Labcorp Holdings Inc. (LH) Earnings Call Transcript & Summary

Good morning. I'm Adam Schechter, President and Chief Executive Officer and Chairman of the Board of LabCorp. I'm happy to welcome you to the Annual Meeting of Shareholders. Before we get started, I want to thank our mission-driven colleagues around the world. We dedicated significant resources to important clinical areas, including oncology, NASH, autoimmune disease and women's health. We [ quickly ] brought innovations to market, and we advanced each pillar of our company strategy, which led us to deliver robust financial performance. We continue to demonstrate remarkable leadership in a fight against COVID-19, leveraging LabCorp's comprehends of capabilities to expand testing access to identify and monitor new variants and to advanced vaccine and therapy development. We are delivering vital information to help our customers and patients make clear and confident decisions that improve health and improve lives. The meeting will now come to order. All votes will be delivered to the Inspector of Election. The secretary will record the proceedings. I would like to introduce you the other Board members and officers who are present today. Directors in attendance are: Kerrii Anderson; Jean-Luc Belingard; Jeffrey Davis; Gary Gilliland; Garheng Kong; Peter Neupert, our Lead Independent Director; Richelle Parham; Kathryn Wengel; and R. Sanders Williams. I'd now like to acknowledge our senior officers in attendance today. Glenn Eisenberg, Executive Vice President and Chief Financial Officer; Paul Kirchgraber, Executive Vice President and Chief Executive Officer of Drug Development; Mark Schroeder, Executive Vice President and President of Diagnostics Laboratory Operations and Global Supply Chain; Brian Caveney, Executive Vice President and President of Diagnostics and Chief Medical Officer; Lance Berberian, Executive Vice President and Chief Information and Technology Officer; Sandy van der Vaart, Executive Vice President and Chief Legal Officer, Chief Compliance Officer and Corporate Secretary; Judi Seltz, Executive Vice President and Chief Human Resources Officer; Amy Summy, Executive Vice President and Chief Marketing Officer; and Peter Wilkinson, Senior Vice President and Chief Accounting Officer. Also present are Dave Haines and Brad Hicks, representing Deloitte & Touche LLP, the independent registered public accounting firm of the company. They will be available to answer appropriate questions during a general question-and-answer period after the formal business of the meeting. Before we proceed with the meeting agenda, our Secretary, Sandy van der Vaart, will review certain information related to the meeting. Sandy?

After the formal meeting has been adjourned, we will also provide time for general questions. [Operator Instructions] Consistent with our approach when the annual meetings were held in person, questions or comments that are not related to the proposals under discussion are about employment matters or personal concerns not shared by shareholders generally or use blatantly offensive language may be ruled out of order. We will, however, respond to questions or comments that are not related to the proposals under discussion or about personal concerns not shared by shareholders generally via e-mail after the meeting. The Board of Directors set March 16, 2022, as the date of record for this shareholders' meeting. We have here a record of shareholders as of that date, which is duly certified by our transfer agent and is available during this meeting on the meeting portal for inspection by shareholders. Chad Cook has been appointed the Inspector of Election. He is familiar with the duties and responsibilities of an Inspector of Election at a shareholders meeting. I have been advised by Mr. Cook that immediately prior to commencement of the meeting, at least 88% of the company's shares of common stock issued and outstanding and entitled to vote are present or represented by proxy at today's meeting. Accordingly, a quorum is present, and the business of the meeting may proceed. The notice for the meeting was duly and properly mailed. Affidavits of mailing of the notice of meeting, proxy card and proxy statement will be filed with the records of the meeting.

There are 4 items on the agenda to be voted on today: one, the election of directors; two, the approval on a nonbinding advisory basis of executive compensation; three, the ratification of the appointment of Deloitte & Touche LLP as LabCorp's independent registered public accounting firm for the year ending December 31, 2022; and four, to vote upon one shareholder proposal seeking an amendment to the company's governing documents related to procedural requirements in connection with shareholders' rights to call a special meeting.

