What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-05-04 · 207 added, 115 removed, 150 unchanged (68% of the section changed)

66 unchanged sentences

global economic conditions and government and regulatory changes;

risks associated with the impact, timing, expected benefits and costs, or terms of the planned spin-off of the Company’s Clinical Development and Commercialization Services (CDCS) business, which includes the parts of its DD segment focused on providing Phase I-IV clinical trial management, market access, and technology solutions to pharmaceutical and biotechnology organizations, including but not limited to (i) uncertainties as to the completion and timing of the transaction;

(ii) the failure to obtain appropriate assurances regarding the tax-free nature of the spin-off;

(iii) the failure to obtain receipt of required regulatory approvals;

(iv) the effect of the announcement or pendency of the transaction on the Company’s business relationships, operating results, and business generally;

(v) unexpected issues that arise in the continued planning for the transaction;

(vi) the failure to have the Form 10 registration statement that will be filed with the SEC declared effective on a timely basis, or at all;

(vii) risks that the proposed transaction disrupts current plans and operations of Labcorp or CDCS;

(viii) potential difficulties attracting or retaining Company or CDCS employees as a result of the spin-off announcement, pendency or completion of the spin-off;

(ix) risks related to diverting management’s attention from the Company and CDCS’ ongoing business operations;

(x) the ability of the Company to successfully separate CDCS operations from the Company’s ongoing operations;

receptiveness to effect transactions in the capital markets;

and (xii) market reaction to the announcement and planning for the transaction;

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;

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.

2 unchanged sentences

GENERAL (dollars in millions, except per share data)

Revenues for the three months ended March 31, 2023, were $3,777.9, a decrease of 3.1% from $3,899.6 during the three months ended March 31, 2022.

The decrease was due to organic revenue of 3.6% and unfavorable foreign currency translation of 0.7%, partially offset by acquisitions, net of divestitures, of 1.2%.

The 3.6% decrease in organic revenue was driven by a 11.6% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 7.9% increase in the company's organic Base Business.

Revenues for the six months ended June 30, 2023, were $6,071.5, an increase of 0.1% from $6,067.5 during the six months ended June 30, 2022.

The increase was due to acquisitions, net of divestitures, of 1.6%, partially offset by lower organic revenue of 1.3% and unfavorable foreign currency translation of 0.2%.

The 1.3% decrease in organic revenue was driven by an 11.2% decrease in COVID-19 PCR and antibody testing (COVID-19 Testing), partially offset by a 9.9% increase in the company's organic Base Business.

Base Business includes Labcorp's operations except for COVID-19 Testing.

1 unchanged sentence

Acquisition and divestiture impact is considered for a twelve month period following the close of each transaction.

Spin-Off of the Company's CDCS Business

On July 28, 2022, the Company announced that the Board of Directors authorized the Company to pursue a spin-off of the Company’s wholly owned CDCS business to its shareholders through a tax-free transaction.

The planned spin-off will result in two independent companies, each poised for strong, sustainable growth.

On January 9, 2023, Thomas (Tom) Pike joined the Company as president and chief executive officer of its DD Clinical Development business unit, and when the planned spin-off is complete, Mr.

Pike will become the chief executive officer and chairman of the board of directors of the independent, publicly listed company.

On February 9, 2023, the Company announced that the name of the CDCS business will become Fortrea in connection with the planned spin-off.

The Company is targeting completion of the planned spin-off in mid-2023.

The planned spin-off will be subject to the satisfaction of certain customary conditions, including, among others, the receipt of final approval by the Company's Board, the receipt of appropriate assurances regarding the tax-free nature of the separation and effectiveness of any required filings with the U.S.

Securities and Exchange Commission (SEC).

There can be no assurances regarding the ultimate timing of the transaction or that the spin-off will be completed.

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

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

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

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

• a more targeted investment opportunity for different investor bases;

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

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

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

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

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

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

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

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

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

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

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

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

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

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).

As of June 30, 2023, the initial proceeds were held in escrow for release to Fortrea upon satisfaction of certain conditions, including completion of the Separation.

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

Three Months Ended March 31,

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

Three Months Ended June 30,

2023 2022 Change

Dx $ 2,340.8 $ 2,255.4 3.8 %

DD 1,401.3 1,459.3 (4.0) %

BLS 699.0 677.9 3.1 %

Intercompany eliminations and other (6.1) (10.3) 40.8 %

Total $ 3,033.7 $ 2,923.0 3.8 %

Total revenues for the three months ended March 31, 2023, were $3,777.9, a decrease of 3.1% over $3,899.6 in the first quarter of 2022.

