Laboratory Corporation of America Holdings (LH) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Q2 Financial Performance: Labcorp reported a revenue of $3.2 billion, with adjusted earnings per share (EPS) of $3.94 and free cash flow from continuing operations of $433 million. Enterprise revenue increased by 6% compared to Q2 2023.
• Growth in Diagnostics and Central Laboratories: Diagnostics revenue was up by 8%, driven by organic growth and acquisitions. Central Laboratories saw a 9% growth, contributing to the overall positive performance.
• Strategic Acquisitions and Collaborations: Labcorp announced the acquisition of select assets of Invitae and entered into a strategic collaboration with Naples Comprehensive Healthcare, enhancing its service offerings and market position.
• Launch of New Tests and Services: The company launched several new tests, including a first trimester screening test for preeclampsia risk and expanded its precision oncology portfolio, showcasing its commitment to innovation.
• Strong Business Development Pipeline: Labcorp highlighted a strong pipeline for business development, indicating potential future growth opportunities.

Pessimistic Highlights

• Decline in Early Development: The early development segment experienced a 15% decline, although there is an expectation of recovery towards the end of the year.
• Cyber Event Impact: A cyber event affecting a large partner had a negative impact on Diagnostics margins, which remained flat due to this incident.

Company Outlook

• 2024 Guidance Update: Labcorp updated its 2024 outlook, reflecting the anticipated close of the Invitae acquisition. The company expects enterprise revenue growth of 6.4% to 7.5% compared to 2023, with diagnostics revenue expected to be up by 6.9% to 7.9%.
• Strategic Focus on Growth Areas: The company is focused on expanding its testing solutions in key areas such as oncology and rare diseases, expecting these markets to grow significantly faster.
• Integration and Synergies from Acquisitions: Labcorp is confident in the integration of Invitae and other acquisitions, aiming for cost reductions and leveraging the full scale of its platform for future growth.

Q & A Highlights

• Q: Can you give more color on new awards in early development and the Invitae accretion estimate for 2025? (Michael Cherny, Leerink Partners)

  A: Early development saw strong growth in orders and a reduction in cancellations, indicating a recovery. Invitae is expected to be accretive in 2025, closing faster than anticipated, which contributes to its financial outlook. (Adam Schechter)

• Q: How does the Invitae acquisition benefit from Labcorp's breadth and scale? (Andrew Brackmann, William Blair)

  A: The acquisition allows for a broader portfolio of products and the opportunity to bring additional tests to new customers, leveraging Labcorp's partnerships and sales organization. (Adam Schechter)

• Q: Can you discuss the potential rate increases for the $2 billion debt maturing over the next 12 months? (Andrew Brackmann, William Blair)

  A: The company plans to refinance all the debt, expecting to do so at a slightly higher rate but finding the markets attractive for refinancing. (Glenn Eisenberg)

• Q: What is the impact of the Ascension cyber event and the CrowdStrike issue in July? (Eric Coldwell, Baird)

  A: The cyber event had a 20 basis point headwind on diagnostics margins, approximately $5 million in operating income. The CrowdStrike and hurricane impacts are estimated to have a $0.05 per share impact on earnings. (Glenn Eisenberg)

• Q: How are you addressing the LDT rule and its impact on the business? (Lisa Gill, JPMorgan)

  A: Labcorp supports the VALID Act for laboratory diagnostics and is prepared to adhere to the LDT ruling, focusing on ensuring patient access to tests without significant impact on revenue or expenses. (Adam Schechter)

• Q: Can you comment on the M&A environment and what you're looking for in acquisitions? (Stephanie Davis, Barclays)

  A: The company focuses on strategic acquisitions like Invitae for long-term growth in specialty areas and continues to pursue hospital and regional laboratory deals for immediate accretion and strategic value. (Adam Schechter, Glenn Eisenberg)

• Q: What are the expectations for utilization trends and the rest of the year's outlook? (Patrick Donnelly, Citi)

  A: Labcorp expects continued strong volume growth and favorable mix, with diagnostics revenues implying organic growth in the second half around 5% and 4% aided by M&A. (Glenn Eisenberg)