Labcorp Holdings 10-Q 2023-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 1-11353

LABORATORY CORPORATION OF AMERICA HOLDINGS

(Exact name of registrant as specified in its charter)

Delaware						13-3757370
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

358 South Main Street
Burlington,			North Carolina						27215
(Address of principal executive offices)									(Zip Code)

(Registrant's telephone number, including area code) 336-229-1127

Securities registered pursuant to Section 12(b) of the Exchange Act.

Title of Each Class Trading Symbol Name of exchange on which registered

Common Stock, $0.10 par value LH New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			☒			Accelerated filer			☐
Non-accelerated filer			☐			Smaller reporting company			☐
						Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

The number of shares outstanding of the issuer's common stock is 88.6 million shares as of May 3, 2023.

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PART I. FINANCIAL INFORMATION

Item 1.			Financial Statements (unaudited)
			Condensed Consolidated Balance Sheets			2
			March 31, 2023 and December 31, 2022
			Condensed Consolidated Statements of Operations			3
			Three Months Ended March 31, 2023 and 2022
			Condensed Consolidated Statements of Comprehensive Earnings			4
			Three Months Ended March 31, 2023 and 2022
			Condensed Consolidated Statements of Changes in Shareholders’ Equity			5
			Three Months Ended March 31, 2023 and 2022
			Condensed Consolidated Statements of Cash Flows			6
			Three Months Ended March 31, 2023 and 2022
			Notes to Unaudited Condensed Consolidated Financial Statements			7
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			27
Item 4.			Controls and Procedures			28

PART II. OTHER INFORMATION

Item 1.			Legal Proceedings			30
Item 1A.			Risk Factors			30
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			30
Item 5.			Other Information			30
Item 6.			Exhibits			30

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PART I – FINANCIAL INFORMATION

LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions)

(unaudited)

			March 31, 2023						December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents			$	393.9					$	430.0
Accounts receivable, net			2,344.8						2,222.0
Unbilled services			705.1						795.4
Supplies inventory			481.4						470.6
Prepaid expenses and other			769.8						707.0
Total current assets			4,695.0						4,625.0
Property, plant and equipment, net			2,944.1						2,956.2
Goodwill, net			8,116.0						8,121.0
Intangible assets, net			3,912.3						3,946.9
Joint venture partnerships and equity method investments			65.8						65.7
Deferred income taxes			7.7						7.6
Other assets, net			459.1						432.7
Total assets			$	20,200.0					$	20,155.1
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable			$	880.7					$	934.8
Accrued expenses and other			929.5						1,068.8
Unearned revenue			586.7						582.1
Short-term operating lease liabilities			181.2						185.5
Short-term finance lease liabilities			6.1						6.0
Short-term borrowings and current portion of long-term debt			301.4						301.3
Total current liabilities			2,885.6						3,078.5
Long-term debt, less current portion			5,052.3						5,038.8
Operating lease liabilities			668.3						679.7
Financing lease liabilities			82.0						83.6
Deferred income taxes and other tax liabilities			737.4						736.2
Other liabilities			413.6						422.8
Total liabilities			9,839.2						10,039.6
Commitments and contingent liabilities
Noncontrolling interest			19.3						18.9
Shareholders’ equity:
Common stock, 88.6 and 88.2 shares outstanding at March 31, 2023, and December 31, 2022, respectively			8.1						8.1
Additional paid-in capital			47.7						—
Retained earnings			10,729.9						10,581.7
Accumulated other comprehensive loss			(444.2)						(493.2)
Total shareholders’ equity			10,341.5						10,096.6
Total liabilities and shareholders’ equity			$	20,200.0					$	20,155.1

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(unaudited)

			Three Months Ended March 31,
			2023						2022
Revenues			$	3,777.9					$	3,899.6
Cost of revenues			2,803.2						2,666.7
Gross profit			974.7						1,232.9
Selling, general and administrative expenses			553.6						464.1
Amortization of intangibles and other assets			69.3						67.1
Goodwill and other asset impairments			2.2						1.2
Restructuring and other charges			8.6						12.6
Operating income			341.0						687.9
Other income (expense):
Interest expense			(50.7)						(42.2)
Equity method income, net			(2.1)						3.4
Investment income			2.2						1.1
Other, net			(12.6)						(10.1)
Earnings before income taxes			277.8						640.1
Provision for income taxes			64.5						148.0
Net earnings			213.3						492.1
Less: Net earnings attributable to the noncontrolling interest			(0.4)						(0.5)
Net earnings attributable to Laboratory Corporation of America Holdings			$	212.9					$	491.6
Basic earnings per common share			$	2.41					$	5.27
Diluted earnings per common share			$	2.39					$	5.23

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(in millions, except per share data)

(unaudited)