The decrease was due to lower organic revenue of 3.6% and unfavorable foreign currency translation of 0.7%, partially offset by acquisitions net of divestitures of 1.2%.

The 3.6% decrease in organic revenue was driven by a 11.6% decrease in COVID-19 Testing, partially offset by a 7.9% increase in the Company's organic Base Business.

Dx revenues for the three months ended March 31, 2023, were $2,382.8, a decrease of 2.9% over $2,454.1 in the first quarter of 2022.

The decrease was due to organic revenue of 4.7% and unfavorable foreign currency translation of 0.3%, partially offset by acquisitions of 2.0%.

Total revenues for the three months ended June 30, 2023, were $3,033.7, an increase of 3.8% over $2,923.0 in the second quarter of 2022.

The increase was due to organic growth of 2.0%, acquisitions, net of divestitures, of 1.6% and favorable foreign currency translation of 0.2%.

The 2.0% increase in organic revenue was driven by a 9.8% increase in the Company's organic Base Business, partially offset by a 7.8% decrease in COVID-19 Testing.

Dx revenues for the three months ended June 30, 2023, were $2,340.8, an increase of 3.8% over $2,255.4 in the second quarter of 2022.

The increase was due to organic revenue of 1.8% and acquisitions of 2.2%, partially offset by unfavorable foreign currency translation of 0.2%.

The 1.8% increase in organic revenue was due to an 11.9% increase in the Base Business, partially offset by a 10.1% decrease in COVID-19 Testing.

Total Base Business growth compared to the Base Business in the

prior year was 15.7%.

The increase was due to the Ascension lab management agreement of approximately 7% as well as continued volume recovery compared to last year, which was negatively impacted by COVID-19.

Dx total volume (measured by requisitions) for the three months ended June 30, 2023, increased by 1.4% as acquisition volume contributed 2.5%, while organic volume decreased by 1.1%.

Organic volume was impacted by a 6.1% decrease in COVID-19 Testing, partially offset by a 5.1% increase in the Base Business.

Price/mix increased by 2.4% due to organic Base Business growth of 6.8%, partially offset by a decrease in COVID-19 Testing of 3.9%, lower acquisitions of 0.3%, and unfavorable foreign currency translation of 0.2%.

Base Business volume increased 8.1% compared to the Base Business last year.

Price/mix was up 7.5% 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 June 30, 2023, were $699.0, an increase of 3.1% over $677.9 in the second quarter of 2022.

The increase was primarily due to organic growth of 2.1% and favorable foreign currency translation of 1.5%, partially offset by divestitures of 0.4%.

The increase in organic revenue was negatively impacted by approximately 5.0% due to non-human primate (NHP) related constraints in its Early Development business.

Cost of Revenues

Three Months Ended June 30,

2023 2022 Change

Cost of revenues $ 2,191.5 $ 1,980.5 10.7 %

Cost of revenues as a % of revenues 72.2 % 67.8 %

Cost of revenues increased 10.7% during the three months ended June 30, 2023, as compared with the corresponding period in 2022.

Cost of revenues as a percentage of revenues during the three months ended June 30, 2023, increased to 72.2% as compared to 67.8% 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 and higher personnel costs, partially offset by a recovery in the organic Base Business.

Selling, General and Administrative Expenses

Three Months Ended June 30,

2023 2022 Change

Selling, general and administrative expenses $ 505.8 $ 432.4 17.0 %

Selling, general and administrative expenses as a % of revenues 16.7 % 14.8 %

Selling, general and administrative expenses as a percentage of revenues were 16.7% and 14.8% during the three months ended June 30, 2023, and 2022, respectively.

The increase is primarily due to a reduction in COVID-19 Testing revenues and spin-off transaction costs, partially offset by the impact of the Ascension lab management agreement.

Amortization of Intangibles and Other Assets

Three Months Ended June 30,

2023 2022 Change

Amortization of intangibles and other assets $ 51.5 $ 49.8 3.4 %

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

Goodwill and Other Asset Impairments

Three Months Ended June 30,

2023 2022 Change

Goodwill and other asset impairments $ 2.8 $ — 100.0 %

The Company recorded impairment charges of $2.8 in intangible assets during the three months ended June 30, 2023.

The Company recorded no impairment charges during the three months ended June 30, 2022.

Restructuring and Other Charges

Three Months Ended June 30,

2023 2022 Change

Restructuring and other charges $ 15.8 $ 31.5 (49.8) %

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 unused facility-related costs.

