filings.toolsLabcorp Holdings 10-Q 2024-06-30
Filed 2024-08-02. 8 sections, 201K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
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 June 30, 2024
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
LABCORP HOLDINGS INC.
(Exact name of registrant as specified in its charter)
| Delaware | 99-2588107 | |||||||
| (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 ☒.
| Class | Shares Outstanding | Date | ||||||||||||
| Common Stock $0.10 par value | 83,963,277 | August 1, 2024 |
INDEX
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements (unaudited) | |||||||
| Condensed Consolidated Balance Sheets | 2 | |||||||
| June 30, 2024 and December 31, 2023 | ||||||||
| Condensed Consolidated Statements of Operations | 3 | |||||||
| Three and Six Months Ended June 30, 2024 and 2023 | ||||||||
| Condensed Consolidated Statements of Comprehensive Earnings | 4 | |||||||
| Three and Six Months Ended June 30, 2024 and 2023 | ||||||||
| Condensed Consolidated Statements of Changes in Shareholders’ Equity | 5 | |||||||
| Three and Six Months Ended June 30, 2024 and 2023 | ||||||||
| Condensed Consolidated Statements of Cash Flows | 6 | |||||||
| Six Months Ended June 30, 2024 and 2023 | ||||||||
| Notes to Unaudited Condensed Consolidated Financial Statements | 7 | |||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 22 | ||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 32 | ||||||
| Item 4. | Controls and Procedures | 33 |
PART II. OTHER INFORMATION
| Item 1. | Legal Proceedings | 34 | ||||||
| Item 1A. | Risk Factors | 34 | ||||||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 35 | ||||||
| Item 5. | Other Information | 35 | ||||||
| Item 6. | Exhibits | 35 |
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
LABCORP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
(unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 265.1 | $ | 536.8 | |||||||
| Accounts receivable, net | 2,088.9 | 1,913.3 | |||||||||
| Unbilled services | 157.5 | 185.4 | |||||||||
| Supplies inventory | 441.8 | 474.6 | |||||||||
| Prepaid expenses and other | 618.0 | 655.3 | |||||||||
| Total current assets | 3,571.3 | 3,765.4 | |||||||||
| Property, plant and equipment, net | 2,932.5 | 2,911.8 | |||||||||
| Goodwill, net | 6,220.2 | 6,142.5 | |||||||||
| Intangible assets, net | 3,332.0 | 3,342.0 | |||||||||
| Joint venture partnerships and equity method investments | 17.5 | 26.9 | |||||||||
| Other assets, net | 638.8 | 536.5 | |||||||||
| Total assets | $ | 16,712.3 | $ | 16,725.1 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 760.6 | $ | 827.5 | |||||||
| Accrued expenses and other | 707.5 | 804.0 | |||||||||
| Unearned revenue | 388.3 | 421.7 | |||||||||
| Short-term operating lease liabilities | 182.1 | 165.8 | |||||||||
| Short-term finance lease liabilities | 6.7 | 6.4 | |||||||||
| Short-term borrowings and current portion of long-term debt | 2,019.5 | 999.8 | |||||||||
| Total current liabilities | 4,064.7 | 3,225.2 | |||||||||
| Long-term debt, less current portion | 3,047.3 | 4,054.7 | |||||||||
| Operating lease liabilities | 642.6 | 648.9 | |||||||||
| Financing lease liabilities | 76.9 | 78.6 | |||||||||
| Deferred income taxes and other tax liabilities | 376.1 | 417.9 | |||||||||
| Other liabilities | 483.9 | 409.3 | |||||||||
| Total liabilities | 8,691.5 | 8,834.6 | |||||||||
| Commitments and contingent liabilities | |||||||||||
| Noncontrolling interest | 15.0 | 15.5 | |||||||||
| Shareholders’ equity: | |||||||||||
| Common stock, $0.10 par value, 83.8 and 83.9 shares outstanding at June 30, 2024, and December 31, 2023, respectively | 7.7 | 7.7 | |||||||||
| Additional paid-in capital | 12.5 | 38.4 | |||||||||
| Retained earnings | 8,177.6 | 7,888.2 | |||||||||
| Accumulated other comprehensive loss | (192.0) | (59.3) | |||||||||
| Total shareholders’ equity | 8,005.8 | 7,875.0 | |||||||||
| Total liabilities and shareholders’ equity | $ | 16,712.3 | $ | 16,725.1 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
LABCORP HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | $ | 3,220.9 | $ | 3,033.7 | $ | 6,397.5 | $ | 6,071.5 | |||||||||||||||
| Cost of revenues | 2,294.5 | 2,191.5 | 4,573.8 | 4,379.2 | |||||||||||||||||||
| Gross profit | 926.4 | 842.2 | 1,823.7 | 1,692.3 | |||||||||||||||||||
| Selling, general and administrative expenses | 557.8 | 505.8 | 1,066.2 | 963.0 | |||||||||||||||||||
| Amortization of intangibles and other assets | 62.2 | 51.5 | 122.3 | 104.9 | |||||||||||||||||||
| Goodwill and other asset impairments | — | 2.8 | 2.5 | 5.0 | |||||||||||||||||||
| Restructuring and other charges | 11.6 | 15.8 | 16.6 | 23.3 | |||||||||||||||||||
| Operating income | 294.8 | 266.3 | 616.1 | 596.1 | |||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense | (47.6) | (49.8) | (94.5) | (100.5) | |||||||||||||||||||
| Investment income | 1.3 | 4.5 | 4.2 | 6.7 | |||||||||||||||||||
| Equity method income (expense), net | (0.3) | 0.9 | (0.2) | (1.2) | |||||||||||||||||||
| Other, net | 19.5 | (16.9) | 39.5 | (23.8) | |||||||||||||||||||
| Earnings from continuing operations before income taxes | 267.7 | 205.0 | 565.1 | 477.3 | |||||||||||||||||||