There will be a discussion period relating to each item immediately after its introduction. If any shareholder would like to make a comment regarding any of the proposals at the indicated times, please submit your comment at that time using the designated field on the web portal or through our Investor Relations e-mail address at [email protected], with your control number included in the e-mail subject line. We will attempt to ensure that all shareholder comments are read aloud, and representatives of management will respond to questions. However, in the interest of time and because each of these items has been fully discussed in the proxy statement, discussion on each item, including the presentation of the shareholder proposal will be limited to 5 minutes. If you sent in your proxy, you do not need to take any further action unless you wish to change your vote. At the end of the discussion period relating to the items to be voted on during today's meeting, the ballots will be collected and delivered to the Inspector of Election, who will report the results. We will now turn to item 1.

The first item is the election of directors. The nominees and their qualifications are described in the proxy statement dated March 31, 2022, which has been made available to all shareholders of record as of March 16, 2022. Sandy, will you please present the proposal to elect directors?

I move that the director nominees be elected pursuant to the following resolution: resolved that each of Adam H. Schechter, Kerrii B. Anderson, Jean-Luc Belingard, Jeffrey A. Davis; D. Gary Gilliland; Garheng Kong; Peter M. Neupert; Richelle P. Parham; Kathryn E. Wengel and R. Sanders Williams be and hereby is elected as the director of the company to serve until the next Annual Meeting of Shareholders and until such directors' successor is duly elected and qualified or until such directors' earlier death, resignation or removal.

The meeting is open for discussion relating to the election of directors. If any shareholder would like to make a comment regarding this proposal, please submit your comments through the web portal or by e-mail now.

Adam, there are no comments that have been received.

The second item is a nonbinding advisory vote to approve executive compensation. Sandy, will you please present the proposal to approve executive compensation?

I move that the company's executive compensation be approved pursuant to the nonbinding advisory vote and the following resolution: resolved that the compensation paid to the company's named executive officers as disclosed pursuant to the rules of the Securities and Exchange Commission, including in the compensation discussion and analysis, compensation tables and narrative discussion in the company's 2022 proxy statement be and hereby is approved.

The meeting is open for discussion relating to the approval of the company's executive compensation. If any shareholder would like to make a comment regarding this proposal, please submit your comments through the web portal or by e-mail now.

Adam, there are no comments that have been received.

The third item is the ratification of the appointment of the independent registered public accounting firm for 2022. Sandy, will you please present the proposal to ratify the selection of the independent registered public accounting firm?

I move that the appointment of the independent registered public accounting firm for 2022 be ratified pursuant to the following resolution: resolved that the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of Laboratory Corporation of America Holdings for the fiscal year ending December 31, 2022, be ratified.

The meeting is open for discussion relating to the selection of the independent registered public accounting firm. If any shareholder would like to make a comment regarding this proposal, please submit your comment to the web portal or by e-mail now.

Adam, there are no comments that have been received.

The fourth item relates to the shareholder proposal described in the proxy statement submitted by John [indiscernible]. At this time, I'd like the operator to open Mr. [indiscernible] in line present the shareholder proposal. Operator?

This is John [indiscernible]. Can you hear me okay?

Yes, we can.

Proposal 4, a special shareholder meeting improvement. Shareholders ask our Board to take the steps necessary to amend the governing documents to give the owners of a combined 10% of our outstanding common stock to power to call a special shareholder meeting. Currently, it takes a theoretical 10% of all shares outstanding on the call for a special shareholder meeting. This theoretical 10% of all shares outstanding translates into 12% of the shares that wrote at the annual meeting. It would be hopeless to think that shares that do not have the time to vote would have the time to go through the special procedural steps to call for a special shareholder meeting. And the owners that 12% of our stock could determine they own 20% of our stock when their 100% ineligible shares in regard to a special shareholder meeting that are owned for less than 1 full year are factored in. All Laboratory Corporation shares not owned for an unbroken full year are 100% disqualified from formally participating in the call for a special shareholder meeting. Thus, a theoretical 10% stock ownership requirement can in practice be a 20% stock ownership requirement. Shareholders who have profitable new ideas for management do not want to sit on the shares for a year before they have the traction of a special meeting to bring their ideas to management. Plus Laboratory Corporation does not have an independent Board Chairman, which is a way to make it hard to -- for potential profitable new ideas to get through to top management. All things being equal, the company that does not have an independent Board Chairman should have a more reasonable stock ownership threshold than a company that does have an independent Board Chairman. Plus management fails to address the fact that the objective of a special shareholder meeting could be to accept an offer for our stock that could involve a 33% premium over the market price. Instead management prefers to preclude the possibility of a special meeting to accept a 33% premium for our stock. Plus a special shareholder meeting implies urgency. Leading from shares to age a year is the opposite of urgent and this restriction largely defeats all purpose of a shareholder right to call a special shareholder meeting. Please vote yes, special shareholder meeting improvement, Proposal 4.

Thank you for your remarks. The shareholders' proposal seeks to amend the company's governing documents related to procedural requirements in connection with shareholders' right to call a special meeting. The Board has carefully considered the shareholders proposal and as described in the proxy statement, recommends a vote against this proposal for the following reasons: The Board believes that the current 10% threshold special meeting right, including a nominal 1-year holding period and customary procedural requirements is aligned with strong governance practices and strikes the appropriate balance between allowing shareholders to vote on important matters that arise between annual meetings and protecting against the risk that one or a small group of shareholders may potentially misuse the special meeting right, resulting in the unnecessary expenditure of substantial time, effort, money and management resources.

The shareholder has moved for the approval of the shareholder proposal. The meeting is open for discussion relating to the shareholder proposal. If any shareholder would like to make a comment regarding this proposal, please submit your comment through the web portal or by e-mail now. There are no comments that have been received. I declare the polls shall now be open for voting. Any shareholders who have not yet voted or wish to change their votes may do so by clicking on the voting button on the web portal and following the instructions. Shareholders who have sent in proxies or voted via telephone or Internet and do not want to change their vote, do not need to take any further action. We will pause for a moment for any final voting. [Voting]

Thank you. The polls shall now be closed for voting. We will pause another moment while the Inspector of Election tabulates the results of the vote.

I'm told the Inspector of Election has completed the counts of the votes and has reported the preliminary results to the Secretary. Will the Secretary please present the preliminary report of the Inspector of Election?

The Inspector of Election has reported to me that of the shares of LabCorp common stock outstanding on the record date and represented at the meeting, at least 87% of the shares voted have voted for the election of each of the nominated directors. At least 91% of the shares voted have voted to approve the company's executive compensation. At least 99% of the shares voted have voted for the ratification of the appointment of the independent registered public accounting firm for 2022. And regarding the shareholders' proposal, less than 9% of the shares voted have voted in favor of the shareholder proposal. Accordingly, the motions for the election of the nominated directors, the approval of the company's executive compensation and the ratification of the appointment of the independent registered public accounting firm for 2022 have passed. The motion seeking an amendment to our governing documents related to procedural requirements in connection with shareholders' rights to call a special meeting has not passed.

Thank you, Sandy. The Secretary will file the final report of the Inspector of Election, including the final and complete tally of the votes with the records of the meeting and the record books of the company. This concludes the formal business of the meeting, and I hereby declare the meeting to be adjourned. Thank you for participating and for supporting the company.