During the three months ended June 30, 2022, the Company recorded net restructuring and other charges of $31.5.

The charges were comprised of $15.1 related to severance and other personnel costs and $16.9 in facility closures, lease terminations, and general integration activities.

The charges were adjusted by the reversal of a previously established liability of $0.5 in unused severance costs.

Interest Expense

Three Months Ended June 30,

2023 2022 Change

Interest expense $ (49.8) $ (42.3) 17.7 %

The increase in interest expense for the three months ended June 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 June 30,

2023 2022 Change

Equity method income, net $ 0.9 $ 1.4 (33.8) %

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 June 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.

Three Months Ended June 30,

2023 2022 Change

Other, net $ (16.9) $ (29.5) (42.7) %

The change in Other, net for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022, is primarily due to investment losses of $4.1 for the three months ended June 30, 2023 compared to investment losses of $6.2 for the corresponding period of 2022.

In addition, foreign currency transaction losses of $11.2 were recognized for the three months ended June 30, 2023 as compared to losses of $23.5 for the corresponding period of 2022.

Income Tax Expense

Three Months Ended June 30,

2023 2022 Change

Income tax expense $ 49.8 $ 92.1 (46.0) %

Income tax expense as a % of earnings before income taxes 24.3 % 25.6 %

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 has been renamed the Biopharma Laboratory Services segment.

Three Months Ended June 30,

2023 2022 Change

Dx segment operating income $ 409.7 $ 515.6 (20.5) %

Dx segment operating margin 17.5 % 22.9 % (5.4) %

BLS segment operating income 104.6 93.0 12.5 %

BLS segment operating margin 15.0 % 13.7 % 1.3 %

Segment operating income 514.3 608.6 (15.5) %

General corporate and unallocated expenses (177.9) (98.5) 80.6 %

Amortization of intangibles and other assets (51.5) (49.8) 3.4 %

Restructuring and other charges (15.8) (31.5) (49.8) %

Goodwill and other asset impairments (2.8) — 1.0

Total operating income $ 266.3 $ 428.8 (37.9) %

Dx operating income was $409.7 for the three months ended June 30, 2023, a decrease of $105.9 over operating income of $515.6 in the corresponding period of 2022, and Dx operating margin decreased 540 basis points year-over-year.

The decrease was due to a reduction in COVID-19 Testing.

Excluding the mix impact from Ascension, Base Business margin increased due to the benefit of organic growth and LaunchPad savings, which was partially offset by higher personnel expense.

BLS operating income was $104.6 for the three months ended June 30, 2023, an increase of $11.6 over operating income of $93.0 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 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 $177.9 for the three months ended June 30, 2023, an increase of $79.4 over corporate expenses of $98.5 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.

Six Months Ended June 30, 2023, compared with six months ended June 30, 2022

Six Months Ended June 30,

2023 2022 Change

Dx $ 4,723.6 $ 4,709.5 0.3 %

BLS 1,360.3 1,382.1 (1.6) %

Intercompany eliminations and other (12.4) (24.1) 48.5 %

Total $ 6,071.5 $ 6,067.5 0.1 %

The increase in revenues for the six months ended June 30, 2023, as compared with the corresponding period in 2022 was 0.1%.

The increase was due to acquisitions net of divestitures of 1.6%, partially offset by lower organic revenue of 1.3% and unfavorable foreign currency translation of 0.2%.

The 1.3% decrease in organic revenue was driven by an 11.2% decrease in COVID-19 Testing, partially offset by a 9.9% increase in the Company's organic Base Business.

Dx revenues for the six months ended June 30, 2023, were $4,723.6, an increase of 0.3% over $4,709.5 during the six months ended June 30, 2022.

The increase was due to acquisitions of 2.1%, partially offset by lower organic revenue of 1.6% and unfavorable foreign currency translation of 0.2%.

The 1.6% decrease in organic revenue was due to a 14.4% decrease in COVID-19 Testing, partially offset by a 12.8% increase in the Base Business.

Total Base Business growth compared to the Base Business in the prior year was 19.8%, which includes the benefit from the Ascension lab management agreement of approximately 7% as well as the positive impact from weather and revenue days of approximately 2%.

Dx total volume (measured by requisitions) for the three months ended March 31, 2023, decreased by 3.3% as organic volume decreased by 5.6% and acquisition volume contributed 2.3%.

Total Base Business growth compared to the Base Business in the prior year was 17.7%, which includes the benefit from the Ascension lab management agreement of approximately 7%.