| Provision for income taxes | 62.1 | 49.8 | 131.2 | 113.7 | |||||||||||||||||||
| Earnings from continuing operations | 205.6 | 155.2 | 433.9 | 363.6 | |||||||||||||||||||
| Earnings from discontinued operations, net of tax | — | 33.9 | — | 38.8 | |||||||||||||||||||
| Net earnings | 205.6 | 189.1 | 433.9 | 402.4 | |||||||||||||||||||
| Less: Net earnings attributable to the noncontrolling interest | (0.3) | (0.2) | (0.6) | (0.6) | |||||||||||||||||||
| Net earnings attributable to Labcorp Holdings Inc. | $ | 205.3 | $ | 188.9 | $ | 433.3 | $ | 401.8 | |||||||||||||||
| Basic earnings per share: | |||||||||||||||||||||||
| Basic earnings per share continuing operations | $ | 2.44 | $ | 1.75 | $ | 5.15 | $ | 4.10 | |||||||||||||||
| Basic earnings per share discontinued operations | $ | — | $ | 0.38 | $ | — | $ | 0.43 | |||||||||||||||
| Basic earnings per share | $ | 2.44 | $ | 2.13 | $ | 5.15 | $ | 4.53 | |||||||||||||||
| Diluted earnings per share: | |||||||||||||||||||||||
| Diluted earnings per share continuing operations | $ | 2.43 | $ | 1.74 | $ | 5.13 | $ | 4.08 | |||||||||||||||
| Diluted earnings per share discontinued operations | $ | — | $ | 0.38 | $ | — | $ | 0.43 | |||||||||||||||
| Diluted earnings per share | $ | 2.43 | $ | 2.12 | $ | 5.13 | $ | 4 |
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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, the development and commercialization of laboratory-developed tests (LDTs), and the delivery of clinical laboratory test results, including, but not limited to, the U.S. Clinical Laboratory Improvement Act of 1967, the U.S. Clinical Laboratory Improvement Amendments of 1988, the European Union In Vitro Diagnostics Regulation, 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 development, validation, approval, clearance, commercialization, or 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, including LDTs, 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 in the European Union, and similar regulations and policies of agencies in other jurisdictions in which the Company conducts business;
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 applicable 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 business from managed care organizations (MCOs) 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 invest in or effectively develop and deploy new systems, system modifications or enhancements required in response to evolving market, business, and customer trends and 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 and other 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, retain, and develop 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 beyond the Company’s control;
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;
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; geopolitical crises, including terrorism and war; public health crises and disease epidemics and pandemics, including, but not limited to the continued impact of COVID-19; and other events beyond 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, 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 incidents such as denial of service attacks, malware, ransomware, and computer viruses, delays or failures in the development and implementation of the Company’s automation platforms, or adverse effects from the use of or regulation of artificial intelligence and machine learning tools, any of which could result in a negative effect on the Company’s performance of services, a loss of business or increased costs, delays in cash collections, 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 (FCPA), 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, benefits, 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.changing global economic conditions and government and regulatory changes;
45.risks associated with the impacts and expected benefits and costs of the 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.risks and uncertainties as to the expected benefits of the Reorganization, including, but not limited to the effect of the Reorganization on the Company's business generally, and unexpected issues that may arise as a result of the Reorganization.
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.
Separation of Fortrea Holdings Inc.
On June 30, 2023, Labcorp completed the previously announced separation of Fortrea from the Company.
All historical operating results of Fortrea are presented as Discontinued Operations, net of tax, in the Condensed Consolidated Statements 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 have been renamed the Biopharma Laboratory Services segment.
GENERAL (dollars in millions, except per share data)
Revenues for the six months ended June 30, 2024, were $6,397.5, an increase of 5.4% from $6,071.5 during the six months ended June 30, 2023. The increase was due to organic revenue of 3.0%, acquisitions, net of divestitures, of 2.1%, and favorable foreign currency translation of 0.2%. The 3.0% increase in organic revenue was driven by a 4.3% increase in the company's organic Base Business, partially offset by a 1.3% decrease in COVID-19 PCR testing (COVID-19 Testing). Compared to the Base Business last year, Base Business revenue grew 6.8%. 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.
