Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 impacts and expected benefits and costs of the recently completed spin-off of Fortrea, including but not limited to factors that could adversely affect the Company's ability to realize the expected benefits of the spin-off, the failure of the spin-off to qualify as a tax-free transaction for U.S. federal income tax purposes, and potential exposure to unexpected claims, liabilities, or costs under the Company's agreements with Fortrea and/or otherwise in connection with the spin-off; 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.

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GENERAL (dollars in millions, except per share data)

Revenues for the nine months ended September 30, 2023, were $9,128.3, an increase of 2.2% from $8,934.2 during the nine months ended September 30, 2022. The increase was due to acquisitions, net of divestitures, of 1.8%, organic revenue of 0.3% and favorable foreign currency translation of 0.1%. The 0.3% increase in organic revenue was driven by a 10.0% increase in the company's organic Base Business, partially offset by a 9.6% decrease COVID-19 Testing. 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.

Separation of Fortrea Holdings Inc.

On June 30, 2023, Labcorp completed the previously announced separation of Fortrea from the Company.

The spin-off of Fortrea from Labcorp was achieved through the Company’s pro-rata distribution of 100% of the outstanding shares of Fortrea common stock to holders of record of Labcorp common stock. Each holder of record of Labcorp common stock received one share of Fortrea common stock for every share of Labcorp common stock held at 5:00 p.m., Burlington, North Carolina time on June 20, 2023, the record date for the distribution.

In June 2023, Fortrea, prior to the Separation and while a subsidiary of the Company, issued $570.0 of 7.500% senior secured notes due 2030 (the Fortrea Notes). The proceeds from the Fortrea Notes were used to fund cash payments of approximately $1,600.0 to the Company in connection with the Separation. The Company does not guarantee the Fortrea Notes following the Separation. Also in June 2023, Fortrea Holdings Inc. entered into three floating secured overnight financing rate (SOFR) credit facilities totaling $1,520.0. These are comprised of $450.0 Revolver maturing June 30, 2028; $500.0 Term Loan A maturing June 30, 2028; and $570.0 Term Loan B maturing June 30, 2030.

Upon closing of the spin transaction, Fortrea made a cash distribution to the Company of approximately $1,600.0 as partial consideration for the assets that the Company contributed to Fortrea in connection with the spin-off. The Company intends to use these proceeds toward a $1,000.0 accelerated share repurchase program and paying down $300.0 of debt maturing this year, with the remaining funds to be returned to shareholders through additional future share repurchases and/or cash dividends.

All current and historical operating results of Fortrea are presented as Discontinued Operations, net of tax, in the consolidated statement of operations. The spin-off is expected to be treated as tax-free for the Company and its shareholders for U.S. federal income tax purposes.

As a result of the separation of Fortrea, the Company recast segment results to exclude the historical results of the CDCS business for all periods presented. The remaining operations of the previously reported Drug Development segment has been renamed the Biopharma Laboratory Services segment.

RESULTS OF OPERATIONS (dollars in millions)

Three months ended September 30, 2023, compared with three months ended September 30, 2022

Revenues

			Three Months Ended September 30,
			2023						2022						Change
Dx			$	2,344.7					$	2,207.6					6.2		%
BLS			719.1						666.4						7.9		%
Intercompany eliminations and other			(7.0)						(7.2)						2.8		%
Total			$	3,056.8					$	2,866.8					6.6		%

Total revenues for the three months ended September 30, 2023, were $3,056.8, an increase of 6.6% over $2,866.8 in the third quarter of 2022. The increase was due to an increase in organic revenue of 3.7%, acquisitions, net of divestitures, of 2.2%, and favorable foreign currency translation of 0.7%. The 3.7% increase in organic revenue was driven by a 10.1% increase in the company's organic Base Business, partially offset by a 6.3% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing). Base Business includes Labcorp's operations except for COVID-19 Testing.