Dx total volume (measured by requisitions) for the six months ended June 30, 2023, decreased by 1.0% as organic volume decreased by 3.4% and acquisition volume contributed 2.4%.

Organic volume was impacted by a 9.5% decrease in COVID-19 Testing, partially offset by a 6.1% increase in Base Business.

Price/mix increased by 0.4% due to Base Business growth of 6.6%, partially offset by a decrease in COVID-19 Testing of 5.7%, unfavorable foreign currency translation of 0.3%, and lower acquisitions of 0.2%.

Base Business volume was up 11.0% compared to the Base Business last year, which includes the combined favorable impact from weather and revenue days of approximately 2%.

Price/mix increased by 1.3% due to organic Base Business growth of 6.7%, partially offset by a decrease in COVID-19 Testing of 4.9%, unfavorable foreign currency translation of 0.3%, and lower acquisitions of 0.2%.

Base Business volume increased 9.5% compared to the Base Business last year.

Price/mix was up 8.2% in the Base Business compared to the Base Business last year, which includes the benefit of the Ascension lab management agreement.

DD revenues for the three months ended March 31, 2023, were $1,401.3, a decrease of 4.0% over $1,459.3 in the first quarter of 2022.

The decrease was primarily due to an organic decline of 2.4%, unfavorable foreign currency translation of 1.5%, and unfavorable acquisitions net of divestitures of 0.1%.

The decrease in organic revenue was negatively impacted by approximately 8.0% due to non-human primate (NHP) related constraints, reduced COVID-19 vaccine and therapeutic work, and the loss of a functional services provider (FSP) contract.

Our backlog expected to be recognized in the next 12 months decreased from approximately 30% at December 31, 2022, to approximately 29.5% at March 31, 2023, as a result of an increase in the average contract length.

BLS revenues for the six months ended June 30, 2023, were $1,360.3, a decrease of 1.6% over $1,382.1 during the six months ended June 30, 2022.

The decrease was primarily due to an organic decline of 1.1%, unfavorable foreign currency

translation of 0.1%, and divestitures net of acquisitions of 0.3%.

The decrease in organic revenue was negatively impacted by approximately 6.0% due to NHP related constraints.

BLS backlog expected to convert to revenue in the next 12 months is $2,460.0 or 30.9%.

Cost of Revenues

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

1 unchanged sentence

Cost of revenues as a % of revenues 72.1 % 66.6 %

Cost of revenues increased 5.1% during the three months ended March 31, 2023, as compared with the corresponding period in 2022.

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

This increase in cost of revenues as a percent of revenues

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.

Cost of revenues increased 8.3% during the six months ended June 30, 2023, as compared with the corresponding period in 2022.

Cost of revenues as a percentage of revenues during the six months ended June 30, 2023, increased to 72.1% as compared to 66.6% 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

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

1 unchanged sentence

Selling, general and administrative expenses as a % of revenues 15.9 % 14.1 %

Selling, general and administrative expenses as a percentage of revenues were 14.7% and 11.9% during the three months ended March 31, 2023, and 2022, respectively.

The increase is primarily due to a reduction in COVID-19 Testing revenues and spin off transaction costs.

Selling, general and administrative expenses as a percentage of revenues were 15.9% and 14.1% during the six months ended June 30, 2023, and 2022, respectively.

The increase is primarily due to a reduction in COVID-19 Testing revenues and spin-off transaction costs, partially offset by the impact of the Ascension lab management agreement.

Amortization of Intangibles and Other Assets

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

Amortization of intangibles and other assets $ 104.9 $ 100.0 4.9 %

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

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

Goodwill and Other Asset Impairments

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

Goodwill and other asset impairments $ 5.0 $ 1.2 315.9 %

The Company recorded impairment charges of $2.2 in capitalized software costs during the three months ended March 31, 2023.

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

The Company recorded impairment charges of $ 5.0 in capitalized software costs and other intangible assets during the six months ended June 30, 2023.

The Company recorded impairment charges of $ 1.2 in other assets in Ukraine and Russia during the six months ended June 30, 2022.

Restructuring and Other Charges

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

Restructuring and other charges $ 23.3 $ 35.0 (33.3) %

During the three months ended March 31, 2023, the Company recorded net restructuring and other charges of $8.6.

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 increase of $0.7 of previously established severance liabilities and the reversal of previously established liability of $0.3 in unused facility-related costs.

During the three months ended March 31, 2022, the Company recorded net restructuring and other charges of $12.6.