RESULTS OF OPERATIONS (dollars in millions)
Three months ended June 30, 2024, compared with three months ended June 30, 2023
Revenues
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Dx | $ | 2,524.9 | $ | 2,340.8 | 7.9 | % | |||||||||||
| BLS | 707.0 | 699.0 | 1.1 | % | |||||||||||||
| Intercompany eliminations and other | (11.0) | (6.1) | 80.3 | % | |||||||||||||
| Total | $ | 3,220.9 | $ | 3,033.7 | 6.2 | % | |||||||||||
Total revenues for the three months ended June 30, 2024, were $3,220.9, an increase of 6.2% over $3,033.7 in the second quarter of 2023. The increase was due to organic revenue of 3.8%, acquisitions, net of divestitures, of 2.5%, partially offset by unfavorable foreign currency translation of 0.1%. The 3.8% increase in organic revenue was driven by a 4.5% increase in the company's organic Base Business, partially offset by a 0.7% decrease in COVID-19 Testing. Compared to Base Business last year, Base Business revenue grew 6.9%. Base Business includes Labcorp's operations except for COVID-19 Testing.
Dx revenues for the three months ended June 30, 2024, were $2,524.9, an increase of 7.9% over $2,340.8 in the second quarter of 2023. The increase was due to organic revenue of 4.7% and acquisitions, net of divestitures, of 3.2%, partially offset by unfavorable foreign currency translation of 0.1%. The 4.7% increase in organic growth was due to a 5.6% increase in the Base Business, partially offset by a 0.9% decrease in COVID-19 Testing. Total Base Business growth compared to the Base Business in the prior year was 8.9%.
Dx organic volume increased by 2.9% for the three months ended June 30, 2024, while total volume (measured by requisitions) increased by 5.7% as acquisition volume, net of divestitures, contributed 2.8%. Organic volume was up due to a 3.4% increase in the Base Business, partially offset by a 0.5% decrease in COVID-19 Testing. Price/mix increased by 2.1% due to organic Base Business growth of 2.2% and acquisitions of 0.4%, partially offset by a decrease in COVID-19 Testing of 0.4%. Base Business volume increased 6.3% compared to the Base Business last year. Price/mix was up 2.5% in the Base Business compared to the Base Business last year.
BLS revenues for the three months ended June 30, 2024, were $707.0, an increase of 1.1% over $699.0 in the second quarter of 2023. The increase was due to organic growth of 1.2%, partially offset by unfavorable foreign currency translation of 0.1%.
Cost of Revenues
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Cost of revenues | $ | 2,294.5 | $ | 2,191.5 | 4.7 | % | |||||||||||
| Cost of revenues as a % of revenues | 71.2 | % | 72.2 | % |
Cost of revenues increased 4.7% during the three months ended June 30, 2024, as compared with the corresponding period in 2023. Cost of revenues as a percentage of revenues during the three months ended June 30, 2024, decreased to 71.2% as compared to 72.2% in the corresponding period in 2023. This decrease in cost of revenues as a percent of revenues was primarily due to demand, LaunchPad savings, and CDCS costs in 2023 that do not qualify as discontinued operations, partially offset by higher personnel costs.
Selling, General and Administrative Expenses
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Selling, general and administrative expenses | $ | 557.8 | $ | 505.8 | 10.3 | % | |||||||||||
| Selling, general and administrative expenses as a % of revenues | 17.3 | % | 16.7 | % |
Selling, general and administrative expenses as a percentage of revenues was 17.3% and 16.7% during the three months ended June 30, 2024, and 2023, respectively. The increase is primarily due to higher personnel costs partially offset by LaunchPad savings and demand.
Amortization of Intangibles and Other Assets
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Amortization of intangibles and other assets | $ | 62.2 | $ | 51.5 | 20.8 | % |
The increase in amortization of intangibles and other assets primarily reflects additional amortization for assets acquired subsequent to June 30, 2023.
Goodwill and Other Asset Impairments
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Goodwill and other asset impairments | $ | — | $ | 2.8 | (100.0) | % |
The Company recorded no impairment charges during the three months ended June 30, 2024. The Company recorded impairment charges of $2.8 in intangible assets during the three months ended June 30, 2023.
Restructuring and Other Charges
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Restructuring and other charges | $ | 11.6 | $ | 15.8 | (26.3) | % |
During the three months ended June 30, 2024, the Company recorded net restructuring and other charges of $11.6. The charges were comprised of $9.2 related to severance and other personnel cost and $2.7 in facility-related costs. The charges were adjusted by the reversal of a previously established liability of $0.3 in unused facility-related costs.
During the three months ended June 30, 2023, the Company recorded net restructuring and other charges of $15.8. The charges were comprised of $5.2 related to severance and other personnel costs and $8.9 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of a previously established liability of $0.6 in unused severance liabilities and the increase of a previously established liability of $2.3 in facility-related costs.
