | 10% | 9% | | Medicare and Medicaid | 8% | 8% | | Third party | 35% | 36% | | Total Dx revenues by payer | 78% | 78% | | BLS Segment | | | | Pharmaceutical, biotechnology and medical device companies | 22% | 22% | | Total revenues | 100% | 100% | Accounts Receivable, Unbilled Services, and Unearned Revenue (March 31, 2024 vs. December 31, 2023) | Item | March 31, 2024 (millions) | December 31, 2023 (millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | Accounts receivable | $2,083.7 | $1,913.3 | | Unbilled services | $120.4 | $185.4 | | Unearned revenue | $377.5 | $421.7 | - Credit loss expense for the three months ended March 31, 2024, was $2.4 million, primarily related to collection risk from several biotech receivable balances[32] 4. Business Acquisitions and Dispositions - In Q1 2024, Labcorp acquired several businesses for approximately $259.2 million, including the clinical and outreach businesses of Baystate Medical Center ($116.6 million), Providence Medical Foundation ($54.9 million), and Westpac Labs, Inc ($87.7 million)[33] - These acquisitions resulted in approximately $159.4 million in identifiable intangible assets and $141.7 million in tax-deductible goodwill[33] Pro Forma Financial Information (Three Months Ended March 31, 2024 vs. 2023) including Acquisitions | Item | 2024 (millions) | 2023 (millions) | | :-------------------------------------------------------------------- | :-------------- | :-------------- | | Revenues | $3,191.1 | $3,106.0 | | Net earnings from continuing operations attributable to Labcorp | $227.5 | $216.2 | - The Company sold the assets of its Beacon Laboratory Benefit Solutions, Inc for $13.5 million, recording a gain of $4.9 million in Q1 2024[34] 5. Earnings Per Share Basic and Diluted Earnings Per Share (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 Earnings (millions) | 2024 Shares (millions) | 2024 Per Share Amount | 2023 Earnings (millions) | 2023 Shares (millions) | 2023 Per Share Amount | | :------------------------------------------ | :----------------------- | :--------------------- | :-------------------- | :----------------------- | :--------------------- | :-------------------- | | Basic earnings per share | $228.0 | 84.1 | $2.71 | $212.9 | 88.4 | $2.41 | | Dilutive effect of employee stock options and awards | — | 0.6 | | — | 0.6 | | | Net earnings including impact of dilutive adjustments | $228.0 | 84.7 | $2.69 | $212.9 | 89.0 | $2.39 | - Diluted EPS from continuing operations increased from $2.34 in Q1 2023 to $2.69 in Q1 2024[10] - Potentially antidilutive common shares from employee stock options and awards were 0.3 million in Q1 2024, down from 0.6 million in Q1 2023[36] 6. Goodwill and Intangible Assets Goodwill Carrying Amount by Segment (March 31, 2024 vs. December 31, 2023) | Segment | Dec 31, 2023 (millions) | Acquired During Period (millions) | Foreign Currency Impact & Other (millions) | Mar 31, 2024 (millions) | | :-------- | :---------------------- | :-------------------------------- | :----------------------------------------- | :---------------------- | | Dx | $4,813.9 | $141.7 | $(9.4) | $4,946.2 | | BLS | $1,328.6 | — | $(55.9) | $1,272.7 | | Total | $6,142.5 | $141.7 | $(65.3) | $6,218.9 | Identifiable Intangible Assets (March 31, 2024 vs. December 31, 2023) | Intangible Asset Type | March 31, 2024 Net (millions) | December 31, 2023 Net (millions) | | :---------------------- | :---------------------------- | :----------------------------- | | Customer relationships | $2,549.6 | $2,501.4 | | Patents, licenses & technology | $244.6 | $253.3 | | Non-compete agreements | $86.5 | $69.9 | | Canadian licenses | $496.0 | $498.8 | | Other | $7.2 | $7.5 | | Total Net Intangible Assets | $3,394.1 | $3,342.0 | - Amortization of intangible assets increased to $60.1 million in Q1 2024 from $53.4 million in Q1 2023, reflecting additional amortization from assets acquired after March 31, 2023[40][106] 7. Debt Short-term Borrowings and Current Portion of Long-term Debt (March 31, 2024 vs. December 31, 2023) | Item | March 31, 2024 (millions) | December 31, 2023 (millions) | | :------------------------------------------ | :-------------------------- | :--------------------------- | | Revolving line of credit | $42.4 | — | | 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 | — | | Debt issuance costs | $(1.7) | $(1.3) | | Current portion of note payable | $0.8 | $1.1 | | Total short-term borrowings and current portion of long-term debt | $2,041.5 | $999.8 | Long-term Debt (March 31, 2024 vs. December 31, 2023) | Item | March 31, 2024 (millions) | December 31, 2023 (millions) | | :-------------------------- | :-------------------------- | :--------------------------- | | 3.60% senior notes due 2025 | — | $1,000.0 | | 1.55% senior notes due 2026 | $500.0 | $500.0 | | 3.60% senior notes due 2027 | $600.0 | $600.0 | | 2.95% senior notes due 2029 | $650.0 | $650.0 | | 