			Three Months Ended March 31,
			2023						2022
Net earnings			$	213.3					$	492.1
Foreign currency translation adjustments			48.1						(74.6)
Net benefit plan adjustments			1.2						2.2
Other comprehensive earnings (loss) before tax			49.3						(72.4)

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FORWARD-LOOKING STATEMENTS

The Company has made in this report, and from time to time may otherwise make in its public filings, press releases, and discussions by Company management, forward-looking statements concerning the Company’s operations, performance, and financial condition, as well as its strategic objectives. Some of these forward-looking statements relate to future events and expectations and can be identified by the use of forward-looking words such as “believes”, “expects”, “may”, “will”, “should”, “seeks”, “approximately”, “intends”, “plans”, “estimates”, or “anticipates” or the negative of those words or other comparable terminology. Such forward-looking statements speak only as of the time they are made and are subject to various risks and uncertainties and the Company claims the protection afforded by the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those currently anticipated due to a number of factors in addition to those discussed elsewhere herein, including in the “Summary of Material Risks” and “Risk Factors” section of the Annual Report on Form 10-K, and in the Company’s other public filings, press releases, and discussions with Company management, including:

1.changes in government and third-party payer regulations, reimbursement, or coverage policies or other future reforms in the U.S. healthcare system (or in the interpretation of current regulations), new insurance or payment systems, including state, regional or private insurance cooperatives (e.g., health insurance exchanges) affecting governmental and third-party coverage or reimbursement for commercial laboratory testing, including the impact of the U.S. Protecting Access to Medicare Act of 2014 (PAMA);

2.significant monetary damages, fines, penalties, assessments, refunds, repayments, damage to the Company's reputation, unanticipated compliance expenditures, and/or exclusion or debarment from or ineligibility to participate in government programs, among other adverse consequences, arising from enforcement of anti-fraud and abuse laws and other laws applicable to the Company in jurisdictions in which the Company conducts business;

3.significant fines, penalties, costs, unanticipated compliance expenditures, and/or damage to the Company’s reputation arising from the failure to comply with applicable privacy and security laws and regulations, including the U.S. Health Insurance Portability and Accountability Act of 1996, the U.S. Health Information Technology for Economic and Clinical Health Act, the European Union's General Data Protection Regulation and similar laws and regulations in jurisdictions in which the Company conducts business;

4.loss or suspension of a license or imposition of fines or penalties under, or future changes in, or interpretations of applicable licensing laws or regulations regarding the operation of clinical laboratories and the delivery of clinical laboratory test results, including, but not limited to, the U.S. Clinical Laboratory Improvement Act of 1967 and the U.S. Clinical Laboratory Improvement Amendments of 1988 and similar laws and regulations in jurisdictions in which the Company conducts business;

5.penalties or loss of license arising from the failure to comply with applicable occupational and workplace safety laws and regulations, including the U.S. Occupational Safety and Health Administration requirements, the U.S. Needlestick Safety and Prevention Act, and similar laws and regulations in jurisdictions in which the Company conducts business;

6.fines, unanticipated compliance expenditures, suspension of manufacturing, enforcement actions, damage to the Company's reputation, injunctions, or criminal prosecution arising from failure to maintain compliance with current good manufacturing practice regulations and similar requirements of various regulatory agencies in jurisdictions in which the Company conducts business;

7.sanctions or other remedies, including fines, unanticipated compliance expenditures, enforcement actions, injunctions or criminal prosecution arising from failure to comply with the Animal Welfare Act or applicable national, state and local laws and regulations in jurisdictions in which the Company conducts business;

8.changes in testing guidelines or recommendations by government agencies, medical specialty societies, and other authoritative bodies affecting the utilization of laboratory tests;

9.changes in applicable government regulations or policies affecting the approval, availability of, and the selling and marketing of diagnostic tests, drug development, or the conduct of drug development and medical device and diagnostic studies and trials, including regulations and policies of the U.S. Food and Drug Administration, the U.S. Department of Agriculture, the Medicine and Healthcare products Regulatory Agency in the United Kingdom, the National Medical Products Administration in China, the Pharmaceutical and Medical Devices Agency in Japan, the European Medicines Agency, the European Union and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business;

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10.changes in government regulations or reimbursement pertaining to the pharmaceutical, biotechnology and medical device and diagnostic industries, changes in reimbursement of pharmaceutical products, or reduced spending on research and development by pharmaceutical, biotechnology and medical device and diagnostic customers;

11.liabilities that result from the failure to comply with corporate governance requirements;

12.increased competition, including price competition, potential reduction in rates in response to price transparency initiatives and consumerism, competitive bidding and/or changes or reductions to fee schedules, and competition from companies that do not comply with existing laws or regulations or otherwise disregard compliance standards in the industry;