Interest Expense
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Interest expense | $ | (47.6) | $ | (49.8) | (4.4) | % |
The decrease in interest expense for the three months ended June 30, 2024, as compared with the corresponding period in 2023, is primarily due to the repayment of the November 2023 $300.0 senior notes.
Equity Method Income
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Equity method income (expense), net | $ | (0.3) | $ | 0.9 | (133.0) | % |
Equity method income (expense) 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 June 30, 2024, as compared with the corresponding period in 2023, was partially due to the sale of the Company's interest in one joint venture and the acquisition of the remaining interest in another joint venture during 2023.
Other, net
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Other, net | $ | 19.5 | $ | (16.9) | 215.0 | % |
The change in Other, net for the three months ended June 30, 2024, as compared to the three months ended June 30, 2023, is primarily due to $22.9 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 losses of $1.5 for the three months ended June 30, 2024 compared to investment losses of $4.1 for the corresponding period of 2023. Foreign currency transaction losses of $1.9 were recognized for the three months ended June 30, 2024, as compared to losses of $11.2 for the corresponding period of 2023.
Income Tax Expense
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Income tax expense | $ | 62.1 | $ | 49.8 | 24.7 | % | |||||||||||
| Income tax expense as a % of earnings before income taxes | 23.2 | % | 24.3 | % |
The current year and prior 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 were partially offset by research and development tax credits and favorable foreign rate differentials.
Operating Income by Segment
As a result of the spin-off of Fortrea, 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.
| Three Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Dx segment operating income | $ | 441.5 | $ | 409.7 | 7.8 | % | |||||||||||
| Dx segment operating margin | 17.5 | % | 17.5 | % | — | % | |||||||||||
| BLS segment operating income | 107.4 | 104.6 | 2.7 | % | |||||||||||||
| BLS segment operating margin | 15.2 | % | 15.0 | % | 0.2 | % | |||||||||||
| Segment operating income | 548.9 | 514.3 | 6.7 | % | |||||||||||||
| General corporate and unallocated expenses | (180.3) | (177.9) | 1.3 | % | |||||||||||||
| Amortization of intangibles and other assets | (62.2) | (51.5) | 20.8 | % | |||||||||||||
| Goodwill and other asset impairments | — | (2.8) | (100.0) | % | |||||||||||||
| Restructuring and other charges | (11.6) | (15.8) | (26.3) | % | |||||||||||||
| Total operating income | $ | 294.8 | $ | 266.3 | 10.7 | % |
Dx operating income was $441.5 for the three months ended June 30, 2024, an increase of $31.8 over operating income of $409.7 in the corresponding period of 2023. The increase in adjusted operating income was driven by organic demand, acquisitions, and LaunchPad savings, partially offset by higher personnel costs.
BLS operating income was $107.4 for the three months ended June 30, 2024, an increase of $2.8 over operating income of $104.6 in the corresponding period of 2023. The increase was due to organic growth and LaunchPad savings, partially offset by higher personnel costs.
General corporate and unallocated expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology. General corporate and unallocated
expenses were $180.3 for the three months ended June 30, 2024, an increase of $2.4 over corporate expenses of $177.9 in the corresponding period of 2023, primarily due to costs related to the spin-off of Fortrea and personnel costs.
The Company remains on track to deliver approximately $100.0 to $125.0 of Launchpad savings in fiscal 2024.
Six Months Ended June 30, 2024, compared with six months ended June 30, 2023
Revenues
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Dx | $ | 5,004.6 | $ | 4,723.6 | 5.9 | % | |||||||||||
| BLS | $ | 1,417.9 | $ | 1,360.3 | 4.2 | % | |||||||||||
| Intercompany eliminations and other | (25.0) | (12.4) | 101.6 | % | |||||||||||||
| Total | $ | 6,397.5 | $ | 6,071.5 | 5.4 | % | |||||||||||
The increase in revenues for the six months ended June 30, 2024, as compared with the corresponding period in 2023 was 5.4%. The increase was due to organic revenue of 3.0%, acquisitions, net of divestitures, of 2.1%, and favorable foreign currency translation of 0.2%. The 3.0% increase in organic revenue was driven by a 4.3% increase in the company's organic Base Business, partially offset by a 1.3% decrease in COVID-19 Testing. Compared to the Base Business last year, Base Business revenue grew 6.8%.
Dx revenues for the six months ended June 30, 2024, were $5,004.6, an increase of 5.9% over $4,723.6 during the six months ended June 30, 2023. The increase was due to organic revenue of 3.3% and acquisitions, net of divestitures, of 2.7%. The 3.3% increase in organic growth was due to a 4.9% increase in the Base Business, partially offset by a 1.7% decrease in COVID-19 Testing. Total Base Business growth compared to the Base Business in the prior year was 7.8%.
