Labcorp Holdings Inc.

Hello, and thank you for standing by. Welcome to LabCorp Q1 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this time, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. I would now like to hand the conference over to Chad Cook. Sir, you may begin.

Thank you, operator. Good morning, and welcome to LabCorp's first quarter 2023 conference call. As detailed in today's press release, there will be a replay of this conference call available via telephone and internet. With me today are Adam Schechter, Chairman and Chief Executive Officer, and Glenn Eisenberg, Executive Vice President and Chief Financial Officer. This morning in the investor relations section of our website at www.labcorp.com, We posted both our press release and an investor relations presentation with additional information on our business and operations, which include a reconciliation of the non-GAAP financial measures to the GAAP financial measures discussed during today's call. Additionally, we are making forward-looking statements. These forward-looking statements include, but are not limited to, statements with respect to the estimated 2023 guidance and the related assumptions, the proposed spinoff of the clinical development business, the impact of various factors on the company's businesses, operating and financial results, cash flows, and or financial condition, including the COVID-19 pandemic and general economic and market conditions, future business strategies, expected savings and synergies, including from the Launchpad 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 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 Schechter.

Thank you, Chas. Good morning, everyone. It is great to be with you today to discuss the start of 2023 and the progress that we're making. Our first quarter results set the foundation for a strong 2023. Performance this quarter was driven by very strong momentum across our diagnostic business, continued industry leadership in central laboratories, solid fundamentals and staffing improvements in early development, and a mixed quarter for clinical development. For drug development, we expected the first half of 2023 to be more challenging than the second, as the first half continues to be impacted by NHP shortages, the previously noted loss of an FSP contract, and lower COVID-related work. We are on track to complete the spin of our clinical development business mid-year, and we anticipate the business to accelerate in the second half of 2023 once Fortree is officially launched. Customers have been positive about the transaction and our progress. With some short-term customer delays, as well as a slightly slower backlog burn rate, compared to previous years. Some clients are waiting until after the transaction is complete to award new business, but our dialogue remains encouraging as we approach the close, as evidenced by a renewal of an FSP contract with a large pharma customer this quarter. In the first quarter, revenue totaled $3.8 billion, adjusted earnings per share was $3.82, and free cash flow was $27 million. Overall, our base business is performing well. Excluding COVID testing revenue, enterprise-based business revenue grew 10% in the first quarter versus the same period prior year. Since 2019, prior to COVID, both diagnostics and drug development-based businesses have grown revenue at approximately 7% CAGR. The diagnostics-based business revenue grew 20% year-over-year in the quarter. This strong top-line performance continues to be driven by both routine and esoteric testing, as well as the benefit from hospital deals, including our extension partnership. For drug development, first quarter revenue declined 4% versus prior year. Drug development ended the quarter with a trailing 12-month book-to-bill of 1.27. Enterprise-based business margins were lower than prior year. However, we still anticipate slight margin expansion for 2023 as we continue the Ascension integration, we overcome NHP supply issues, and we realize benefits from the Launchpad initiative. We are continuing to implement cost controls across both businesses to offset inflationary pressures. Finally, COVID PCR testing volumes declined during the quarter, more than expected, totaling more than 870,000 tests performed and averaging 10,000 tests per day. We expect COVID testing to continue to decline. Glenn will provide additional detail on our quarterly results as well as our 2023 outlook in just a moment. Moving now to an update on the planned spin of our clinical development business. We are on track to complete the spin mid-year, subject to the regulatory approval process. We have confidence in the foundation that has been established despite short-term pressures. Fortria will benefit from the leadership of Tom Pike as CEO. We plan to announce the leadership team and the Fortria Board of Directors in the near future. We encourage you to visit fortria.com to learn more. Upon completion, we will create two strong independent companies through a tax-free transaction. Both LabCorp and Fortier will emerge from the transaction with the ability to better meet customer needs, to drive sustainable and profitable growth, and to deliver attractive shareholder returns. I'll now move to our enterprise strategy. We are laying the groundwork for the future by executing against our strategic initiatives. We continue to integrate Ascension assets and operations in the first quarter. LabCorp is now managing laboratories in nearly 100 Ascension hospitals. Ascension Health System laboratories and other deals, including our previously announced strategic relationship with RWJBarnabas Health, are strong proof points of our ability to generate growth through future healthcare system partnerships. Health systems are adapting to financial pressures inflation, labor shortages, and other challenges. And they are seeking the right laboratory partner amidst these headwinds. We are working with our health system partners to develop tailored, innovative, and cost-effective solutions that meet the unique needs of their patients and providers. Last month, we entered into agreement with Enzo Biochem to acquire the assets of its clinical laboratory division. Today, We are in active discussions to expand relationships and execute new engagements with other partners. The pipeline for hospital and local lab acquisition and investment is robust, and we look forward to updating you on existing and new partnerships throughout the year. Turning to oncology, we partnered with Immunogen on an immunohistochemistry-sponsored testing program to increase access for patients with ovarian cancer. Additionally, LabCorp added HER2 low reporting to the IEC test for breast cancer. This test is the only FDA-approved companion diagnostic of HER2 low status for patients with metastatic breast cancer, impacting patient eligibility for treatments and therapies that can improve outcomes. LabCorp also entered into a strategic collaboration with V-Cure to provide clinicians greater access to precision oncology decision support. This collaboration builds on our capabilities to improve access to high-quality care for cancer patients and their community cancer care providers. We continue to expand our digital health platform, LabCorp OnDemand. We launched three new tests in the first quarter, including a PSA prostate cancer screening test, a hepatitis B immunity test, and a fatigue test for people with chronic fatigue symptoms, including post-COVID fatigue. Before I wrap up, we are looking forward to two upcoming events that will provide investors more color on our near to midterm future. We have a Fortria Investor Day tentatively scheduled for June 6th, in which we'll discuss the exciting opportunities ahead. We expect the Form 10 to be available in advance of the meeting. Additionally, we are planning a LabCorp investor day, which is tentatively scheduled for September. LabCorp is strong today and will emerge from the completion of the upcoming spin even stronger. Our diagnostics laboratory, early development research laboratory, and central laboratory businesses are market leaders with solid fundamentals. We are executing against our long-term strategy that will position these businesses for continued growth in the future. I want to take a moment to thank our team for their continued contributions to LabCorp and our customers. The team is generating strong base business performance while preparing for a transformational transaction mid-year. At more than 80,000 strong, our team works every day to find new ways to harness science, innovation, and technology for the betterment of our stakeholders. LabCorp is well positioned to progress our mission to improve health and improve lives while generating attractive returns for our shareholders. With that, I'll turn the call over to Glenn.