13.changes in payer mix or payment structure or process, including insurance carrier participation in health insurance exchanges, an increase in capitated reimbursement mechanisms, the impact of clearinghouses on the claims reimbursement process, the impact of a shift to consumer-driven health plans or plans carrying an increased level of member cost-sharing, and adverse changes in payer reimbursement or payer coverage policies (implemented directly or through a third-party utilization management organization) related to specific diagnostic tests, categories of testing or testing methodologies;

14.failure to retain or attract MCO business as a result of changes in business models, including risk based or network approaches, out-sourced laboratory network management or utilization management companies, or other changes in strategy or business models by MCOs;

15.failure to obtain and retain new customers, an unfavorable change in the mix of testing services ordered, or a reduction in tests ordered, specimens submitted, or services requested by existing customers, and delays in payments from customers;

16.consolidation and convergence of customers, competitors, and suppliers, potentially causing material shifts in insourcing, utilization, pricing, reimbursement and supply chain access;

17.failure to effectively develop and deploy new systems, system modifications or enhancements required in response to evolving market and business needs;

18.customers choosing to insource services that are or could be purchased from the Company;

19.failure to identify, successfully close and effectively integrate and/or manage acquisitions of new businesses or failure to maintain key customers and/or employees as a result of uncertainty surrounding the integration of acquisitions;

20.inability to achieve the expected benefits and synergies of newly-acquired businesses, including due to items not discovered in the due diligence process, and the impact on the Company's cash position, levels of indebtedness and stock price;

21.termination, loss, delay, reduction in scope or increased costs of contracts, including large contracts and multiple contracts;

22.liability arising from errors or omissions in the performance of testing services, contract research services or other contractual arrangements;

23.changes or disruption in the provision or transportation of services or supplies provided by third parties; or their termination for failure to follow the Company's performance standards and requirements;

24.damage or disruption to the Company's facilities;

25.damage to the Company's reputation, loss of business, or other harm from acts of animal rights activists or potential harm and/or liability arising from animal research activities;

26.adverse results in litigation matters;

27.inability to attract and retain experienced and qualified personnel or the loss of significant personnel as a result of illness, increased competition for talent, wage growth, or other market factors;

28.failure to develop or acquire licenses for new or improved technologies, such as point-of-care testing, mobile health technologies, and digital pathology, or potential use of new technologies by customers and/or consumers to perform their own tests;

29.substantial costs arising from the inability to commercialize newly licensed tests or technologies or to obtain appropriate coverage or reimbursement for such tests;

30.failure to obtain, maintain, and enforce intellectual property rights for protection of the Company's products and services and defend against challenges to those rights;

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31.scope, validity, and enforceability of patents and other proprietary rights held by third parties that may impact the Company's ability to develop, perform, or market the Company's products or services or operate its business;

32.business interruption, receivables impairment, delays in cash collection impacting days sales outstanding, supply chain disruptions or inventory obsolescence, increases in material cost or other operating costs, or other impacts on the business due to natural disasters, including adverse weather, fires and earthquakes; political crises, including terrorism and war; public health crises and disease epidemics and pandemics; changes in the global economy; and other events outside of the Company's control;

33.discontinuation or recalls of existing testing products;

34.a failure in the Company's information technology systems, including with respect to testing turnaround time and billing processes, or the failure of the Company or its third-party suppliers and vendors to maintain the security of business information or systems or to protect against cybersecurity attacks such as denial of service attacks, malware, ransomware, and computer viruses, or delays or failures in the development and implementation of the Company’s automation platforms, any of which could result in a negative effect on the Company’s performance of services, a loss of business or increased costs, damages to the Company’s reputation, significant litigation exposure, an inability to meet required financial reporting deadlines, or the failure to meet future regulatory or customer information technology, data security and connectivity requirements;

35.business interruption, increased costs, and other adverse effects on the Company's operations due to the unionization of employees, union strikes, work stoppages, general labor unrest or failure to comply with labor or employment laws;

36.failure to maintain the Company's days sales outstanding levels, cash collections (in light of increasing levels of patient responsibility), profitability and/or reimbursement arising from unfavorable changes in third-party payer policies, payment delays introduced by third-party utilization management organizations, and increasing levels of patient payment responsibility;

37.impact on the Company's revenues, cash collections, and the availability of credit for general liquidity or other financing needs arising from a significant deterioration in the economy or financial markets or in the Company's credit ratings by Standard & Poor's and/or Moody's;

38.failure to maintain the expected capital structure for the Company, including failure to maintain the Company's investment grade rating, or leverage ratio covenants under its revolving credit facility;

39.changes in reimbursement by foreign governments and foreign currency fluctuations;

40.inability to obtain certain billing information from physicians, resulting in increased costs and complexity, a temporary disruption in receipts, and ongoing reductions in reimbursements and revenues;

