Labcorp's Vice President of Investor Relations, Chas Cook, welcomed listeners to the Second Quarter 2020 Conference Call and introduced Adam Schechter, Chairman and Chief Executive Officer, and Glenn Eisenberg, Executive Vice President and Chief Financial Officer. Cook also mentioned the Investor Relations presentation available on the Labcorp website, which includes a reconciliation of non-GAAP financial measures to GAAP financial measures. He also warned that forward-looking statements were being made and that they are subject to change based on various factors.

Labcorp has announced the appointment of Kristin O'Donnell as Vice President of Investor Relations and Chas as Vice President of Financial Planning and Analysis. In the second quarter, Labcorp reported strong growth in their Diagnostics Laboratories base business and Central Laboratories. Early Development Research Laboratories experienced supply chain issues that are expected to be resolved in the third quarter. Labcorp is looking forward to the growth opportunities ahead in the second half of the year.

Labcorp's business performed well, with overall revenue increasing 4% compared to the prior year. Diagnostics Laboratories' base business revenue grew 16%, while Biopharma Laboratory Services' revenue grew 3%. Enterprise base business margin decreased due to Ascension, but Diagnostic Laboratories' base business margin increased if Ascension was excluded. Labcorp recently completed the spin of Fortrea, and announced an accelerated $1 billion share repurchase program, along with paying off $300 million in maturing debt. The completion of the spin brings the growth opportunities of Labcorp's laboratory businesses into focus.

Labcorp has recently made several strategic partnerships with health systems to drive growth and improve health outcomes. These partnerships with Jefferson Health, Providence Health and Services, and Legacy Health in Oregon have been successful in creating value for hospital systems and patients, while also providing Labcorp with growth opportunities. The partnerships are accretive to earnings and cash in the first year, and their margins improve over time. Labcorp has also seen success in integrating hospital partnerships and acquisitions, such as with Ascension in 2022, which has resulted in reduced employee turnover and improved performance.

Labcorp has recently acquired certain assets of Enzo Biochem’s Clinical Laboratory division in New Jersey and is investing in innovation and technology to support diagnostic and drug development testing across disease areas. Additionally, Labcorp has launched a liquid biopsy test and a test for pTau-181 in plasma for potential Alzheimer’s patients. The company is also expanding its Central Laboratory facility in Japan.

Labcorp has opened two new facilities in China, launched an e-commerce platform, and is preparing to hold an Investor Day in September to discuss its go-forward strategy. In addition, they have a team of over 60,000 global employees, and their second quarter results have been treated as discontinued operations due to the spin on June 30.

Revenue for the quarter was up 3.8% compared to last year, primarily due to organic growth and acquisitions. Operating income was 8.8% of revenue, with $52 million of amortization and $131 million of restructuring charges and special items. Excluding these items, adjusted operating income was $448 million or 14.8%. The margin decline was affected by the mix impact from the Ascension lab management agreement, but would have been up slightly if not for higher personnel expense and increased R&D investments. The company's LaunchPad initiatives are on track to deliver $350 million of savings over the next three years, and the company is implementing actions in the third quarter to take out $25 million of annualized stranded costs.

In the second quarter of the year, the adjusted tax rate was 23.9%, lower than the 25.3% from the previous year due to R&D tax credits. Net earnings from continuing operations were $155 million or $1.74 per diluted share, and adjusted EPS were $3.42, a 15% decrease from the previous year. Operating cash flow was $280 million, with $103 million in capital expenditures and $137 million in acquisitions. Additionally, the company announced a $1 billion accelerated share repurchase program which is expected to be completed by the end of the year. At the end of the quarter, the company had $1.9 billion in cash and $5.3 billion in debt with a leverage of 2.6 times gross debt to trailing 12 months adjusted EBITDA.

Revenue for the quarter was $2.3 billion, an increase of 3.8% compared to last year, driven by organic growth and acquisitions. The base business grew organically by 13.5%, while COVID testing revenue was down 88%. Diagnostics Laboratories adjusted operating income for the quarter was $410 million, a decrease from last year due to lower COVID testing and the mix impact from Ascension. Biopharma Laboratory Services revenue for the quarter was $699 million, an increase of 3.1% compared to last year due to organic revenue and foreign currency.

The company reported an increase in organic revenue, but it was negatively impacted by supply constraints in the Early Development Research Laboratories business. Adjusted operating income for the segment was $105 million, and the company ended the quarter with a backlog of $8 billion. The enterprise guidance for revenue, earnings, and cash flow is unchanged from April, with Diagnostics Laboratories revenue expected to be up 0.5-1.5%, and the base business growing 11.3-12.6%. COVID testing is expected to decline 85-89%, and the base business has improved from April due to stronger demand.

Diagnostics Laboratories is expected to have a slightly higher margin in 2023 than 2022, with Biopharma Laboratory Services revenue growing 3-4.5% compared to 2022. The segment margin is expected to be flat to slightly up in 2023 compared to 2022. The adjusted EPS guidance is $13 to $14, and free cash flow from continuing operations is expected to be between $800 million to $1 billion. Jack Meehan asked for an update on the visibility of improvement in the second half of the year for Early Development Research Labs, as well as an update on the supply situation for NHPs.

Adam Schechter states that NHP is in good shape for the rest of the year and that year-over-year revenue is expected to increase by 9.5%. Glenn Eisenberg adds that Biopharma Lab Services margins are expected to be flat to slightly up in the second half of the year, with a 15% margin in the quarter. He also mentions that the margin will be higher for the full year due to strong growth from Central Lab and negative growth from Early Development Research.

Adam Schechter and Glenn Eisenberg answered questions from Lisa Gill from JPMorgan about utilization trends and reimbursement trends. Schechter noted that reimbursement trends remain stable and there is still a lot of experimentation with value-based contracts, but overall the environment is healthy. Eisenberg added that the quarter saw strong organic growth of 13.5%, and included a benefit from Ascension.

Adam Schechter discussed labor pressures in the healthcare industry since the start of the pandemic. He also mentioned that there is a $25 million stranded cost in the Biopharma Lab Services that needs to be wound down.

The company is committed to reducing costs across the enterprise, including $25 million of stranded costs that will be removed this year, and $350 million of LaunchPad savings. Corporate unallocated costs have increased due to investments in oncology, but will be offset by the cost reductions.

Adam Schechter explains that the company has identified $25 million of the $45 million of stranded cost and has already obtained the necessary NHPs to support studies in the back half of the year, which will not create a headwind.

Adam Schechter explains how the company looked for alternative suppliers to ensure they had capacity for NHP trials. He also explains that the cost of NHPs has increased, but the company is able to pass on the increased cost to customers. Finally, he discusses the success the company has had with hospital partnerships and what hospitals are looking for when it comes to lab strategy and partnerships.

Labcorp's guidance remains unchanged, excluding the Fortrea and ASR acquisitions, and includes $45 million in stranded costs of which $25 million will be removed. The guidance also includes contributions from Enzo and lower COVID expenses.

Adam Schechter and Glenn Eisenberg discussed the outlook for the enterprise level, including revenue, earnings, and cash flow. They discussed the impact of the spin-off of Fortrea, and the acquisition of Enzo, as well as the effects of COVID on the biopharma services. They concluded that the enterprise level was consistent with the expectations in April, with the pluses and minuses of each segment being absorbed by stronger base business demand in diagnostics.

Adam Schechter explains that the labor market has not changed drastically since the pandemic began, with attrition rates better than a year ago, but still higher than pre-pandemic. He also states that inflationary costs have not changed much from April. When looking at Biopharma Laboratories, the book-to-bill of 1.22 is healthy, and the central laboratory business is still very strong and robust. He also notes that demand for new business and pricing in the market are both healthy for the second half of the year.

Quest Diagnostics has a $1 billion accelerated repurchase program, a dividend commitment, and plans to pay down maturing debt. The company is primarily focusing on acquiring hospital laboratories and local laboratories in the near-term in order to maximize their core expertise.

Adam Schechter discusses the progress of the company's relationship with Ascension, and their plan to prepare for the implementation of PAMA. He is optimistic that the importance of the industry will be recognized and PAMA will not be implemented in the same way as before, but they are still planning for it. He also provides an update on Ascension's progress, both in terms of revenue and costs.

Adam Schechter and Glenn Eisenberg reported that the integration between the company and Ascension is going well, with revenue expected to be between $550 million and $600 million and margins initially at low-to-mid single digits but expected to improve over time. They also mentioned that the biopharma book-to-bill metric for the quarter was 1.06, up slightly from the previous quarter, but unlikely to see a huge rebound in the back half of the year.

Adam Schechter explains that expanding their Bio segment's presence in Japan and China is a long-term plan to meet the needs of their pharmaceutical and biotechnology customers in the world's second and third largest markets. They have been preparing for this expansion for quite some time, regardless of the clinical business.

Glenn Eisenberg and Tim Daley discussed the new structure of the company's segments, and the communication guidance for growth, sub-segments, margins, and KPIs going forward. Eisenberg explained that the same metrics that were provided for the two segments will continue, and that Biopharma Laboratory Services will now consist of two businesses. Adam Schechter concluded the call by inviting everyone to the company's Investor Day in September.

This summary was generated with AI and may contain some inaccuracies.