Labcorp Holdings Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the LabCorp third quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone keypad. At this time, I would like to turn the conference over to Mr. Chas Cook. Sir, please begin.

Thank you, operator. Good morning and welcome to LabCorp's third quarter 2022 conference call. As detailed in today's press release, there will be a replay of this conference call available via telephone and internet. With me today are Adam Schechter, Chairman and Chief Executive Officer, and Glenn Eisenberg, Executive Vice President and Chief Financial Officer. This morning in the investor relations section of our website at www.labcorp.com, we posted both our press release and an investor relations presentation with additional information on our business and operations, which include a reconciliation of the non-GAAP financial measures to the GAAP financial measures discussed during today's call. Additionally, we are making forward-looking statements. These forward-looking statements include, but are not limited to, statements with respect to the estimated 2022 guidance and the related assumptions, the proposed spinoff of the clinical development business, the impact of various factors on the company's businesses, operating and financial results, cash flows, and or financial condition, including the COVID-19 pandemic and general economic and market conditions, future business strategies, expected savings and synergies, including from the Launchpad initiative, acquisitions and other transactions, 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 FCC. 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. Good morning, everyone. It's a pleasure to be with you today to discuss our progress and our performance in the third quarter. I'll start with a few high-level comments about the quarter, then provide a brief update on the planned spin of our clinical development business before turning to our quarterly results and progress against our strategy. Diagnostics performed very well, with base business revenue growth of 3.7 percent over the last year and a 4 percent CAGR versus 2019. With ascension in the fourth quarter, we expect full-year revenue growth of 6 to 7 percent. Drug development-based business fundamentals remain strong, and our expected full-year CAGR of almost 8 percent since 2019 is consistent with how we expect the business to perform. There were what we believe to be temporary issues that impacted our drug development performance in the quarter, which I'll discuss in more detail when outlining our results. Turning now to the spin of our clinical development business. We are off to a strong start since announcing the planned spin back in July. We were quick to establish a spin management office made up of dedicated people and external advisors with significant spending transaction experience. In addition, working with advisors, we're in the process of identifying members of the executive team, the CEO, and the board of directors of the new company. And finally, we're making good progress to finding their transition service agreements and preparing the audited financial statements. With the progress to date, We are targeting completion of the SPIN with an accelerated timeframe of mid-2023, subject to satisfaction of certain customary conditions, including those related to the tax-free nature of the separation and the SEC process. Upon completion, we will create two strong independent companies through a tax-free transaction. We are excited by the opportunities the SPIN represents for the clinical development business. The new company will have the enhanced strategic flexibility and operational focus to grow, invest, pursue its priorities, and address market opportunities. Further, we believe both LabCorp and the new clinical development business will emerge from this transaction with the ability to better meet customer needs, drive sustainable and profitable growth, and deliver attractive shareholder returns. We plan to provide more information on our progress including key leadership appointments in the coming months. I'll now turn to third quarter performance. In the quarter, revenue totaled $3.6 billion, adjusted earnings per share was $4.68, and free cash flow was $270 million. Base business organic revenue for the enterprise, excluding COVID testing revenue, is up 1.4% year over year on a constant currency basis. This demonstrates the strength of our underlying business, particularly in diagnostics, in a very challenging operating environment marked by rising labor costs, labor shortages, and other inflationary pressures. In diagnostics, base business revenue increased about 4% year over year due to an uptick in demand in both routine and esoteric testing. We continue to see momentum in a hospital system business, and later I'll give an update on the attention integration, which is off to a very good start. In drug development, quarterly based business revenue in constant currency is flat versus the prior year. This is driven by a tough year over year comparison with less COVID related work and the impact from the conflict in Ukraine. In central laboratories, there were timing related challenges when looking at kits out, those that we send to investigator sites, and kits returned, those that investigators