41.expenses and risks associated with international operations, including, but not limited to, compliance with the U.S. Foreign Corrupt Practices Act (FPCA), the U.K. Bribery Act, other applicable anti-corruption laws and regulations, trade sanction laws and regulations, and economic, political, legal and other operational risks associated with foreign jurisdictions;

42.failure to achieve expected efficiencies and savings in connection with the Company's business process improvement initiatives;

43.changes in tax laws and regulations or changes in their interpretation;

44.global economic conditions and government and regulatory changes;

45.risks associated with the impact, timing, expected benefits and costs, or terms of the planned spin-off of the Company’s Clinical Development and Commercialization Services (CDCS) business, which includes the parts of its DD segment focused on providing Phase I-IV clinical trial management, market access, and technology solutions to pharmaceutical and biotechnology organizations, including but not limited to (i) uncertainties as to the completion and timing of the transaction; (ii) the failure to obtain appropriate assurances regarding the tax-free nature of the spin-off; (iii) the failure to obtain receipt of required regulatory approvals; (iv) the effect of the announcement or pendency of the transaction on the Company’s business relationships, operating results, and business generally; (v) unexpected issues that arise in the continued planning for the transaction; (vi) the failure to have the Form 10 registration statement that will be filed with the SEC declared effective on a timely basis, or at all; (vii) risks that the proposed transaction disrupts current plans and operations of Labcorp or CDCS; (viii) potential difficulties attracting or retaining Company or CDCS employees as a result of the spin-off announcement, pendency or completion of the spin-off; (ix) risks related to diverting management’s attention from the Company and CDCS’ ongoing business operations; (x) the ability of the Company to successfully separate CDCS operations from the Company’s ongoing operations; (xi) market

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receptiveness to effect transactions in the capital markets; and (xii) market reaction to the announcement and planning for the transaction; and

46.the effects, duration, and severity of the ongoing COVID-19 pandemic, including the impact on operations, personnel, supplies, liquidity, and collections, as well as the impact of past or future actions or omissions by the Company or governments in response to the COVID-19 pandemic including, but not limited to, the end of the federal Public Health Emergency, and damage to the Company's reputation or loss of business resulting from the perception of the Company's response to the COVID-19 pandemic.

Except as may be required by applicable law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Given these uncertainties, one should not put undue reliance on any forward-looking statements.

GENERAL (dollars in millions, except per share data)

Revenues for the three months ended March 31, 2023, were $3,777.9, a decrease of 3.1% from $3,899.6 during the three months ended March 31, 2022. The decrease was due to organic revenue of 3.6% and unfavorable foreign currency translation of 0.7%, partially offset by acquisitions, net of divestitures, of 1.2%. The 3.6% decrease in organic revenue was driven by a 11.6% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 7.9% increase in the company's organic Base Business. Base Business includes Labcorp's operations except for COVID-19 Testing.

The Company defines organic growth as the increase in revenue excluding the year-over-year impact of acquisitions, divestitures, and currency. Acquisition and divestiture impact is considered for a twelve month period following the close of each transaction.

Spin-Off of the Company's CDCS Business

On July 28, 2022, the Company announced that the Board of Directors authorized the Company to pursue a spin-off of the Company’s wholly owned CDCS business to its shareholders through a tax-free transaction. The planned spin-off will result in two independent companies, each poised for strong, sustainable growth. On January 9, 2023, Thomas (Tom) Pike joined the Company as president and chief executive officer of its DD Clinical Development business unit, and when the planned spin-off is complete, Mr. Pike will become the chief executive officer and chairman of the board of directors of the independent, publicly listed company. On February 9, 2023, the Company announced that the name of the CDCS business will become Fortrea in connection with the planned spin-off.

The Company is targeting completion of the planned spin-off in mid-2023. The planned spin-off will be subject to the satisfaction of certain customary conditions, including, among others, the receipt of final approval by the Company's Board, the receipt of appropriate assurances regarding the tax-free nature of the separation and effectiveness of any required filings with the U.S. Securities and Exchange Commission (SEC). There can be no assurances regarding the ultimate timing of the transaction or that the spin-off will be completed.

When the transaction is complete, the resulting companies will be Labcorp, comprising the Company’s routine and esoteric labs, central labs and early development research labs, and Fortrea, a global contract research organization (CRO) providing Phase I-IV clinical trial management, market access and technology solutions to pharmaceutical and biotechnology organizations.

The planned spin-off is expected to provide each company with:

• strengthened strategic flexibility and operational focus to pursue specific market opportunities and better meet customer needs;

• focused capital structures and capital allocation strategies to drive innovation and growth;

• a more targeted investment opportunity for different investor bases; and

• the ability to align its particular incentive compensation with its financial performance.

