Laboratory Corporation of America Holdings (NYSE:LH) Q4 2022 Earnings Call Transcript

Adam Schechter: Yes. We’ve said before that the NHP as part of our total revenue. It was less than 2%. And the $80 million to $100 million — and we have also said that it will not be a full year impact. So you can see that $80 million to $100 million is within those guidelines that we’ve said previously. The majority of the impact will be in the first quarter and there will be some impact into the second quarter. Over the past 3 months, we’ve contracted with multiple organizations to secure supply for the near but also importantly, for the longer term. And as I just said, that we believe that these are going to be temporary because we’ve already begun to receive the beginning of the shipment. So I feel that $80 million to $100 million is a realistic range. But we’ll hopefully be more towards the lower end of that but we’ll know with time.

Patrick Donnelly: Okay. But you’ve got decent visibility into things normalizing by call .

Adam Schechter: Yes. We have visibility that we have the contracts in place that we started to begin to receive some of the shipments. So I feel good about those things.

Glenn Eisenberg: Also, Patrick, when you think about the growth rate for ’23, the 5% to 7% growth within Drug Development, that $80 million to $100 million or obviously the midpoint gets you to around 1.5 points of headwind. That’s captured within that growth rate. But similarly, we expect to have less COVID-related vaccine and therapeutic work in ’23 versus ’22 which is at a similar number. So you’re looking at around 3 percentage points of headwind from those 2 issues that are reflected in that 5% to 7% growth which obviously would have been greater without those constraints but both of which we would expect to then be done with through 2023.

Operator: And our next question will come from Brian Tanquilut of Jefferies.

Brian Tanquilut: Glenn, as I think about guidance, obviously, COVID is rolling off here. But as I think about margins, I mean, anything you can share with us in terms of what drives your confidence in the margin, especially in the core lab business going forward?

Glenn Eisenberg: Yes. No, we actually feel good about how the business is performing. We obviously give guidance to the revenues within diagnostics. So that 10.5% to 12.5% overall. Again, the interesting part is part of that growth, a little less than half of it, call it, with Ascension which will mix down our margins. But the underlying business growth is very strong in ’23 in part due to the fact that ’22 wasn’t a full year. So the recovery is coming in. And with that incremental demand, mostly driven by volume, we’re going to get good leverage on it. helpful again that we don’t have PAMA but we believe that we can drive margin improvement slightly in ’23 versus ’22 with the headwind of Ascension. But again, without the headwind coming in from PAMA. But overall, LaunchPad continues to be on track, good expense control and good — again, fundamentally good growth in the business.

Operator: And our next question comes from Eric Coldwell of RW Baird.

Eric Coldwell: So yes, I’m going to come back to the NHPs but hopefully pretty quick. Are the only supply constraints that you’re seeing today related to the 1 Cambodian manufacturer in the news as the original source and your suppliers that received some or all of their volume from that source? Or have you seen supply constraints from other existing partners that you used to work with?

Adam Schechter: Yes. So again, some of the partners use that same supply source. So we might have some issues with that specific source. But what I can say with the contracts that we’ve signed and the suppliers that we have, we’re confident that we’ll be able to use that supply moving forward. So, I feel good about the contracts that we put in place, Eric.