2.70% senior notes due 2031 | $421.4 | $430.4 | | 4.70% senior notes due 2045 | $900.0 | $900.0 | | Debt issuance costs | $(24.4) | $(26.3) | | Note payable | $0.6 | $0.6 | | Total long-term debt | $3,047.6 | $4,054.7 | - The company's senior revolving credit facility has a principal amount of up to $1,000.0 million, with $42.4 million outstanding and an effective interest rate of 6.42% as of March 31, 2024; the facility expires on April 30, 2026[42][44] - The company was in compliance with all debt covenants as of March 31, 2024, and expects to remain so for the next twelve months[45][126] 8. Preferred Stock and Common Shareholders' Equity Common Shares Issued and Outstanding (March 31, 2024 vs. December 31, 2023) | Item | December 31, 2023 (millions) | Shares Issued under Employee Stock Plans (millions) | March 31, 2024 (millions) | | :-------------------------- | :--------------------------- | :------------------------------------------------ | :-------------------------- | | Common shares | 83.9 | 0.4 | 84.3 | - As of March 31, 2024, the company had an outstanding authorization to purchase up to $531.5 million of its common stock, with no shares repurchased during Q1 2024[47][148][149] - The company paid $62.1 million in common stock dividends for Q1 2024 and announced a cash dividend of $0.72 per share for the first quarter, payable on June 12, 2024[48][129] Accumulated Other Comprehensive Earnings (Loss) (March 31, 2024 vs. December 31, 2023) | Component | December 31, 2023 (millions) | Current Year Adjustments (millions) | Reclassified Amounts (millions) | Tax Effect (millions) | March 31, 2024 (millions) | | :----------------------------- | :--------------------------- | :-------------------------------- | :------------------------------ | :-------------------- | :-------------------------- | | Foreign Currency Translation | $(47.6) | $(124.3) | — | — | $(171.9) | | Net Benefit Plan Adjustments | $(11.7) | $(1.5) | $(0.9) | $0.6 | $(13.5) | | Total | $(59.3) | $(125.8) | $(0.9) | $0.6 | $(185.4) | 9. Commitments and Contingencies - Labcorp is involved in various claims and legal actions, including class actions, government inquiries (e.g., Medicaid billing, DOJ subpoenas for urine drug testing and prenatal screening), and intellectual property disputes, arising in the ordinary course of business[50][51][55][58][70][71][72] - Key ongoing litigation includes a Texas Medicaid 'best price' and remuneration lawsuit (appealed by plaintiffs), a Florida Workers' Compensation billing class action (Florida Supreme Court ruled in favor of plaintiff), and a North Carolina patient financial responsibility form class action (remanded for further proceedings)[55][56][57] - The company is defending against multiple class action lawsuits related to the 2019 AMCA data security incident, alleging inadequate data protection and delayed notification, with some claims dismissed and others ongoing[59][60][61][62] - A patent infringement lawsuit by Ravgen Inc resulted in a $272.0 million jury verdict against Labcorp for willful infringement, with enhanced damages of $100.0 million awarded; Labcorp is vigorously appealing this decision and challenging patent validity[64] - Several California labor code class action lawsuits (Bermejo I & II, Becker, Poole, Williams) regarding compensation, meal/rest breaks, and expense reimbursement are in various stages of settlement or preliminary approval[65][66][67][68] - New class action lawsuits allege the company's website shared patient information with Meta and Google via tracking codes, violating privacy laws; Labcorp is vigorously defending these[69][73] 10. Fair Value Measurements Financial Assets and Liabilities Subject to Fair Value Measurements (March 31, 2024) | Item | Balance Sheet Classification | Fair Value (millions) | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :--------------------------- | :-------------------- | :------ | :------ | :------ | | Noncontrolling interest put | Noncontrolling interest | $15.2 | — | $15.2 | — | | Cross currency swaps | Other liabilities | $92.0 | — | $92.0 | — | | Interest rate swaps | Other liabilities | $78.6 | — | $78.6 | — | | Cash surrender value of life insurance policies | Other assets, net | $94.1 | — | $94.1 | — | | Deferred compensation asset | Other assets, net | $28.3 | — | $28.3 | — | | Deferred compensation liability | Other liabilities | $121.0 | — | $121.0 | — | | Contingent consideration | Accrued expenses and other; Other liabilities | $79.8 | — | — | $79.8 | - Contingent consideration liabilities, measured at fair value using Level 3 valuations, increased to $79.8 million as of March 31, 2024, from $66.1 million at December 31, 2023[76][80] - The company terminated its 2024 and 2025 USD to Swiss Franc cross-currency swaps and entered into two new swaps with notional values of $300.0 million each, maturing in 2031 and 2034, to hedge against foreign exchange movements[82] 11. Supplemental Cash Flow Information Cash Paid for Interest and Income Taxes (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | | :-------------------------- | :-------------- | :-------------- | | Interest | $71.6 | $70.5 | | Income taxes, net of refunds | $21.5 | $28.4 | 12. Business Segment Information Segment Revenues and Operating Earnings (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | Change (millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :---------------- | :------- | | Revenues: | | | | | | Dx | $2,479.7 | $2,382.8 | $96.9 | 4.1% | | BLS | $710.9 | $661.3 | $49.6 | 7.5% | | Total revenues | $3,176.6 | $3,037.8 | $138.8 | 4.6% | | Operating Earnings: | | | | | | Dx segment operating income | $417.9 | $441.5 | $(23.6) | -5.3% | | Dx segment operating margin | 16.9% | 18.5% | -1.7% pts | | | BLS segment operating income | $99.9 | $73.6 | $26.3 | 35.7% | | BLS segment operating margin | 14.1% | 11.1% | 2.9% pts | | | Total operating income | $321.3 | | $329.8 | | $(8.5) | | - Dx segment operating income decreased by 5.3% and operating margin declined by 170 basis points, primarily due to reduced COVID-19 Testing, adverse weather, and the mix impact from lab management agreements[116] - BLS segment operating income increased by 35.7% and operating margin improved by 290 basis points, driven by organic growth and LaunchPad savings, partially offset by higher personnel expense[117] 13. Subsequent Events - On April 24, 2024, Labcorp was selected as the winning bidder for select assets of Invitae, a medical genetics company, for $239.0 million, with the transaction anticipated to close in Q3 2024[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's detailed analysis of financial performance, condition, and operational results for Q1 2024 Forward-Looking Statements - The report contains forward-looking statements subject to various risks and uncertainties, including changes in government regulations and reimbursement policies, enforcement of anti-fraud and abuse laws, privacy and security law compliance, licensing requirements, competition, and the ability to integrate acquisitions[90][91][92][94] - Other risks include liabilities from errors, supply chain disruptions, IT system failures, labor unrest, economic downturns, foreign currency fluctuations, and risks associated with the Fortrea spin-off and planned holding company reorganization[92][94] Separation of Fortrea Holdings Inc. - Labcorp completed the spin-off of Fortrea Holdings Inc on June 30, 2023, with Fortrea's historical operating results now presented as Discontinued Operations[95][96] - The former Drug Development segment has been renamed Biopharma Laboratory Services (BLS) following the recasting of segment results[97] General Overview Total Revenue Growth Drivers (Three Months Ended March 31, 2024) | Driver | Contribution to Revenue Growth | | :-------------------------- | :----------------------------- | | Organic revenue | 2.3% | | Acquisitions, net of divestitures | 1.8% | | Favorable foreign currency translation | 0.5% | | Total Revenue Increase | 4.6% | - Organic revenue growth of 2.3% was driven by a 4.2% increase in the company's organic Base Business, partially offset by a 1.9% decrease in COVID-19 PCR testing[98] Results of Operations Revenues Segment Revenues (Three Months Ended March 31, 2024 vs. 2023) | Segment | 2024 (millions) | 2023 (millions) | Change (millions) | % Change | | :-------- | :-------------- | :-------------- | :---------------- | :------- | | Dx | $2,479.7 | $2,382.8 | $96.9 | 4.1% | | BLS | $710.9 | $661.3 | $49.6 | 7.5% | | Total | $3,176.6 | $3,037.8 | $138.8 | 4.6% | - Dx revenues increased by 4.1%, driven by 1.8% organic revenue growth (4.3% increase in Base Business, offset by 2.5% decrease in COVID-19 Testing) and 2.2% from acquisitions[101] - BLS revenues increased by 7.5%, with 5.1% organic growth and 2.4% favorable foreign currency translation[103] - Dx total volume increased by 3.4%, with 2.2% from acquisitions and 1.2% organic growth (2.6% Base Business increase, partially offset by 1.4% COVID-19 Testing decrease); price/mix increased by 0.6%[102] Cost of Revenues Cost of Revenues (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | | Cost of revenues | $2,279.3 | $2,187.7 | 4.2% | | Cost of revenues as a % of revenues | 71.8% | 72.0% | -0.2% pts | - Cost of revenues increased by 4.2%, but as a percentage of revenues, it decreased slightly to 71.8% from 72.0%, primarily due to LaunchPad savings and the absence of certain CDCS costs, largely offset by higher personnel costs and lower COVID-19 Testing[104] Selling, General and Administrative Expenses Selling, General and Administrative Expenses (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :------------------------------------------ | :-------------- | :-------------- | :------- | | Selling, general and administrative expenses | $508.4 | $457.2 | 11.2% | | As a % of revenues | 16.0% | 15.1% | 0.9% pts | - The increase in SG&A as a percentage of revenues (from 15.1% to 16.0%) is primarily due to higher personnel costs and a reduction in COVID-19 Testing revenues[105] Amortization of Intangibles and Other Assets Amortization of Intangibles and Other Assets (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :------------------------------------------ | :-------------- | :-------------- | :------- | | Amortization of intangibles and other assets | $60.1 | $53.4 | 12.6% | - The 12.6% increase in amortization reflects additional amortization for assets acquired subsequent to March 31, 2023[106] Goodwill and Other Asset Impairments Goodwill and Other Asset Impairments (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :-------------------------------- | :-------------- | :-------------- | :------- | | Goodwill and other asset impairments | $2.5 | $2.2 | 13.6% | - Impairment charges in Q1 2024 were $2.5 million, related to a decommissioned robotic asset, compared to $2.2 million in capitalized software costs in Q1 2023[107] Restructuring and Other Charges Restructuring and Other Charges (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | | Restructuring and other charges | $5.0 | $7.5 | -33.6% | - Net restructuring and other charges decreased by 33.6% to $5.0 million in Q1 2024, primarily comprising $5.8 million in severance and personnel costs, partially offset by a $0.8 million reversal of facility-related liabilities[108] Interest Expense Interest Expense (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :-------------- | :-------------- | :-------------- | :------- | | Interest expense | $(46.9) | $(50.7) | -7.5% | - Interest expense decreased by 7.5%, mainly due to decreased borrowings under the revolving credit facility and repayment of $300.0 million senior notes, partially offset by a higher interest rate on variable rate debt[110] Equity Method Income Equity Method Income (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :---------------------- | :-------------- | :-------------- | :------- | | Equity method income, net | $0.1 | $(2.1) | -102.7% | - Equity method income improved from a net expense of $2.1 million in Q1 2023 to a net income of $0.1 million in Q1 2024, partly due to the sale of an interest in one joint venture and the acquisition of the remaining interest in another during 2023[112] Other, net Other, net (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :-------- | :-------------- | :-------------- | :------- | | Other, net | $20.0 | $(6.9) | -390.0% | - The significant change in 'Other, net' was primarily driven by $22.4 million in transition services fees charged to Fortrea, a $4.9 million gain on the sale of Beacon Laboratory Benefit Solutions, Inc assets, and a shift from foreign currency transaction gains to losses[113] Income Tax Expense Income Tax Expense (Three Months Ended March 31, 2024 vs. 2023) | Item | 2024 (millions) | 2023 (millions) | % Change | | :-------------------------- | :-------------- | :-------------- | :------- | | Income tax expense | $69.1 | $63.9 | 8.2% | | As a % of earnings before income taxes | 23.2% | 23.5% | -0.3% pts | - The effective tax rate of 23.2% in Q1 2024 (vs 23.5% in Q1 2023) differs from the U.S federal statutory rate of 21.0% due to state income taxes and disallowance of certain executive compensation, partially offset by R&D tax credits and favorable foreign rate differentials[114] Operating Income by Segment Segment Operating Income and Margin (Three Months Ended March 31, 2024 vs. 2023) | Segment | 2024 Operating Income (millions) | 2024 Operating Margin | 2023 Operating Income (millions) | 2023 Operating Margin | Change in Operating Income (millions) | Change in Operating Margin | | :-------------------------- | :------------------------------- | :-------------------- | :------------------------------- | :-------------------- | :------------------------------------ | :------------------------- | | Dx | $417.9 | 16.9% | $441.5 | 18.5% | $(23.6) | -1.7% pts | | BLS | $99.9 | 14.1% | $73.6 | 11.1% | $26.3 | 2.9% pts | | Total operating income | $321.3 | | $329.8 | | $(8.5) | | - Dx operating income decreased by 5.3% and margin by 170 basis points, primarily due to reduced COVID-19 Testing, adverse weather, and the mix impact from lab management agreements[116] - BLS operating income increased by 35.7% and margin by 290 basis points, driven by organic growth and LaunchPad savings, partially offset by higher personnel expense[117] - General corporate and unallocated expenses increased by $6.7 million to $128.9 million, mainly due to Fortrea spin-off costs, personnel costs, and R&D[118] - The company remains on track to deliver approximately $350.0 million in net savings from its three-year LaunchPad initiative by the end of 2024, with $100.0 million to $125.0 million expected in fiscal 2024[119] Liquidity and Capital Resources - The company's principal liquidity sources are operating cash flow and debt offerings, with sufficient cash and borrowing capacity expected to meet requirements for the next twelve months and beyond[120] Summary of Cash Flows from Continuing Operations (Three Months Ended March 31, 2024 vs. 2023) | Cash Flow Activity | 2024 (millions) | 2023 (millions) | | :------------------------------------------------ | :-------------- | :-------------- | | Net cash provided by (used for) operating activities | $(29.8) | $185.7 | | Net cash used for investing activities | $(393.1) | $(84.0) | | Net cash used for financing activities | $(11.7) | $(60.6) | | Net increase (decrease) in cash and cash equivalents | $(437.5) | $44.1 | - Operating activities used $29.8 million in cash in Q1 2024, a $215.5 million decrease from Q1 2023, primarily due to lower cash earnings and timing of working capital[123] - Investing activities used $393.1 million, a significant increase from $84.0 million in Q1 2023, driven by higher business acquisitions ($259.2 million) and capital expenditures ($133.8 million)[124] - Financing activities used $11.7 million, an improvement from $60.6 million used in Q1 2023, primarily due to net proceeds from revolving credit facilities[125] - As of March 31, 2024, the company had $99.3 million in cash and $957.6 million in available borrowings under its revolving credit facility[126] - The company plans to refinance $2,000.0 million in debt maturing within the next 12 months[127] - The company maintains investment-grade debt ratings from Moody's and S&P, supporting its access to capital markets[130] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details the company's exposure to market risks, primarily foreign currency and interest rates - Approximately 13.8% of Q1 2024 revenues were denominated in non-USD currencies, exposing the company to foreign currency exchange rate fluctuations[132] - A hypothetical 10% change in average exchange rates would impact income before income taxes by approximately $6.5 million for Q1 2024[132] - The company uses foreign currency forward contracts to limit transaction risk and USD to Swiss Franc cross-currency swap agreements ($600.0 million notional, maturing 2031 and 2034) to hedge net investment in a Swiss Franc functional currency subsidiary[133][134] - To manage interest rate risk, the company uses interest rate swaps, including fixed-to-variable swaps for $500.0 million of 2.70% senior notes due 2031, based on three-month SOFR plus 1.0706%[135][137] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and reports no material changes in internal controls - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2024[138] - There were no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2024[139] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section references Note 9 for detailed information on the company's legal proceedings and contingencies - For details on legal proceedings, commitments, and contingencies, refer to Note 9 of the unaudited condensed consolidated financial statements[141] Item 1A. Risk Factors This section highlights increased FDA regulation of laboratory-developed tests (LDTs) as a material risk factor - The FDA issued a final rule on April 29, 2024, to phase out its general enforcement discretion for LDTs over four years, increasing the risk of FDA enforcement actions for laboratory tests without FDA clearance or approval[144] - Increased FDA regulation of diagnostic products and LDTs, along with similar regulations in other jurisdictions (e.g., EU IVDR), could lead to higher costs, fines, penalties, and impact the development and commercialization of new tests[143][145][146][147] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no share repurchases during Q1 2024 and details the current buyback authorization - The company did not repurchase any common stock during the three months ended March 31, 2024[148] - As of March 31, 2024, the company had an outstanding board authorization to purchase up to $531.5 million of its common stock, with no expiration date[149] Item 5. Other Information This section discloses no insider trading plan changes and announces a planned holding company reorganization - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q1 2024[150] - On April 25, 2024, Labcorp announced a planned holding company reorganization, effective May 17, 2024, where Labcorp Holdings Inc will replace Laboratory Corporation of America Holdings as the publicly-traded entity, with common stock continuing to trade under 'LH' on the NYSE[151] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and other key documents - Exhibits include certifications by the CEO and CFO (Rule 13a-14(a) and Section 906), the Amended and Restated Laboratory Corporation of America Holdings Master Senior Executive Severance Plan, and Inline XBRL documents[152]