Following the planned spin-off, the Company believes that Labcorp will be positioned to:

• invest in R&D and innovation to develop and launch diagnostic advancements globally in key clinical areas including oncology, Alzheimer's, and autoimmune and liver disease through organic and inorganic opportunities;

• bring together its global health and patient data and provide insights to enable customers to innovate;

• utilize its worldwide laboratory network to serve a broad, growing and global customer base including pharmaceutical and biotechnology companies, physicians, health systems, consumers, and other start-ups and laboratories that require lab services or diagnostic testing; and

• launch innovative tests globally, providing patients, physicians, health systems and pharmaceutical companies with access to its advanced science, technology and diagnostic capabilities.

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Following the planned spin-off, the Company believes that Fortrea will be positioned to:

• capitalize on growth opportunities across Phases I-IV clinical trials and extend its leadership in oncology, cell and gene therapy, rare disease, and other emerging therapeutic areas;

• increase agility with large pharmaceutical and biotechnology clients to better serve customers and advance life-saving therapies;

• access to unique data sets and insights through an arrangement with the Company for a defined period of time which will enable Fortrea to provide enhanced trial execution and a differentiated value proposition;

• invest in capabilities, technologies, diverse talent and innovation to enhance trial execution and better serve all of its customers; and

• implement a capital structure that is tailored to support its growth strategy and enhance stakeholder value.

The planned spin-off is intended to qualify as a tax-free transaction for U.S. federal income tax purposes.

RESULTS OF OPERATIONS (dollars in millions)

Three months ended March 31, 2023, compared with three months ended March 31, 2022

Revenues

			Three Months Ended March 31,
			2023						2022						Change
Dx			$	2,382.8					$	2,454.1					(2.9)		%
DD			1,401.3						1,459.3						(4.0)		%
Intercompany eliminations and other			(6.2)						(13.8)						55.1		%
Total			$	3,777.9					$	3,899.6					(3.1		%)

Total revenues for the three months ended March 31, 2023, were $3,777.9, a decrease of 3.1% over $3,899.6 in the first quarter of 2022. The decrease was due to lower organic revenue of 3.6% and unfavorable foreign currency translation of 0.7%, partially offset by acquisitions net of divestitures of 1.2%. The 3.6% decrease in organic revenue was driven by a 11.6% decrease in COVID-19 Testing, partially offset by a 7.9% increase in the Company's organic Base Business.

Dx revenues for the three months ended March 31, 2023, were $2,382.8, a decrease of 2.9% over $2,454.1 in the first quarter of 2022. The decrease was due to organic revenue of 4.7% and unfavorable foreign currency translation of 0.3%, partially offset by acquisitions of 2.0%. The 4.7% decrease in organic revenue was due to a 18.4% decrease in COVID-19 Testing, partially offset by a 13.7% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 19.8%, which includes the benefit from the Ascension lab management agreement of approximately 7% as well as the positive impact from weather and revenue days of approximately 2%.

Dx total volume (measured by requisitions) for the three months ended March 31, 2023, decreased by 3.3% as organic volume decreased by 5.6% and acquisition volume contributed 2.3%. Organic volume was impacted by a 12.7% decrease in COVID-19 Testing, partially offset by a 7.1% increase in Base Business. Price/mix increased by 0.4% due to Base Business growth of 6.6%, partially offset by a decrease in COVID-19 Testing of 5.7%, unfavorable foreign currency translation of 0.3%, and lower acquisitions of 0.2%. Base Business volume was up 11.0% compared to the Base Business last year, which includes the combined favorable impact from weather and revenue days of approximately 2%. Price/mix was up 8.8% in the Base Business compared to the Base Business last year, which includes the benefit of the Ascension lab management agreement.

DD revenues for the three months ended March 31, 2023, were $1,401.3, a decrease of 4.0% over $1,459.3 in the first quarter of 2022. The decrease was primarily due to an organic decline of 2.4%, unfavorable foreign currency translation of 1.5%, and unfavorable acquisitions net of divestitures of 0.1%. The decrease in organic revenue was negatively impacted by approximately 8.0% due to non-human primate (NHP) related constraints, reduced COVID-19 vaccine and therapeutic work, and the loss of a functional services provider (FSP) contract. Our backlog expected to be recognized in the next 12 months decreased from approximately 30% at December 31, 2022, to approximately 29.5% at March 31, 2023, as a result of an increase in the average contract length.

Cost of Revenues

			Three Months Ended March 31,
			2023						2022						Change
Cost of revenues			$	2,803.2					$	2,666.7					5.1		%
Cost of revenues as a % of revenues			74.2		%				68.4		%

Cost of revenues increased 5.1% during the three months ended March 31, 2023, as compared with the corresponding period in 2022. Cost of revenues as a percentage of revenues during the three months ended March 31, 2023, increased to 74.2% as compared to 68.4% in the corresponding period in 2022. This increase in cost of revenues as a percent of revenues

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was primarily due to a reduction in COVID-19 Testing revenues, the impact of the Ascension Management Service Agreement, and higher personnel expenses, partially offset by organic Base Business growth and LaunchPad savings.

Selling, General and Administrative Expenses

			Three Months Ended March 31,
			2023						2022						Change
Selling, general and administrative expenses			$	553.6					$	464.1					19.3		%
Selling, general and administrative expenses as a % of revenues			14.7		%				11.9		%

Selling, general and administrative expenses as a percentage of revenues were 14.7% and 11.9% during the three months ended March 31, 2023, and 2022, respectively. The increase is primarily due to a reduction in COVID-19 Testing revenues and spin off transaction costs.

Amortization of Intangibles and Other Assets

			Three Months Ended March 31,
			2023						2022						Change
Amortization of intangibles and other assets			$	69.3					$	67.1					3.3		%

The increase in amortization of intangibles and other assets primarily reflects additional amortization for assets acquired subsequent to March 31, 2022.

Goodwill and Other Asset Impairments

			Three Months Ended March 31,
			2023						2022						Change
Goodwill and other asset impairments			$	2.2					$	1.2					83.3		%

The Company recorded impairment charges of $2.2 in capitalized software costs during the three months ended March 31, 2023. The Company recorded impairment charges of $1.2 in other assets in Ukraine and Russia during the three months ended March 31, 2022.

Restructuring and Other Charges

			Three Months Ended March 31,
			2023						2022						Change
Restructuring and other charges			$	8.6					$	12.6					(31.7)		%

During the three months ended March 31, 2023, the Company recorded net restructuring and other charges of $8.6. The charges were comprised of $4.9 related to severance and other personnel costs and $4.7 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the increase of $0.7 of previously established severance liabilities and the reversal of previously established liability of $0.3 in unused facility-related costs.

During the three months ended March 31, 2022, the Company recorded net restructuring and other charges of $12.6. The charges were comprised of $5.4 related to severance and other personnel costs and $7.7 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of a previously established liability of $0.4 in unused severance costs and $0.1 in unused facility-related costs.

Interest Expense

			Three Months Ended March 31,
			2023						2022						Change
Interest expense			$	(50.7)					$	(42.2)					20.1		%

The increase in interest expense for the three months ended March 31, 2023, as compared with the corresponding period in 2022, is primarily due to the increased interest rates on variable rate debt and higher borrowings under the Credit Facility.

Equity Method Income

			Three Months Ended March 31,
			2023						2022						Change
Equity method income, net			$	(2.1)					$	3.4					(160.2)		%

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. The decrease in income for the three months ended March 31, 2023,

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as compared with the corresponding period in 2022, was primarily due to the decreased profitability of the Company's joint ventures in 2023.

Other, net

			Three Months Ended March 31,
			2023						2022						Change
Other, net			$	(12.6)					$	(10.1)					24.5		%

The change in Other, net for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, is primarily due to investment losses of $1.5 for the three months ended March 31, 2023 compared to investment gains of $8.0 for the corresponding period of 2022. In addition, foreign currency transaction losses of $2.9 were recognized for the three months ended March 31, 2023 as compared to losses of $2.6 for the corresponding period of 2022.

Income Tax Expense

			Three Months Ended March 31,
			2023						2022						Change
Income tax expense			$	64.5					$	148.0					(56.4)		%
Income tax expense as a % of earnings before income taxes			23.2		%				23.1		%

The current year effective tax rate differs from the U.S. federal statutory rate of 21.0% primarily due to state income taxes and the disallowance of certain executive compensation which are partially offset by research and development tax credits and favorable foreign rate differentials. The prior year effective tax rate differed from the U.S. federal statutory rate of 21.0% primarily due to state income taxes which were partially offset by windfall stock compensation deductions and favorable foreign rate differentials.

Operating Income by Segment

During the fourth quarter of 2022, the Company modified the segment performance measure to exclude the amortization of intangibles and other assets, restructuring and other charges, goodwill and other asset impairments, and certain corporate charges for items such as transaction costs, COVID-19-related costs, and other special items. These changes align with how the CODM now evaluates segment performance and allocates resources. Prior periods have been conformed for comparability.

			Three Months Ended March 31,
			2023						2022						Change
Dx segment operating income			$	441.5					$	683.1					(35.4)		%
Dx segment operating margin			18.5		%				27.8		%				(9.3)		%
DD segment operating income			123.9						168.6						(26.5)		%
DD segment operating margin			8.8		%				11.6		%				(2.7)		%
Segment operating income			565.4						851.7						(33.6)		%
General corporate and unallocated expenses			(144.3)						(82.9)						74.1		%
Amortization of intangibles and other assets			(69.3)						(67.1)						3.3		%
Restructuring and other charges			(8.6)						(12.6)						(31.7)		%
Goodwill and other asset impairments			(2.2)						(1.2)						83.3		%
Total operating income			$	341.0					$	687.9					(50.4)		%

Dx operating income was $441.5 for the three months ended March 31, 2023, a decrease of $241.6 over operating income of $683.1 in the corresponding period of 2022, and Dx operating margin decreased 930 basis points year-over-year. The decrease in adjusted operating income and adjusted operating margin was due to a reduction in COVID-19 Testing. Excluding COVID-19 Testing, operating income and margin were up due to the benefit of Base Business organic growth and LaunchPad savings, which were partially offset by higher personnel expense.

DD operating income was $123.9 for the three months ended March 31, 2023, a decrease of $44.7 over operating income of $168.6 in the corresponding period of 2022. The decrease was due to NHP-related constraints, reduced COVID-19 vaccine and therapeutic work, the FSP contract loss, and a provision for credit losses on certain biotech receivables, partially offset by demand growth and LaunchPad savings.

General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology. Corporate expenses were $144.3 for the three months ended March 31, 2023, an increase of $61.4 over corporate expenses of $82.9 in the corresponding period of 2022, primarily due to spin transaction costs, personnel costs, bonus allocation, and research and development costs.

The Company remains on track to deliver approximately $350.0 of net savings from its three-year LaunchPad initiative by the end of 2024.

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LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions)

The Company's cash-generating ability and financial condition typically have provided ready access to capital markets. The Company's principal source of liquidity is operating cash flow, supplemented by proceeds from debt offerings. The Company believes that its balances of cash and cash equivalents and borrowing capacity, along with cash generated from operations, will be sufficient to satisfy its cash requirements, cash dividends, and share repurchases over the next twelve months. The Company's senior unsecured revolving credit facility is further discussed in Note 6 (Debt) to the Company's condensed consolidated financial statements.

In summary, the Company's cash flows were as follows for the three months ended March 31, 2023, and 2022, respectively:

			Three Months Ended March 31,
			2023						2022
Net cash provided by operating activities			$	121.2					$	356.0
Net cash used for investing activities			(99.7)						(573.1)
Net cash used for financing activities			(60.6)						(17.7)
Effect of exchange rate changes on cash and cash equivalents			3.0						(4.4)
Net decrease in cash and cash equivalents			$	(36.1)					$	(239.2)

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2023, and 2022, totaled $393.9 and $1,233.5, respectively. Cash and cash equivalents consist of highly liquid instruments, such as time deposits, commercial paper, and other money market investments, which have original maturities of three months or less.

Cash Flows from Operating Activities

During the three months ended March 31, 2023, the Company's operations provided $121.2 of cash as compared to $356.0 during the same period in 2022. The $234.8 decrease in cash provided from operations in 2023 as compared with the corresponding 2022 period is primarily due to lower cash earnings.

Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended March 31, 2023, was $99.7 as compared to $573.1 for the three months ended March 31, 2022. The change in cash used for investing activities was primarily due to a decrease in business acquisitions and lower capital expenditures during the three months ended March 31, 2023. Capital expenditures were $93.9 and $117.2 for the three months ended March 31, 2023, and 2022, respectively.

Cash Flows from Financing Activities

Net cash used by financing activities for the three months ended March 31, 2023, was $60.6 as compared to $17.7 for the three months ended March 31, 2022. The change in cash flows from financing activities for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, was primarily due to the payment of dividends of $64.4 in 2023.

At March 31, 2023, the Company had $393.9 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026. Under the Company's revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the revolving credit facility at March 31, 2023, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

For the three months ended March 31, 2023, the Company did not repurchase any of the Company's common stock. As of March 31, 2023, the Company had an outstanding authorization from the board of directors to purchase up to $1,531.5 more of the Company's common stock with no expiration date.

For the three months ended March 31, 2023, the Company paid $64.4 in common stock dividends. On April 6, 2023, the Company announced a cash dividend of $0.72 per share of common stock for the second quarter, or approximately $64.7 in the aggregate. The dividend will be payable on June 8, 2023, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on May 18, 2023. The declaration and payment of any future dividends will be at the discretion of the Company's board of directors.

Credit Ratings

The Company’s investment grade debt ratings from Moody’s and from Standard and Poor’s (S&P) contribute to its ability to access capital markets.

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Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates, and other relevant market rate or price changes. In the ordinary course of business, the Company is exposed to various market risks, including changes in foreign currency exchange and interest rates, and the Company regularly evaluates its exposure to such changes. The Company addresses its exposure to market risks, principally the market risks associated with changes in foreign currency exchange rates and interest rates, through a controlled program of risk management that includes, from time to time, the use of derivative financial instruments such as foreign currency forward contracts, and interest rate and cross currency swap agreements.