The charges were adjusted by the reversal of $1.1 of previously established severance liabilities and the increase of a previously established liability of $2.0 in unused facility-related costs.

During the six months ended June 30, 2022, the Company recorded net restructuring and other charges of $ 35.0 .

The charges were comprised of $17.4 related to severance and other personnel costs and $17.6 in facility closures, lease terminations, and general integration activities.

1 unchanged sentence

Interest Expense

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

Interest expense $ ( 100.5 ) $ ( 84.4 ) 19.1 %

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

The increase in interest expense for the six months ended June 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 March 31,

Six Months Ended June 30,

2023 2022 Change

1 unchanged sentence

Equity method income represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry.

The decrease in income for the three months ended March 31, 2023,

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

Three Months Ended March 31,

The decrease in income for the six months ended June 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.

Six Months Ended June 30,

2023 2022 Change

Other, net $ ( 23.8 ) $ ( 45.2 ) (47.2) %

The change in Other, net for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, is primarily due to investment losses of $1.5 for the three months ended March 31, 2023 compared to investment gains of $8.0 for the corresponding period of 2022.

In addition, foreign currency transaction losses of $2.9 were recognized for the three months ended March 31, 2023 as compared to losses of $2.6 for the corresponding period of 2022.

The change in Other, net for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, is primarily due to investment losses of $5.6 for the three months ended June 30, 2023 compared to investment losses of $14.2 for the corresponding period of 2022.

In addition, foreign currency transaction losses of $18.0 were recognized for the six months ended June 30, 2023 as compared to losses of $31.7 for the corresponding period of 2022.

Income Tax Expense

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

6 unchanged sentences

Operating Income by Segment

During the fourth quarter of 2022, the Company modified the segment performance measure to exclude the amortization of intangibles and other assets, restructuring and other charges, goodwill and other asset impairments, and certain corporate charges for items such as transaction costs, COVID-19-related costs, and other special items.

These changes align with how the CODM now evaluates segment performance and allocates resources.

Prior periods have been conformed for comparability.

Three Months Ended March 31,

Six Months Ended June 30,

2023 2022 Change

1 unchanged sentence

Dx segment operating margin 18.0 % 25.5 % (7.4) %

DD segment operating income 123.9 168.6 (26.5) %

DD segment operating margin 8.8 % 11.6 % (2.7) %

BLS segment operating income 178.2 188.9 (5.7) %

BLS segment operating margin 13.1 % 13.7 % (0.6) %

Segment operating income 1,029.4 1,387.6 (25.8) %

4 unchanged sentences

Total operating income $ 596.1 $ 1,034.0 (42.4) %

Dx operating income was $441.5 for the three months ended March 31, 2023, a decrease of $241.6 over operating income of $683.1 in the corresponding period of 2022, and Dx operating margin decreased 930 basis points year-over-year.

The decrease in adjusted operating income and adjusted operating margin was due to a reduction in COVID-19 Testing.

Excluding COVID-19 Testing, operating income and margin were up due to the benefit of Base Business organic growth and LaunchPad savings, which were partially offset by higher personnel expense.

DD operating income was $123.9 for the three months ended March 31, 2023, a decrease of $44.7 over operating income of $168.6 in the corresponding period of 2022.

The decrease was due to NHP-related constraints, reduced COVID-19 vaccine and therapeutic work, the FSP contract loss, and a provision for credit losses on certain biotech receivables, partially offset by demand growth and LaunchPad savings.

Dx operating income was $ 851.2 for the six months ended June 30, 2023, a decrease of $347.5 over operating income of $1,198.7 in the corresponding period of 2022, and Dx operating margin decreased 740 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 $178.2 for the six months ended June 30, 2023, a decrease of $10.7 over operating income of $188.9 in the corresponding period of 2022.

The decrease was due to NHP-related constraints and higher personnel costs, partially offset by demand growth and LaunchPad savings.

General corporate expenses are comprised primarily of administrative services such as executive management, human resources, legal, finance, corporate affairs, and information technology.

Corporate expenses were $144.3 for the three months ended March 31, 2023, an increase of $61.4 over corporate expenses of $82.9 in the corresponding period of 2022, primarily due to spin transaction costs, personnel costs, bonus allocation, and research and development costs.

Corporate expenses were $ 300.1 for the six months ended June 30, 2023, a increase of $82.7 over corporate expenses of $ 217.4 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.

