Labcorp Holdings Inc.

Ladies and gentlemen, thank you for standing by and welcome to the LabCorp second quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Chas Cook, head of investor relations, you may begin your conference.

Thank you, operator. Good morning and welcome to LabCorp's second quarter 2022 conference call. As detailed in today's press release, there will be a replay of this conference call available via telephone and internet. With me today are Adam Schechter, Chairman and Chief Executive Officer, and Glenn Isenberg, Executive Vice President and Chief Financial Officer. This morning in the investor relations section of our website at www.labcorp.com, we posted both a press release and an investor relations presentation with additional information on our business and operations, which includes a reconciliation of the non-GAAP financial measures to the GAAP financial measures discussed during today's call, as well as a presentation on additional information on the spinoff of the clinical development business. Additionally, we are making four looking statements. These four looking statements include, but are not limited to, statements with respect to the estimated 2022 guidance and the related assumptions, the proposed spinoff of the clinical development business, the impact on various factors of the company's businesses, operating and financial results, cash flows, and or financial condition, including the COVID-19 pandemic and general economic and market conditions, future business strategies, expected savings and synergies, including from the Launchpad initiative and from acquisitions, and opportunities for future growth. Each of the four looking statements is subject to change based upon various factors, many of which are beyond our control. More information is included in our most recent annual report on Form 10-K and subsequent quarterly reports on Form 10-Q and in the company's other filings with the SEC. We have no obligation to provide any updates to these forward-looking statements, even if our expectations change. Now I'll turn the call over to Adam.