Dx revenues for the three months ended September 30, 2023, were $2,344.7, an increase of 6.2% over $2,207.6 in the third quarter of 2022. The increase was due to organic revenue of 3.4% and acquisitions of 3.0%, partially offset by unfavorable foreign currency translation of 0.1%. The 3.4% increase in organic growth was due to an 11.6% increase in the Base Business,

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partially offset by a 8.2% decrease in COVID-19 Testing. Total Base Business growth compared to the Base Business in the prior year was 15.9%. The Ascension lab management agreement contributed approximately 6.0% of the Base Business growth.

Dx total volume (measured by requisitions) for the three months ended September 30, 2023, increased by 2.3% as acquisition volume contributed 3.4%, while organic volume decreased by 1.1%. Organic volume was impacted by a 4.5% decrease in COVID-19 Testing, partially offset by a 3.4% increase in the Base Business. Price/mix increased by 3.9% due to organic Base Business growth of 8.2%, partially offset by a decrease in COVID-19 Testing of 3.7%, lower acquisitions of 0.4%, and an unfavorable currency translation of 0.1%. Base Business volume increased 7.2% compared to the Base Business last year. 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.

BLS revenues for the three months ended September 30, 2023, were $719.1, an increase of 7.9% over $666.4 in the third quarter of 2022. The increase was primarily due to organic growth of 4.9% and favorable foreign currency translation of 3.3%, partially offset by an unfavorable impact of divestitures of 0.2%.

Cost of Revenues

			Three Months Ended September 30,
			2023						2022						Change
Cost of revenues			$	2,205.6					$	1,980.6					11.4		%
Cost of revenues as a % of revenues			72.2		%				69.1		%

Cost of revenues increased 11.4% during the three months ended September 30, 2023, as compared with the corresponding period in 2022. Cost of revenues as a percentage of revenues during the three months ended September 30, 2023, increased to 72.2% as compared to 69.1% in the corresponding period in 2022. This increase in cost of revenues as a percent of revenues was primarily due to a reduction in COVID-19 Testing revenues, partially offset by the impact of the Ascension lab management agreement.

Selling, General and Administrative Expenses

			Three Months Ended September 30,
			2023						2022						Change
Selling, general and administrative expenses			$	525.5					$	453.2					16.0		%
Selling, general and administrative expenses as a % of revenues			17.2		%				15.8		%

Selling, general and administrative expenses as a percentage of revenues was 17.2% and 15.8% during the three months ended September 30, 2023, and 2022, respectively. The increase is primarily due to a reduction in COVID-19 Testing revenues and spin-related costs, partially offset by the impact of the Ascension lab management agreement.

Amortization of Intangibles and Other Assets

			Three Months Ended September 30,
			2023						2022						Change
Amortization of intangibles and other assets			$	55.7					$	49.0					13.6		%

The increase in amortization of intangibles and other assets primarily reflects additional amortization for assets acquired subsequent to September 30, 2022.

Goodwill and Other Asset Impairments

			Three Months Ended September 30,
			2023						2022						Change
Goodwill and other asset impairments			$	10.2					$	—					100.0		%

The Company recorded impairment charges of $10.2 in intangible assets during the three months ended September 30, 2023 primarily due to a license impairment related to the divestiture of a joint venture. The Company recorded no impairment charges during the three months ended September 30, 2022.

Restructuring and Other Charges

			Three Months Ended September 30,
			2023						2022						Change
Restructuring and other charges			$	7.5					$	10.0					(24.7)		%

During the three months ended September 30, 2023, the Company recorded net restructuring and other charges of $7.5. The charges were comprised of $11.2 related to severance and other personnel costs and $0.9 in facility closures, lease terminations,

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and general integration activities. The charges were adjusted by the reversal of a previously established liability of $0.1 in unused severance liabilities and the reversal of a previously established liability of $4.5 in unused facility-related costs.

During the three months ended September 30, 2022, the Company recorded net restructuring and other charges of $10.0. The charges were comprised of $2.8 related to severance and other personnel costs and $7.5 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of a previously established liability of $0.3 in unused facility-related costs.

Interest Expense

			Three Months Ended September 30,
			2023						2022						Change
Interest expense			$	(50.3)					$	(46.3)					8.7		%

The increase in interest expense for the three months ended September 30, 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 September 30,
			2023						2022						Change
Equity method income, net			$	(0.3)					$	1.7					(110.3)		%

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 September 30, 2023, 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 September 30,
			2023						2022						Change
Other, net			$	21.1					$	(17.6)					(219.3)		%

The change in Other, net for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, is primarily due to $22.7 of transition services fees charged to Fortrea related to administrative and IT systems support. The costs to provide these services are included in operating income but the service fees are included in other income. In addition, the Company recorded investment gains of $4.0 for the three months ended September 30, 2023 compared to investment losses of $5.2 for the corresponding period of 2022. Foreign currency transaction losses of $2.8 were recognized for the three months ended September 30, 2023, as compared to losses of $8.2 for the corresponding period of 2022.

Income Tax Expense

			Three Months Ended September 30,
			2023						2022						Change
Income tax expense			$	55.1					$	38.2					44.5		%
Income tax expense as a % of earnings before income taxes			23.1		%				12.1		%

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

As a result of the spin-off of Fortrea, which was completed on June 30, 2023, the Company recast the segment results to exclude the historical results of the CDCS business for all periods presented. The remaining operations of the previously reported Drug Development segment have been renamed the Biopharma Laboratory Services segment.

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			Three Months Ended September 30,
			2023						2022						Change
Dx segment operating income			$	386.3					$	439.8					(12.2)		%
Dx segment operating margin			16.5		%				19.9		%				(3.4)		%
BLS segment operating income			109.0						105.0						3.8		%
BLS segment operating margin			15.2		%				15.8		%				(0.6)		%
Segment operating income			495.3						544.8						(9.1)		%
General corporate and unallocated expenses			(169.6)						(111.8)						51.7		%
Amortization of intangibles and other assets			(55.7)						(49.0)						13.7		%
Restructuring and other charges			(7.5)						(10.0)						(25.0)		%
Goodwill and other asset impairments			(10.2)						—						100.0		%
Total operating income			$	252.3					$	374.0					(32.5)		%

Dx operating income was $386.3 for the three months ended September 30, 2023, a decrease of $53.5 over operating income of $439.8 in the corresponding period of 2022, and Dx operating margin decreased 340 basis points year-over-year. The decrease in adjusted operating income was due to a reduction in COVID-19 Testing, while the margin was also affected by the mix impact from Ascension. Excluding the mix impact from Ascension, Base Business margin was up as the benefit of organic growth and Launchpad savings were partially offset by higher personnel expense.

BLS operating income was $109.0 for the three months ended September 30, 2023, an increase of $4.0 over operating income of $105.0 in the corresponding period of 2022. The increase was due to demand growth and LaunchPad savings, partially offset by higher personnel expense. The improvement in operating income and margin was impacted by the NHP-related constraints..

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 $169.6 for the three months ended September 30, 2023, an increase of $57.8 over corporate expenses of $111.8 in the corresponding period of 2022, primarily due to spin-off 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.

Nine Months Ended September 30, 2023, compared with nine months ended September 30, 2022

Revenues

			Nine Months Ended September 30,
			2023						2022						Change
Dx			$	7,068.3					$	6,917.1					2.2		%
BLS			2,079.4						2,048.5						1.5		%
Intercompany eliminations and other			(19.4)						(31.4)						38.2		%
Total			$	9,128.3					$	8,934.2					2.2		%

The increase in revenues for the nine months ended September 30, 2023, as compared with the corresponding period in 2022 was 2.2%. The increase was due to acquisitions, net of divestitures, of 1.8%, organic revenue of 0.3% and favorable foreign currency translation of 0.1%. The 0.3% increase in organic revenue was driven by a 10.0% increase in the Company's organic Base Business, partially offset by a 9.6% decrease in COVID-19 Testing.