4 unchanged sentences

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 were as follows for the three months ended March 31, 2023, and 2022, respectively:

Three Months Ended March 31,

Net cash provided by operating activities $ 121.2 $ 356.0

Net cash used for investing activities (99.7) (573.1)

Net cash used for financing activities (60.6) (17.7)

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

Six Months Ended June 30,

Net cash provided by operating activities from continuing operations $ 347.2 $ 904.6

Net cash used for investing activities from continuing operations (328.6) (802.5)

Net cash used for financing activities from continuing operations (124.7) (497.4)

Effect of exchange rate changes on cash and cash equivalents 6.3 (19.4)

Net decrease in cash and cash equivalents $ (36.1) $ (239.2)

Net decrease in cash and cash equivalents from continuing operations $ (99.8) $ (414.7)

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2023, and 2022, totaled $393.9 and $1,233.5, respectively.

Cash and cash equivalents at June 30, 2023, and 2022, totaled $1,930.6 and $978.3, respectively.

Cash and cash equivalents consist of highly liquid instruments, such as time deposits, commercial paper, and other money market investments, which have original maturities of three months or less.

Cash Flows from Operating Activities

During the three months ended March 31, 2023, the Company's operations provided $121.2 of cash as compared to $356.0 during the same period in 2022.

During the six months ended June 30, 2023, the Company's continuing operations provided $347.2 of cash as compared to $904.6 during the same period in 2022.

The $557.4 decrease in cash provided from operations in 2023 as compared with the corresponding 2022 period is primarily due to lower cash earnings.

Cash Flows from Investing Activities

Net cash used for investing activities for the three months ended March 31, 2023, was $99.7 as compared to $573.1 for the three months ended March 31, 2022.

The change in cash used for investing activities was primarily due to a decrease in business acquisitions and lower capital expenditures during the three months ended March 31, 2023.

Capital expenditures were $93.9 and $117.2 for the three months ended March 31, 2023, and 2022, respectively.

Net cash used for investing activities for the six months ended June 30, 2023, was $328.6 as compared to $802.5 for the six months ended June 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 six months ended June 30, 2023.

Capital expenditures were $181.5 and $247.4 for the six months ended June 30, 2023, and 2022, respectively.

Cash Flows from Financing Activities

Net cash used by financing activities for the three months ended March 31, 2023, was $60.6 as compared to $17.7 for the three months ended March 31, 2022.

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

At March 31, 2023, the Company had $393.9 of cash and $1,000.0 of available borrowings under its revolving credit facility, which does not mature until 2026.

Net cash used by financing activities for the six months ended June 30, 2023, was $124.7 as compared to $497.4 for the six months ended June 30, 2022.

The change in cash flows from financing activities for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022, was primarily due to no share repurchase activity during the six months ended June 30, 2023 as compared to $400.0 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 intends to use approximately $1.0 billion of the proceeds toward an accelerated share repurchase program and $300.0 to pay down debt maturing this year.

At June 30, 2023, the Company had $1,930.6 of cash and $1,000.0 of available borrowings under its revolving credit

facility, which does not mature until 2026.

Under the Company's revolving credit facility, the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers and the Company is required to maintain certain leverage ratios.

The Company was in compliance with all covenants under the revolving credit facility at March 31, 2023, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

For the three months ended March 31, 2023, the Company did not repurchase any of the Company's common stock.

As of March 31, 2023, t he Company had an outstanding authorization from the board of directors to purchase up to $1,531.5 more of the Company's common stock with no expiration date.

For the three months ended March 31, 2023, the Company paid $64.4 in common stock dividends.

On April 6, 2023, the Company announced a cash dividend of $0.72 per share of common stock for the second quarter, or approximately $64.7 in the aggregate.

The dividend will be payable on June 8, 2023, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on May 18, 2023.

The Company was in compliance with all covenants under the revolving credit facility at June 30, 2023, and expects that it will remain in compliance with its existing debt covenants for the next twelve months.

For the six months ended June 30, 2023, the Company did not repurchase any of the Company's common stock.

As of June 30, 2023, t he Company had an outstanding authorization from the board of directors to purchase up to $1,531.5 more of the Company's common stock with no expiration date.

For the six months ended June 30, 2023, the Company paid $129.0 in common stock dividends.

On July 13, 2023, the Company announced a cash dividend of $0.72 per share of common stock for the second quarter, or approximately $64.8 in the aggregate.

The dividend will be payable on September 8, 2023, to stockholders of record of all issued and outstanding shares of common stock as of the close of business on August 8, 2023.

The declaration and payment of any future dividends will be at the discretion of the Company's board of directors.

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis