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

Adam Schechter: Sure, A.J. So just to give a sense, in the fourth quarter, the volume was about 16,000 per day. We’re giving a bit of a wide range because it’s difficult to tell but we’re giving somewhere between 5,000 and 12,000 per day as guidance. If you just look at the month of January, just to give you a it was about 11,000 per day. And what we’re trying to do is make sure that we have capacity to do more than what we think we need but we have nowhere near as much capacity as we had historically, when we used to be able to do over 300,000 tests per day. We brought that capacity down. We can redeploy some of that equipment. We don’t expect to have any large write-offs from equipment or anything like that. The equipment return its cost of capital very quickly, as you can imagine.

So, I don’t think it’s neither a headwind or a tailwind. I think it’s basically — we’ve done what we can do for COVID, whatever we need to do for the tail end of coat we will do but now we’re really focused on driving our base business. And that’s where we’re excited because the base business looks really strong in the diagnostic area.

Glenn Eisenberg: A.J., the only thing that I’d add to is we commented that the coated business obviously was still at a very attractive margin at 50%. And we’ve said that we’ve kept excess capacity available as long as we continue to be within the public health emergency. When that expires which at least is anticipated in, call it, the middle of May, the assumption is that the pricing or reimbursement will come down. And then from our perspective as well, we’ll manage our cost structure appropriately and take out some of that excess capacity still leaving enough to hopefully handle if there would be an increase but that will result obviously in the margins coming down a bit as well but still COVID should continue to be at a margin greater than what the segment average would be.

A.J. Rice: Okay, that’s great. And then maybe just on the hospital business. I think, if I remember right, you had assumed that Ascension really wouldn’t contribute much on the bottom line in the fourth quarter as that was sort of ramping up but that maybe as you get everything working well, you make sure the customer is happy, et cetera, you would see gradual margin improvement over the course of ’23. Can you give us any more flavor for how much of that is baked in and with Ascension and some other high-profile deals announced. I know you guys mentioned the pipeline looks good. I wondered if sometimes deals get more deals, are you seeing even an acceleration in activity behind the scenes and people that are interested in perhaps taking a look at this.

Adam Schechter: Yes. So to answer the second part of the question. First, yes, we are seeing an increased number of people that are interested in looking at us running and acquiring parts of the hospital business. If you look at 2023, Ascension revenue is going to be about 5% of the base business growth. So if you do the math, it’s approximately $550 million to $600 million in 2023. That’s consistent with the initial guidance that we gave at the time of the acquisition. So we feel good about where we are and how we’ve been achieving the goals of that deal. The margin is expected to be in the low to mid-single digits in the first year but it will improve over time. It will never get to our average margins because the hospital business margins never get as high as our average diagnostic testing but it certainly will improve as we go through this year and into next year and beyond.