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

Unidentified Analyst: This is John on for Derik. I wanted to ask about the free cash flow guide. Obviously, the last few years, you’ve benefited from the COVID testing but even when I look at the 2019 level, it was around over $1.3 billion. So I was wondering if you could dig into what sort of factors are in there. Maybe there’s some large spend expenses that you’ve mentioned before?

Glenn Eisenberg: Sure, John. Well, first of all, obviously, we wrapped up the year of 2022 on a very strong level of $0.5 billion of cash flow in the quarter, getting us to $1.5 billion for the full year. When you look at the midpoint of our guidance at the $1.1 billion, the decline from 22% to 23% is all attributable to lower COVID testing earnings. In fact, we’re looking at good growth in base business earnings. We’ve talked about earnings per share on a base business being up around 13% in our guidance. So we’re getting good cash generation from our base business and that’s going to be partially offset by increased spending in CapEx. We kind of talked about around a 3.5% rate in revenues that are growing. So we continue to see good investments for capital investitures.

And in addition, working capital will be a use of cash a bit supporting the growth in the base business as well, albeit we do expect to see an improvement in our DSOs which will help mitigate the cash needed for working capital. But overall, we feel a good year of free cash flow generation.

Unidentified Analyst: Great. And I wanted to ask what the site access level is looking like. You’ve talked about a lot of puts and takes of the clinical lab and the ED but compared to this quarter past, has there been any improvement? And also on labor constraints. If you could comment on that, that would be great.

Adam Schechter: Yes. I mean I would say there’s still a difficult labor environment in health care in general. We have made some progress in acceptance rates that we make offers. We’re getting more people that are accepting our offer that we have in the past. We’re working hard on retention because what happens is once you get somebody in your chain and it takes time, you have to find a way to retain them over time and we’re working hard on that. I would say that there’s no doubt that it’s getting a little bit better but it’s still not where it used to be and there’s still a lot of issues in terms of the labor market across all of health care, frankly.

Operator: And our next question comes from A.J. Rice of Credit Suisse.

A.J. Rice: I know you’ve given some very specific information about your assumptions around COVID testing and we can develop our estimates around that. But I wondered in the capacity that you’ve had historically in the last 3 years devoted to COVID testing. Is that redeployment into other areas pretty seamless? Is there any drag that you’re dealing with? Is that been coming down that will then become a tailwind for you? Is that fully gets redeployed. Can you talk about that a little bit?