send back to us to be analyzed. We believe investigators ordered significantly more kits than normal in the third quarter last year to overcome supply issues. This was in addition to the kits for COVID trials. The pace of investigators returning kits has not rebounded as quickly as we expected. We believe this is largely due to COVID-related impacts and the microenvironment, and that it will return to normal levels over time. Both demand and orders in central laboratories continue to be very strong. In early development, we have strong demand for trial work, as well as adequate capacity. However, the impact from our business was due to labor constraints. We are hiring as fast as we can. but like in many parts of the economy, finding labor has been difficult. Drug development-based business margins for the quarter were 15 percent, an expansion from last quarter, but lower than anticipated due to the revenue in central laboratories and labor shortages in early development. We continue to see a healthy order flow and backlog in drug development, and the segment ended the quarter with a 1.25 trailing 12-month book-to-bill. Across diagnostics and drug development, our margins were negatively impacted by rising labor costs and other inflationary pressures. We are taking cost actions and we're focused on improving margins. In addition, launchpad savings continue to help offset the impact of near and expected midterm headwinds. Glenn will provide more detail on the quarterly results in just a moment. COVID PCR testing volumes continued their decline during the quarter, totaling 2.2 million tests performed and averaging 24,000 per day. As we enter the winter amid concerns about rising COVID, flu, and RSV cases, we're maintaining adequate supply and capacity to accommodate current and future testing needs. Also, our scientists stand ready to respond as new variants arise. I'll now move to our enterprise strategy against which we're executing well by harnessing science, innovation, and technology and capitalizing on key opportunities that help us deliver for all stakeholders. Earlier this month, we announced the completion of transactions that established our comprehensive laboratory relationship with Ascension. Our strategic collaboration includes an agreement for LabCorp to manage hospital labs in 10 states and to acquire certain lab assets. At its core, the collaboration expands access to LabCorp's comprehensive capabilities and laboratory services for communities served by Ascension. I am pleased to report that the transition and the integration are going well, and we are now performing thousands of tests across the health system. This was a big undertaking, and I'd like to thank employees and leadership from Ascension and LabCorp who made the changeover as seamless as possible. In addition to the Ascension Agreement, we're focused on accelerating our hospital and health systems business. We completed our acquisition of the outreach lab business and related assets of the Jersey-based RWJBarnabas Health during the quarter, and that integration is also progressing well. Our hospital and local lab acquisition and investment pipeline is very robust, and we see major opportunity now through 2023. Turning to oncology, we're furthering our position as a leader in this space through the addition of new testing and screening capabilities. We continue to see benefits from the personal genome diagnostics and on UC portfolios, including their leading liquid biopsy, tissue-based diagnostics, and kitting solutions. We have the broadest portfolio and capabilities in oncology diagnostics today, and we are well positioned for growth. We are also pursuing relationships that accelerate our growth and enhance their portfolio. This quarter, the company formed a strategic partnership with MD Anderson Cancer Center Foundation in Spain to increase access to early phase oncology clinical trials. We also entered a collaboration with Beckman Dickinson and Company to help match patients with critical and potentially life-changing treatments for cancer and other diseases. In addition to our progress in oncology, LabCorp is relentlessly focused on innovating and delivering our customers valuable solutions across all areas to help them achieve their goals. We enhanced the neurology offering in the quarter through the launch of a pan-neoplastic and other neuro-autoimmune panels. Together with our previously announced test for brain injuries and neurodegenerative disease, these panels round out our portfolio and give us a leadership position in neuro-biomarkers to support customers. The company has seen growing demand for our at-home testing and collection options through LabCorp OnDemand, and our consumer product pipeline is strong. Our FDA authorization combination COVID, flu, RSV at-home collection test continues to be important with the rise of respiratory virus cases expected this fall and through the winter. LabCorp's commitment to its employees continues to be recognized. We recently were named by the Forbes to its list of world's best employers, and we also earned a top score on the 2022 Disability Equality Index. In summary, our base business fundamentals remain strong, and we are well positioned to deliver sustained long-term value and growth. With that, I'll turn the call over to Glenn.