Dx total volume (measured by requisitions) for the six months ended June 30, 2024, increased by 4.6% as acquisition volume, net of divestitures, contributed 2.5%, while organic volume increased by 2.1%. Organic volume was up due to a 3.0% increase in the Base Business, partially offset by a 1.0% decrease in COVID-19 Testing. Price/mix increased by 1.4% due to organic Base Business growth of 1.9% and acquisitions, net of divestitures of 0.2%, partially offset by a decrease in COVID-19 Testing of 0.7%. Base Business volume increased 5.6% compared to the Base Business last year. Price/mix was up 2.2% in the Base Business compared to the Base Business last year.
BLS revenues for the six months ended June 30, 2024, were $1,417.9, an increase of 4.2% over $1,360.3 during the six months ended June 30, 2023. The increase was due to organic growth of 3.1% and favorable foreign currency translation of 1.1%.
Cost of Revenues
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Cost of revenues | $ | 4,573.8 | $ | 4,379.2 | 4.4 | % | |||||||||||
| Cost of revenues as a % of revenues | 71.5 | % | 72.1 | % |
Cost of revenues increased 4.4% during the six months ended June 30, 2024, as compared with the corresponding period in 2023. Cost of revenues as a percentage of revenues during the six months ended June 30, 2024, decreased to 71.5% as compared to 72.1% in the corresponding period in 2023. This decrease in cost of revenues as a percent of revenues was primarily due to LaunchPad saving, demand, and CDCS costs in 2023 that do not qualify as discontinued operations, largely offset by higher personnel costs and lower COVID-19 Testing.
Selling, General and Administrative Expenses
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Selling, general and administrative expenses | $ | 1,066.2 | $ | 963.0 | 10.7 | % | |||||||||||
| Selling, general and administrative expenses as a % of revenues | 16.7 | % | 15.9 | % |
Selling, general and administrative expenses as a percentage of revenues were 16.7% and 15.9% during the six months ended June 30, 2024, and 2023, respectively. The increase is primarily due to higher personnel costs and a reduction in COVID-19 Testing revenues, partially offset by LaunchPad savings and demand.
Amortization of Intangibles and Other Assets
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Amortization of intangibles and other assets | $ | 122.3 | $ | 104.9 | 16.6 | % |
The increase in amortization of intangibles and other assets primarily reflects additional amortization for assets acquired subsequent to June 30, 2023.
Goodwill and Other Asset Impairments
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Goodwill and other asset impairments | $ | 2.5 | $ | 5.0 | (50.9) | % |
The Company recorded impairment charges of $2.5 related to a decommissioned robotic asset during the six months ended June 30, 2024. The Company recorded impairment charges of $5.0 in capitalized software costs and other intangible assets six months ended June 30, 2023.
Restructuring and Other Charges
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Restructuring and other charges | $ | 16.6 | $ | 23.3 | (28.6)% |
During the six months ended June 30, 2024, the Company recorded net restructuring and other charges of $16.6. The charges were comprised of $15.1 related to severance and other personnel costs and $1.8 in facility-related costs. The charges were adjusted by the reversal of a previously established liability of $0.3 in unused facility-related costs.
During the six months ended June 30, 2023, the Company recorded net restructuring and other charges of $23.3. The charges were comprised of $9.2 related to severance and other personnel costs and $13.2 in facility closures, lease terminations, and general integration activities. The charges were adjusted by the reversal of a previously established liability of $1.1 in unused severance liabilities and the increase of a previously established liability of $2.0 in facility-related costs.
Interest Expense
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Interest expense | $ | (94.5) | $ | (100.5) | (6.0) | % |
The decrease in interest expense for the six months ended June 30, 2024, as compared with the corresponding period in 2023, is primarily due to decreased borrowings under the Company's revolving credit facility, repayment of the November 2023 $300.0 senior notes, and partially offset by a higher interest rate on variable rate debt.
Equity Method Income
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Equity method expense, net | $ | (0.2) | $ | (1.2) | (79.9) | % |
Equity method expense represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry.
Other, net
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Other, net | $ | 39.5 | $ | (23.8) | 265.7 | % |
The change in Other, net for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, is primarily due to $45.3 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 losses of $5.7 for the six months ended June 30, 2024 compared to investment losses of $5.6 for the corresponding period of 2023. Foreign currency transaction losses of $5.2 were recognized for the six months ended June 30, 2024, as compared to losses of $18.0 for the corresponding period of 2023. The Company also recorded a $4.9 gain on the sale of the assets of its Beacon Laboratory Benefit Solutions, Inc. business in 2024.