Dx revenues for the nine months ended September 30, 2023, were $7,068.3, an increase of 2.2% over $6,917.1 during the nine months ended September 30, 2022. The increase was due to acquisitions of 2.4%, partially offset by unfavorable foreign currency translation of 0.2%. Organic revenue was flat due to a 12.4% decrease in COVID-19 Testing, offset by a 12.4% increase in the Base Business. Total Base Business growth compared to the Base Business in the prior year was 17.1%, which includes the benefit from the Ascension lab management agreement of approximately 7%.

Dx total volume (measured by requisitions) for the nine months ended September 30, 2023 was flat as organic volume decreased by 2.6% and acquisition volume contributed 2.7%. Organic volume was impacted by a 7.9% decrease in COVID-19 Testing, partially offset by a 5.2% increase in Base Business. Price/mix increased by 2.1% due to organic Base Business growth of 7.2%, partially offset by a decrease in COVID-19 Testing of 4.6%, unfavorable foreign currency translation of 0.2%, and lower acquisitions of 0.3%. Base Business volume increased 8.7% compared to the Base Business last year. Price/mix was up 8.4% in the Base Business compared to the Base Business last year, which includes the benefit of the Ascension lab management agreement.

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BLS revenues for the nine months ended September 30, 2023, were $2,079.4, an increase of 1.5% over $2,048.5 during the nine months ended September 30, 2022. The increase was primarily due to an organic growth of 0.8%, favorable foreign currency translation of 1.0%, and divestitures, net of acquisitions, of 0.3%. The decrease in organic revenue was negatively impacted by approximately 4.0% due to NHP related constraints. BLS backlog expected to convert to revenue in the next 12 months is $2,410.0 or 30.9%.

Cost of Revenues

			Nine Months Ended September 30,
			2023						2022						Change
Cost of revenues			$	6,584.8					$	6,023.4					9.3		%
Cost of revenues as a % of revenues			72.1		%				67.4		%

Cost of revenues increased 9.3% during the nine months ended September 30, 2023, as compared with the corresponding period in 2022. Cost of revenues as a percentage of revenues during the nine months ended September 30, 2023, increased to 72.1% as compared to 67.4% in the corresponding period in 2022. This increase in cost of revenues as a percent of revenues 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

			Nine Months Ended September 30,
			2023						2022						Change
Selling, general and administrative expenses			$	1,488.5					$	1,307.6					13.8		%
Selling, general and administrative expenses as a % of revenues			16.3		%				14.6		%

Selling, general and administrative expenses as a percentage of revenues were 16.3% and 14.6% during the nine months ended September 30, 2023, and 2022, respectively. The increase is primarily due to a reduction in COVID-19 Testing revenues and spin-related costs, partially offset by the impact of the Ascension lab management agreement.

Amortization of Intangibles and Other Assets

			Nine Months Ended September 30,
			2023						2022						Change
Amortization of intangibles and other assets			$	160.6					$	149.0					7.8		%

The increase in amortization of intangibles and other assets primarily reflects additional amortization for assets acquired subsequent to September 30, 2022.

Goodwill and Other Asset Impairments

			Nine Months Ended September 30,
			2023						2022						Change
Goodwill and other asset impairments			$	15.2					$	1.2					1,158.5		%

The Company recorded impairment charges of $15.2 in licenses, capitalized software costs and other intangible assets during the nine months ended September 30, 2023. The Company recorded impairment charges of $1.2 in other assets in Ukraine and Russia during the nine months ended September 30, 2022.

Restructuring and Other Charges

			Nine Months Ended September 30,
			2023						2022						Change
Restructuring and other charges			$	30.8					$	45.0					(31.7)		%

During the nine months ended September 30, 2023, the Company recorded net restructuring and other charges of $30.8. The charges were comprised of $20.4 related to severance and other personnel costs and $14.0 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of $1.1 of previously established severance liabilities and the increase of a previously established liability of $2.5 in unused facility-related costs.