Thank you, Chas, and good morning, everybody. Today we announced we are pursuing a spin of our clinical development business, and we released our second quarter results. It's an exciting day for LabCorp, and we have a lot to cover. So I'll start with the spin. We're pursuing the spin of our clinical development business to shareholders through a tax-free transaction. This transaction will create two leading independent and global public companies that will each be well positioned to innovate, grow significantly, and enhance shareholder value. This announcement marks the beginning of an exciting new chapter for our businesses and is a testament to our team's growth mindset, resilience, and determination over the last several years. The decision to spin off the critical development business resulted from our board and management team's ongoing review of opportunities, including discussions with third parties, to best position us for growth, success with our customers, and shareholder value creation. When we announced the conclusion of our strategic review in December of last year, we determined that the company's structure was in the best interest of stakeholders at that time. We reiterated that management and the board were committed to continuing to evaluate all avenues for enhancing customer and shareholder value. We have now determined that spinning off the clinical development business is the best path forward to achieve this objective. The planned spin will position our businesses to thrive as two independent companies with greater strategic flexibility and operational focus to innovate to pursue their distinct priorities and to better meet customer needs and capture growth opportunities. Each company will benefit from its own capital structure, enhance investor alignment through a more targeted investment opportunity, and a differentiated value proposition. Each will be well capitalized and positioned to generate substantial top and bottom line growth with strong free cash flow and attractive returns. We expect this transaction to drive significant value for shareholders as it will provide investors with the opportunity to participate in the significant upside potential of two leading global businesses in the healthcare sector. This transaction allows LabCorp to move forward as a strong, global, innovative laboratory services business with significant growth potential. The LabCorp business will include routine and esoteric labs, central labs, and early development research labs. In 2021, these businesses supported testing for 82% of the therapeutics submitted to the FDA, tested patients from over 100 countries, and performed over 650 million tests globally. Each is a leader in their respective markets. The combination of these businesses creates a cohesive, global provider of laboratory-focused services with complimentary resources, significant scale, and a diverse customer base poised to grow in a global addressable market of over $150 billion. LabCorp's customers will continue to benefit from its deep scientific expertise, our innovative mindset, our vast health and data and insights, as well as our advanced global laboratory network. With a more focused platform for growth, We expect LabCorp will be able to capture upside as we advance innovations to deliver on our customers' future needs. Over the last four quarters, the lab businesses delivered total revenue of $12.7 billion, or $10.5 billion excluded COVID-tested revenue. These businesses grew at a 5.5% CAGR from the second quarter 2019 to the second quarter of 2022, excluding COVID-testing revenue. Going forward, LabCorp is expected to deliver mid-single-digit annual revenue growth and will remain firmly committed to our capital allocation strategy and to maintaining an investment-grade credit rating. The clinical development business will continue to be a leading global provider of Phase I through Phase IV clinical trial management, market access, and technology solutions, serving a broad customer base, including pharmaceutical, and biotechnology organizations. It will be positioned to compete and to win in a growing and dynamic market, including extending its leadership in oncology, cell and gene therapy, rare diseases, and other emerging therapeutic areas. The clinical development business will be able to implement a capital structure that is tailored to support its growth strategy and enhance stakeholder value. We expect the clinical development business will retain access to LabCorp's vast health and clinical data set through an arrangement to support clinical development customers with the ability to tap into LabCorp's unique data and capabilities. The clinical development business will be poised to capitalize on its innovation and technology platform to drive significant growth. Over the last four quarters, The clinical development business delivered total revenue of $3 billion. This business grew at an 8% CAGR from the second quarter of 2019 to the second quarter of 2022. Going forward, the clinical development business is expected to deliver high single digit revenue growth. It will have a strong balance sheet and significant financial flexibility. I want to emphasize that each business has delivered strong performance and we expect that LabCorp and the clinical development business will be poised for even greater growth as independent, more focused companies. We expect to close the transaction in the second half of next year, and we look forward to sharing more about its progress in the future. I'll now move to cover the company's second quarter performance and provide an update on progress against our strategy before turning it over to Glenn. The base business in the corner continued to perform well, despite ongoing impacts from COVID, the UK-Russia crisis, and foreign exchange rates. In the quarter, revenue totaled $3.7 billion, adjusted earnings per share reached $4.96, and free cash flow was $429 million. In diagnostics, base business revenue for the quarter was up 3.9% versus the prior year, due to increased demand for both routine and esoteric testing. The base business CAGR was 4.3% from 2019 pre-COVID, demonstrating strong continued underlying performance. Drug development revenue was flat in constant currency data in the quarter versus last year, with growth in early development and clinical development offset by central lapse. Central Labs was impacted by the significant slowdown in COVID-related work and the Russia-Ukraine crisis. On a CAGR basis in 2019 pre-COVID, the drug development-based business grew 9%. Margins in drug development improved in the quarter to 14.7% and are expected to continue to increase throughout the year. Glenn will provide more detail on our second quarter results in a moment. Now I'll provide a brief update on our efforts to address the COVID-19 pandemic, and most recently, assist in the monkeypox outbreak. COVID PCR volumes totaled 2.8 million for the second quarter, averaging 31,000 per day. Time to results remained one day on average. With respect to the monkeypox outbreak, in collaboration with the CDC and FDA, we became the first national laboratory to begin testing for monkeypox using the CDC test. I'll now turn to progress against our strategy. In addition to today's announcement, we've made significant progress against our strategy by putting science, innovation, and technology at the center of all we do. The company introduced multiple innovative and high-quality diagnostics to consumers and physicians in the quarter. We continue to expand our at-home test offerings through LabCorp OnDemand, including a first-of-kind blood collection device for diabetes risk screening. In addition, we launched an FDA-approved men's rapid fertility test. For brain injuries and neurodegenerative disease, in July, we will first begin offering a test that can help physicians diagnose conditions, including concussions, Alzheimer's, and Parkinson's. Finally, we expanded our central labs kit production capabilities to improve delivery and address growing demand across Europe, the Middle East, and Africa. We announced the planned expansion of our central labs presence and drug development capabilities in Japan in collaboration with BML. Turning to oncology, we continue to deepen our leadership position by expanding our cancer-related diagnostic screening and testing portfolio and by partnering with our pharmaceutical clients. During the second quarter, we launched a new skin cancer test that gives doctors actionable insights to help determine the best treatment options. The test is also expected to be used to support clinical trials. For patients with metastatic non-small cell lung cancer, we're collaborating with Lilly and using LabCorp's OmniSeq Insight Genomic Test to help physicians make more informed and personalized treatment decisions. Moving now to new and ongoing partnerships and acquisitions. During the second quarter, we acquired select outreach business assets and agreed to provide ongoing technical support to Prismas Health Hospital Laboratories. We completed our acquisition of select clinical outreach business assets from Alaticare in New Jersey. We reached an agreement to acquire the clinical outreach business and related assets of RWJBarnabas Health, also in New Jersey. And the previously announced relationship with Ascension is progressing through normal regulatory approvals. We continue to have a very strong pipeline of health system and regional acquisition possibilities, and we look forward to announcing more in the future. In summary, we continue to deliver solid results, improve our performance, and execute on our strategy to create long-term value for all stakeholders. We're encouraged by momentum heading into the second half of the year, and by the strategic opportunities for LabCorp's growth and impact in the future. With that, I'll turn the call over to Glenn.