Foreign Currency Exchange Rates

Approximately 14.2% of the Company's revenues for the three months ended March 31, 2023, and approximately 15.7% of the Company's revenue for the three months ended March 31, 2022, were denominated in currencies other than the U.S. Dollar (USD). The Company's financial statements are reported in USD and, accordingly, fluctuations in exchange rates will affect the translation of revenues and expenses denominated in foreign currencies into USD for purposes of reporting the Company's consolidated financial results. In the first quarter of 2023 and the year ended December 31, 2022, the most significant currency exchange rate exposures were to the Canadian dollar, Swiss Franc, Euro and British Pound. Excluding the impacts from any outstanding or future hedging transactions, a hypothetical change of 10% in average exchange rates used to translate all foreign currencies to USD would have impacted income before income taxes for the three months ended March 31, 2023, by approximately $6.1. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $48.1 and $(74.6) at March 31, 2023 and 2022, respectively. The Company does not have significant operations in countries in which the economy is considered to be highly inflationary.

The Company earns revenue from service contracts over a period of time, ranging from months to years. Accordingly, exchange rate fluctuations during this period may affect the Company's profitability with respect to such contracts. The Company is also subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of transactions. The Company limits its foreign currency transaction risk through exchange rate fluctuation provisions stated in some of its contracts with customers, or it may hedge transaction risk with foreign currency forward contracts. At March 31, 2023, the Company had 28 open foreign exchange forward contracts with various amounts maturing monthly through April 2023 with a notional value totaling approximately $663.5. At December 31, 2022, the Company had 27 open foreign exchange forward contracts with various amounts maturing monthly through January 2023 with a notional value totaling approximately $629.5.

The Company is party to U.S. to Swiss Franc cross-currency swap agreements with an aggregate notional amount of $600.0, $300.0 maturing in 2024 and $300.0 maturing in 2025, as a hedge against the impact of foreign exchange movements on its net investment in a Swiss Franc functional currency subsidiary.

Interest Rates

Some of the Company's debt from time to time is subject to interest at variable rates. As a result, fluctuations in interest rates can affect the business. The Company attempts to manage interest rate risk and overall borrowing costs through an appropriate mix of fixed and variable rate debt including by the utilization of derivative financial instruments, primarily interest rate swaps.

Borrowings under the Company's term loan credit facility, now repaid, and revolving credit facility are subject to variable interest rates, unless fixed through interest rate swaps or other agreements.

In May 2021, to hedge against changes in the fair value portion of the Company's long-term debt, the Company entered into fixed-to-variable interest rate swap agreements for the 2.70% senior notes due 2031 with an aggregate notional value of $500.0 and variable interest rates based on three-month LIBOR plus 1.0706%.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based upon this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2023.

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Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rules13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) that occurred during the quarter ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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LABORATORY CORPORATION OF AMERICA HOLDINGS AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

See Note 8 (Commitments and Contingencies) to the Company’s condensed consolidated financial statements, above, which is incorporated herein by reference.

The risk factors set forth below revise and supplement the corresponding risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. With the exception of the following, there have been no material changes in the risk factors that appear in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

The Company depends on a variety of U.S. and international financial institutions to provide us with banking services. The default or failure of one or more of the financial institutions that we rely on may adversely affect the Company's business and financial condition.

The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and international financial institutions, and our deposits at certain of these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Additionally, bank payment processes could become unavailable which could temporarily impact the Company's ability to conduct business with suppliers and pay its employees on a timely basis. Any inability to access or delay in accessing these funds could adversely affect the Company's business and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars and shares in millions, except per share data)

The Board of Directors has authorized the repurchase of specified amounts of the Company's stock since 2007. During the three months ended March 31, 2023, the Company did not repurchase any of its common stock. As of March 31, 2023, the Company had outstanding authorization from the board of directors to purchase up to $1,531.5 of the Company's common stock. The repurchase authorization has no expiration date.

None.

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(a)			Exhibits
10.1*			Amendment No. 1, dated as of January 13, 2023, to the Third Amended and Restated Credit Agreement (originally dated as of April 30, 2021), among the Company, Bank of America, N.A., as administrative agent, and lenders party thereto (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022)
10.2*			Executive Employment Agreement, dated January 4, 2023, by and between Laboratory Corporation of America and Thomas Pike (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022)
31.1*			Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*			Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**			Written Statement of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
101.INS*			Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*			Inline XBRL Taxonomy Extension Schema
101.CAL*			Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF*			Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB*			Inline XBRL Taxonomy Extension Label Linkbase
101.PRE*			Inline XBRL Taxonomy Extension Presentation Linkbase
104			Cover Page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

*						filed herewith
**						furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LABORATORY CORPORATION OF AMERICA HOLDINGS

Registrant

			By:			/s/ ADAM H. SCHECHTER
						Adam H. Schechter
						Chief Executive Officer

			By:			/s/ GLENN A. EISENBERG
						Glenn A. Eisenberg
						Executive Vice President and
						Chief Financial Officer

May 4, 2023