[Operator Instructions] As a reminder, this Q&A session is being webcast live this morning. In addition, remarks made today may contain forward-looking statements. Actual results could differ materially from those projected. The company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or other factors. We have a question that has been submitted through the portal. Good morning. My name is Bob Galvin, and I'm here on behalf of People for the Ethical Treatment of Animals and our more than 9 million members and supporters. In February 2015, our company completed its purchase of contract testing firm Covance. To that point, Covance had a long history of systemic and egregious animal welfare violations. Although new ownership could have here better compliance with federal law, our company failed to meaningfully address the problems in Covance's animal laboratories. Changing Covance's name to LabCorp Drug Development in June 2021, similarly failed to make a material difference in the treatment of animals in the company's laboratories. Since our company acquired Covance, the company has been repeatedly cited for failing to handle animals humanely. In particular, in September 2015, August 2017, May 2019, June 2021 and November 2021, our company was cited by federal officials for improper handling of monkeys and rabbits in its Madison Wisconsin laboratories, leading to orthopedic injuries, including bone fractures that necessitated [indiscernible] of animals and wasted time and resources. The same facility has been cited for failing to report animal welfare concerns to the staff veterinarian. In one case, a monkey was observed to a generalized hair loss and acute diarrhea, both conditions are indicative of extreme psychological distress. However, the monkey's condition was not reported to the veterinarian. In December 2021, LabCorp completed acquisition of another contract testing firm called Toxicon. This company's track record is similarly potmarked with citations for violating federal animal welfare law. In May 2021, the company was cited after experimenters failed to notify veterinarians that a rabbit was in serious decline and had experienced a 27% loss of body weight. The animals sound trapped in an e-collar, which resulted in the laceration and swelling of the muzzle, causing narrowing of the animals' airway leading to respiratory distress. Federal reports documented no fewer than 10 violations of Toxicon -- at Toxicon since 2017. A rabbit sustained a final fracture because of improper handling and had to be killed and animal dive while being anesthetized because an experimenter failed to open a valve, and a dog died unattended on a surgical table when experimenters failed to notify veterinaries of its elevated respiratory rate. Our company acknowledges that failure to comply with welfare violations could harm the company's reputation and business. What is LabCorp doing to prevent these violations in the future?

LabCorp Drug Development takes very seriously our ethical and our regulatory responsibilities to treat research animals with the greatest care respect. In addition to being the right thing to do, the proper care of research animals is fundamental to sound scientific research and the ability to develop new, safe and effective medicines, devices and products to protect and save the lives of people and animals. Animal research is critical and required by government bodies around the world. LabCorp Drug Development adheres to all national and international standards of animal welfare, including the European Council directive of 201063EU, the U.S. Animal Welfare Act and requirements set forth by the United States Department of Agriculture and a U.S. public health service policy on the main care and use of laboratory animals. We're also among the more than 70 original signers of the United Kingdom's [indiscernible] and openness on animal research. In 2021, we became a signatory to the German transparency agreement for transparent information and open communication about animal research in Germany. Additionally, LabCorp Drug Development participates in a voluntary accreditation programs of AAALAC International, which includes on-site visits that serving that we are meeting prescribed standards of policies, animal housing and management, veterinary care and facilities. AAALAC International is a private nonprofit organization that promotes the humane treatment of animals and science through voluntary accreditation and assessment programs. We have several other questions that were sent by e-mail. The first one is, are there director retirements expected in the next year. What -- where have the successful director nominations come from in the last 5 years? And have any Board committees named a new Chairman in the last year? So first of all, we have a very strong governance program across the Board and across our committees. Our mandatory retirement age is 75 and none of the directors will reach that age in the next year. Our Nomination and Governance Committee works to identify appropriate candidates for the Board for consideration after working with outside firms. The Compensation Committee Chair changed in 2019 as did the Lead Director. Another question came in asking how much is share buybacks in the year before this meeting and in the year going forward. In 2021, we had $1.7 billion of share buybacks. The Board approved a $2.5 billion buyback plan of its $1 billion was accelerated. We completed the $1 billion accelerated plan in April of this year. Another question is, will the company increase its R&D and make a return on what is the historical pattern. We continue to focus on science, innovation and technology, and we continue to ensure that we have the appropriate level of research and development to ensure that we can grow the company into the future. And you've seen us make significant investments in research and development in areas like oncology, Alzheimer's disease, autoimmune disease and Rubus Health. Moving forward, we're committed to profitable growth through investments in site, innovation and technology. The next question was, will the company increase its use of robotics. Well, we continue to increase our use of robotics. In many of our laboratories, we have rolled out a system called Propel, which is utilizing robotics to ensure that we have the best turnaround time and accuracy of samples in our laboratories. Seeing no further questions at this time, we thank you for your attendance at this morning's Annual Meeting of Shareholders, and we thank you for your continued support of LabCorp. I hope you have a good day.

This now concludes the meeting. Thank you for joining, and have a pleasant day.