Income Tax Expense
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Income tax expense | $ | 131.2 | $ | 113.7 | 15.4 | % | |||||||||||
| Income tax expense as a % of earnings before income taxes | 23.2 | % | 23.8 | % |
The current year and prior 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 were partially offset by research and development tax credits 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.
| Six Months Ended June 30, | |||||||||||||||||
| 2024 | 2023 | Change | |||||||||||||||
| Dx segment operating income | $ | 859.4 | $ | 851.2 | 0.9 | % | |||||||||||
| Dx segment operating margin | 17.2 | % | 18.0 | % | (0.8) | % | |||||||||||
| BLS segment operating income | 207.3 | 178.2 | 16.3 | % | |||||||||||||
| BLS segment operating margin | 14.6 | % | 13.1 | % | 1.5 | % | |||||||||||
| Segment operating income | 1,066.7 | 1,029.4 | 3.6 | % | |||||||||||||
| General corporate and unallocated expenses | (309.2) | (300.1) | 3.0 | % | |||||||||||||
| Amortization of intangibles and other assets | (122.3) | (104.9) | 16.6 | % | |||||||||||||
| Goodwill and other asset impairments | (2.5) | (5.0) | (50.9) | % | |||||||||||||
| Restructuring and other charges | (16.6) | (23.3) | (28.6) | % | |||||||||||||
| Total operating income | $ | 616.1 | $ | 596.1 | 3.3 | % | |||||||||||
Dx operating income was $859.4 for the six months ended June 30, 2024, an increase of $8.2 over operating income of $851.2 in the corresponding period of 2023, and Dx operating margin decreased 80 basis points year-over-year. The decrease was due to a reduction in COVID-19 Testing and higher personnel costs, partially offset by a recovery in the Base Business.
BLS operating income was $207.3 for the six months ended June 30, 2024, an increase of $29.1 over operating income of $178.2 in the corresponding period of 2023. The increase was due to organic growth and LaunchPad savings, partially offset by higher personnel expense.
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 $309.2 for the six months ended June 30, 2024, a increase of $9.1 over corporate expenses of $300.1 in the corresponding period of 2023, primarily due to costs related to the spin-off of Fortrea, and personnel costs.
The Company remains on track to deliver approximately $100.0 to $125.0 of Launchpad savings in fiscal 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 six months ended June 30, 2024, and 2023, respectively:
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Net cash provided by operating activities from continuing operations | $ | 531.3 | $ | 347.2 | |||||||
| Net cash used for investing activities from continuing operations | (578.1) | (328.6) | |||||||||
| Net cash used for financing activities from continuing operations | (221.7) | (124.7) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (3.2) | 6.3 | |||||||||
| Net decrease in cash and cash equivalents from continuing operations | $ | (271.7) | $ | (99.8) |
Cash and Cash Equivalents
Cash and cash equivalents at June 30, 2024, and 2023, totaled $265.1 and $1,930.6, 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 six months ended June 30, 2024, the Company's continuing operations used $531.3 of cash as compared to providing $347.2 during the same period in 2023. The $184.1 increase in cash provided from operations in 2024 as compared with the corresponding 2023 period is primarily due to higher cash earnings.
Cash Flows from Investing Activities
Net cash used for investing activities from continuing operations for the six months ended June 30, 2024, was $578.1 as compared to $328.6 for the six months ended June 30, 2023. The change in cash used for investing activities was primarily due to an increase in business acquisitions and higher capital expenditures during the six months ended June 30, 2024. Capital expenditures were $262.0 and $181.5 for the six months ended June 30, 2024, and 2023, respectively.
On March 28, 2024, the Company announced that it entered into an agreement to acquire selected assets of BioReference Health, a wholly owned subsidiary of OPKO Health for $237.5. The transactions is anticipated to close in the third quarter of 2024, subject to customary closing conditions for a transaction of this type, including applicable regulatory approvals. Through this transaction Labcorp will acquire laboratory testing businesses focused on clinical diagnostics and reproductive and women's health across the United States, outside of New York and New Jersey.
On April 24, 2024, the Company announced that it has been selected as the winning bidder for select assets of Invitae, a leading medical genetics company. On May 6, 2024, the United States Bankruptcy Court approved the previously announced bid by Labcorp to acquire the assets of Invitae. The purchase price for the transaction is $239.0. The transaction is anticipated to close on August 5, 2024, subject to customary closing conditions for a transaction of this type, including applicable regulatory approvals. Through this transaction, the Company would acquire assets being auctioned through a voluntary bankruptcy protection process.
Cash Flows from Financing Activities
Net cash used by financing activities from continuing operations for the six months ended June 30, 2024, was $221.7 as compared to $124.7 for the six months ended June 30, 2023. The change in cash flows from financing activities from continuing operations for the six months ended June 30, 2024, as compared to the six months ended June 30, 2023, was primarily due to share repurchases of $100.0 in 2024.
At June 30, 2024, the Company had $265.1 of cash and $980.0 of available borrowings under its revolving credit facility, which does not mature until 2026. Under the Company's revolving credit facility and indentures relating to the Company's senior notes, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers , and with respect to the revolving credit facility, the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the revolving credit facility and the indentures related to the Company's outstanding senior notes at June 30, 2024. The Company expects that it will remain in compliance with all covenants associated with its existing debt obligations for the next twelve months.
The Company continues to evaluate its outstanding debt portfolio to take advantage of market conditions that would allow the Company to maintain a reasonable interest rate and lower financing risk. The Company anticipates that it will refinance the $2,000.0 in debt coming due during the next 12 months.