During the nine months ended September 30, 2022, the Company recorded net restructuring and other charges of $45.0. The charges were comprised of $21.2 related to severance and other personnel costs and $25.1 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of a previously established liability of $0.9 in unused severance costs and $0.4 in unused facility-related costs.

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Interest Expense

			Nine Months Ended September 30,
			2023						2022						Change
Interest expense			$	(150.8)					$	(130.7)					15.4		%

The increase in interest expense for the nine months ended September 30, 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

			Nine Months Ended September 30,
			2023						2022						Change
Equity method income, net			$	(1.5)					$	6.5					(123.6)		%

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 nine months ended September 30, 2023, 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

			Nine Months Ended September 30,
			2023						2022						Change
Other, net			$	(2.7)					$	(62.8)					(95.6)		%

The change in Other, net for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, is primarily due to $22.7 of transition services fees charged to Fortrea related to administrative and IT systems support. The costs to provide these services are included in operating income but the service fees are included in other income. In addition, investment losses of $1.6 for the three months ended September 30, 2023 compared to investment losses of $19.4 for the corresponding period of 2022. Foreign currency transaction losses of $15.0 were recognized for the nine months ended September 30, 2023, as compared to losses of $39.3 for the corresponding period of 2022.

Income Tax Expense

			Nine Months Ended September 30,
			2023						2022						Change
Income tax expense			$	168.8					$	260.8					(35.3)		%
Income tax expense as a % of earnings before income taxes			23.6		%				21.3		%

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, remaining unallocated costs of the CDCS business, 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.

INDEX

			Nine Months Ended September 30,
			2023						2022						Change
Dx segment operating income			$	1,237.5					$	1,638.5					(24.5)		%
Dx segment operating margin			17.5		%				23.7		%				(6.2)		%
BLS segment operating income			287.2						293.9						(2.3)		%
BLS segment operating margin			13.8		%				14.3		%				(0.5)		%
Segment operating income			1,524.7						1,932.4						(21.1)		%
General corporate and unallocated expenses			(469.7)						(329.2)						42.7		%
Amortization of intangibles and other assets			(160.6)						(149.0)						7.8		%
Restructuring and other charges			(30.8)						(45.0)						(31.6)		%
Goodwill and other asset impairments			(15.2)						(1.2)						1,166.7		%
Total operating income			$	848.4					$	1,408.0					(39.7)		%

Dx operating income was $1,237.5 for the nine months ended September 30, 2023, a decrease of $401.0 over operating income of $1,638.5 in the corresponding period of 2022, and Dx operating margin decreased 620 basis points year-over-year. The decrease was due to a reduction in COVID-19 Testing, the impact of the Ascension lab management agreement and higher personnel costs, partially offset by a recovery in the Base Business.

BLS operating income was $287.2 for the nine months ended September 30, 2023, a decrease of $6.7 over operating income of $293.9 in the corresponding period of 2022. The decrease was due to NHP-related constraints and higher personnel costs, and stranded costs as a result of the Fortrea spin, 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 $469.7 for the nine months ended September 30, 2023, an increase of $140.5 over corporate expenses of $329.2 in the corresponding period of 2022, primarily due to spin-off 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.

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 and beyond. The Company's senior unsecured revolving credit facility is further discussed in Note 7 (Debt) to the Company's condensed consolidated financial statements.