As of June 30, 2024, the Company had outstanding authorization from the board of directors to purchase up to $430.4 of the Company's common stock. On July 24, 2024, the Board adopted a new share repurchase plan authorizing up to $1,000.0 of the Company's shares in addition to the remaining amount outstanding under the previous plan. In aggregate, the share repurchase authorization is $1,430.4.
For the six months ended June 30, 2024, the Company paid $122.5 in common stock dividends. On July 25, 2024, the Company announced a cash dividend of $0.72 per share of common stock for the second quarter, or approximately $61.2 in the aggregate. The dividend will be payable on September 13, 2024, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on August 29, 2024. The declaration and payment of any future dividends will be at the discretion of the Company’s board of directors.
Guarantor Information
In connection with the Reorganization, the Company, LCAH and U.S. Bank Trust Company, National Association (the Trustee) entered a seventeenth supplemental indenture (the Seventeenth Supplemental Indenture) to the indenture, dated as of November 19, 2010 between LCAH and the Trustee (the Indenture), in order to (i) provide for the full and unconditional guarantee by the Company of LCAH’s obligations under the Indenture and each series of senior unsecured notes issued and outstanding thereunder (the Labcorp Holdings Guarantee), (ii) permit the Company to satisfy LCAH’s reporting obligations under the Indenture for so long as the Labcorp Holdings Guarantee remains in place and the Company’s financial statements and other information comply with the requirements of Rule 3-10 of Regulation S-X and the Exchange Act (Regulation S-X) and (iii) make certain other changes to the Indenture consistent with the foregoing.
As of June 30, 2024, there was $5,070.3 aggregate principal amount of issued and outstanding senior notes of LCAH that are fully and unconditionally guaranteed by the Company. Accordingly, pursuant to Rule 3-10 of Regulation S-X, separate consolidated financial statements of LCAH have not been presented. As permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for LCAH because the assets, liabilities and results of operations of LCAH are not materially different than the corresponding amounts in the Company’s consolidated financial statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk (dollars in millions)
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 13.7% of the Company’s revenues for the six months ended June 30, 2024, and approximately 13.6% of the Company’s revenue for the six months ended June 30, 2023, 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 second quarter of 2024 and the year ended December 31, 2023, 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 six months ended June 30, 2024, by approximately $13.5. Gross accumulated currency translation adjustments recorded as a separate component of shareholders’ equity were $(7.2) and $51.7 for the quarter ended June 30, 2024 and 2023, 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 June 30, 2024, the Company had 10 open foreign exchange forward contracts with various amounts maturing monthly through July 2024 with a notional value totaling approximately $361.0. At December 31, 2023, the Company had 9 open foreign exchange forward contracts with various amounts maturing monthly through January 2024 with a notional value totaling approximately $305.8.
The Company is party to USD to Swiss Franc cross-currency swap agreements with an aggregate notional amount of $600.0, $300.0 maturing in 2031 and $300.0 maturing in 2034, 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 SOFR plus 1.0706%.
Item 4. Controls and Procedures
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 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 June 30, 2024.
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 June 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
LABCORP HOLDINGS INC. AND SUBSIDIARIES
PART I - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 9 (Commitments and Contingencies) to the Company’s condensed consolidated financial statements, above, which is incorporated herein by reference.
Item 1A. Risk Factors
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, 2023. 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, 2023.
U.S. Food and Drug Administration (FDA) regulation of diagnostic products, increased FDA regulation of laboratory-developed tests (LDTs), and regulation by other countries of diagnostic tests and related products could result in increased costs and the imposition of fines or penalties, and could have a material adverse effect upon the Company’s business.
The FDA has regulatory responsibility for instruments, test kits, reagents and other devices used by clinical laboratories. The FDA enforces laws and regulations that govern the development, testing, manufacturing, performance, labeling, advertising, marketing, distribution, and surveillance of diagnostic products, and it regularly inspects and reviews the manufacturing processes and product performance of diagnostic products. Dx’s point-of-care testing devices are subject to regulation by the FDA.
LDTs developed by high complexity clinical laboratories are currently generally offered as services to health care providers under the CLIA regulatory framework administered by CMS, without the requirement for FDA clearance or approval. However, since the 1990s, the FDA has asserted that it has authority to regulate LDTs as medical devices but has exercised enforcement discretion to refrain from systematic regulation of LDTs. In 2014, the FDA issued draft guidance describing how it intended to discontinue its enforcement discretion policy and begin regulating LDTs as medical devices; however, that draft guidance was not finalized, and the FDA instead continued its enforcement discretion policy and indicated that it intended to work with Congress to enact comprehensive legislative reform of diagnostics oversight. In February 2020, the FDA issued a statement with a table of pharmacogenetic associations setting forth certain gene-drug interactions that the agency determined are supported by the scientific literature to help ensure that claims being made for pharmacogenetic tests are grounded in sound science, thereby reducing the risk of enforcement actions with respect to LDTs offering claims consistent with the table. The FDA noted that it could take enforcement actions under the current medical device framework regarding diagnostic claims the agency determines not to be sufficiently supported. In addition, in 2021, the Verifying Accurate, Leading-edge, IVCT Development (VALID) Act was introduced in Congress and provided a framework to regulate in vitro diagnostics and LDTs as in vitro clinical tests. In 2022, the VALID Act was incorporated into the Senate user fee bill but was not included in the year-end Consolidated Appropriations Act of 2022. On March 29, 2023, the VALID Act was reintroduced and remains pending. On April 29, 2024, the FDA released a final rule purporting to clarify its authority to regulate LDTs as medical devices under the federal Food, Drug, and Cosmetic Act, under which it will phase out its general enforcement discretion approach for LDTs under a four-year period subject to certain continuing enforcement discretion policies. More specifically, among other policies, the final rule provides that the FDA will continue to exercise discretion not to enforce premarket review and most FDA quality system requirements for unmodified LDTs first marketed prior to issuance of the final rule; will continue to exercise discretion not to enforce premarket review requirements for LDTs approved by the State of New York; and will continue to exercise discretion not to enforce premarket review and most FDA quality system requirements for LDTs developed and performed by a laboratory integrated into a health system for unmet needs for patients under the care of the same health system, where no FDA cleared or approved test is available. The final rule was published on May 6, 2024, and in the absence of a successful legal challenge, will become effective on May 6, 2025. On May 29, 2024, the American Clinical Laboratory Association (ACLA) and its member company, HealthTrackRx, filed a lawsuit against the FDA in the United States District Court for the Eastern District of Texas, challenging the FDA's final rule. While the lawsuit may change the final rule or delay or prevent its enforcement, the issuance of the final rule presents an increased risk of FDA enforcement actions for laboratory tests offered by companies without FDA clearance or approval that do not fall within the ongoing enforcement discretion policies. However, the outcome and its ultimate impact on the Company’s business remain difficult to predict at this time.
Current FDA regulation of the Company’s diagnostic products and the potential for future increased regulation of the Company’s LDTs could result in increased costs and administrative and legal actions for noncompliance, including warning letters, fines, penalties, product suspensions, product recalls, injunctions, and other civil and criminal sanctions, and could impair the development and commercialization of new tests, which could have a material adverse effect upon the Company.
Regulation of diagnostics products in jurisdictions outside the U.S. in which the Company operates may impact laboratory testing offered by the Company in both Dx and BLS. For example, the European Union In Vitro Diagnostics Regulation (Regulation (EU) 2017/746 (EU IVDR)) established a new legislative framework for in vitro diagnostic devices that are used in certain circumstances, and includes a rule-based classification and quality and safety standards. The EU IVDR, where applicable to BLS's services, could impact BLS's ability to support trials, result in increased costs and administrative and legal actions, and have an adverse effect.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (dollars and shares in millions, except per share data)
During the three months ended June 30, 2024, the Company repurchased the following shares of its common stock:
| Total Number of Shares Repurchased | Average Price Paid Per Share | Total Number of Shares Repurchased as Part of Publicly Announced Program | Maximum Dollar Value of Shares that May Yet Be Repurchased Under the Program | ||||||||||||||||||||
| April 1 - April 30 | — | — | — | 530.4 | |||||||||||||||||||
| May 1 - May 31 | 0.5 | 202.66 | 0.5 | 430.4 | |||||||||||||||||||
| June 1 - June 30 | — | — | — | 430.4 | |||||||||||||||||||
| 0.5 | $ | 202.66 | 0.5 | $ | 430.4 |
As of June 30, 2024, the Company had outstanding authorization from the board of directors to purchase up to $430.4 of the Company's common stock. The repurchase authorization has no expiration date. On July 24, 2024, the Board adopted a new share repurchase plan authorizing up to $1,000.0 of the Company's shares in addition to the remaining amount outstanding under the previous plan. In aggregate, the share repurchase authorization is $1,430.4.
Item 5. Other Information
Insider Adoption or Termination of Trading Arrangements:
During the fiscal quarter ended June 30, 2024, none of the Company's directors or officers informed it of the adoption, modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, except as described in the table below:
| Name and Title | Date Adopted | Character of Trading Agreement | Aggregate Number of Shares of Common Stock to be (Sold) Purchased Pursuant to Trading Agreement | Duration | ||||||||||||||||||||||||||||
| Kerrii B. Anderson | May 3, 2024 | Rule 10b5-1 Trading Arrangement | Up to | (3,000) | (1) | 5/3/2025(2) | ||||||||||||||||||||||||||
| Director |
(1) The figure presented represents the shares to be sold on the vesting of equity awards before reduction for shares to be withheld for tax purposes
(2) This trading arrangement permits transactions through and including the earlier to occur of (a) the completion of all sales on the respective order entry date or (b) the date listed in the table.
Item 6. Exhibits
| * | filed herewith | |||||||
| ** | furnished herewith | |||||||
| + | Management contracts or compensatory plans or arrangements |
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.
LABCORP HOLDINGS INC.
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 |
August 2, 2024