In summary, the Company's cash flows from continuing operations were as follows for the nine months ended September 30, 2023, and 2022, respectively:

			Nine Months Ended September 30,
			2023						2022
Net cash provided by operating activities from continuing operations			$	622.7					$	1,157.6
Net cash used for investing activities from continuing operations			(816.2)						(1,345.1)
Net cash used for financing activities from continuing operations			(1,112.5)						(949.6)
Effect of exchange rate changes on cash and cash equivalents			3.5						(36.6)
Net decrease in cash and cash equivalents from continuing operations			$	(1,302.5)					$	(1,173.7)

Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2023, and 2022, totaled $727.9 and $304.9, 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 nine months ended September 30, 2023, the Company's continuing operations provided $622.7 of cash as compared to $1,157.6 during the same period in 2022. The $534.9 decrease in cash provided from operations in 2023 as compared with the corresponding 2022 period is primarily due to lower COVID-19 Testing earnings, spin-related items, and higher working capital, partially offset by increased Base Business earnings.

INDEX

Cash Flows from Investing Activities

Net cash used for investing activities from continuing operations for the nine months ended September 30, 2023, was $816.2 as compared to $1,345.1 for the nine months ended September 30, 2022. The change in cash used for investing activities was primarily due to a decrease in business acquisitions and lower capital expenditures during the nine months ended September 30, 2023. Capital expenditures were $286.4 and $330.2 for the nine months ended September 30, 2023, and 2022, respectively.

Cash Flows from Financing Activities

Net cash used by financing activities from continuing operations for the nine months ended September 30, 2023, was $1,112.5 as compared to $949.6 for the nine months ended September 30, 2022. The change in cash flows from financing activities from continuing operations for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was primarily due to an increase in share repurchase activity during the nine months ended September 30, 2023, due to the ASR, as compared to $800.0 during the corresponding period in 2022. Upon closing of the spin transaction, Fortrea made a cash distribution to the Company of approximately $1,600.0 as partial consideration for the assets that the Company contributed to Fortrea in connection with the spin-off. The Company used $1000.0 of the proceeds to make an aggregate payment under two accelerated share repurchase agreements (as described in more detail below) and intends to use additional proceeds to pay down debt of approximately $300.0 maturing this year.

At September 30, 2023, the Company had $727.9 of cash and $910.0 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 September 30, 2023, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

On August 8, 2023, the Company entered into accelerated share repurchase agreements (collectively, the ASR Agreements) with two different banks, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC (collectively, the Financial Institutions), to repurchase approximately $1,000.0 in the aggregate of the Company’s common stock (Common Stock), as part of the Company’s Common Stock repurchase program. The remaining repurchase authorization has no expiration date.

Under the ASR Agreements, the Company made an aggregate payment of $1,000.0 to the Financial Institutions and received an aggregate initial number of approximately 3.7 shares of Common Stock from the Financial Institutions, which were removed from the outstanding share count in connection with entering into the ASR Agreements. The 3.7 shares reflects the 80% of the shares that would ultimately be repurchased under the ASR Agreements if the price of the Common Stock established in the ASR Agreement as the inception of the ASR Agreements remains constant. The specific number of shares that the Company ultimately will repurchase under the ASR Agreements will be based generally on the average of the daily volume-weighted average price per share of the Common Stock during a repurchase period, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreements. At settlement, under certain circumstances, the Financial Institutions may be required to deliver additional shares of Common Stock to the Company, or the Company may be required, at its election, either to make cash payments or deliver shares of Common Stock to the Financial Institutions. The ASR Agreements contain provisions customary for agreements of this type, including provisions for adjustments to the transaction terms, the circumstances generally under which the ASR Agreements may be accelerated, extended or terminated early by the Financial Institutions and various acknowledgments, representations and warranties made by the parties to one another. Repurchases and settlements under the ASR Agreements are expected to be completed by the end of December 2023.

As of September 30, 2023, the Company had outstanding authorization from the board of directors to purchase up to $531.5 of the Company's common stock.

For the nine months ended September 30, 2023, the Company paid $192.9 in common stock dividends. On October 12, 2023, the Company announced a cash dividend of $0.72 per share of common stock for the third quarter, or approximately $62.1 in the aggregate. The dividend will be payable on December 12, 2023, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on November 8, 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.