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

Good afternoon, everybody. Thank you for joining day 2 of the UBS Healthcare Conference. I'm Kevin Caliendo, healthcare supply chain managed care services analyst. With us today is the management team from Labcorp, and we have Adam Schechter, President and CEO; and Glenn Eisenberg, EVP and Chief Financial Officer. Gentlemen, thank you so much for coming to New York.

Yes. Glad to be here. Thanks, Kevin, for having us. Good afternoon, everybody. And boy, it's great to be back in person. With laboratory business and everything we've done through COVID, we've been traveling, Glenn and I, throughout the pandemic, but we haven't gone to a lot of meetings. We have a lot of people in the room. So it's good to be here. It's good to see all of you. It's certainly interesting times, interesting times for the world, interesting times for the U.S. and interesting time for business. The pandemic is still here. You've seen increases in number of cases that have occurred. You've seen China, in Shanghai that still continues to be in lockdown. And you've seen that the virus is going to continue to be here and something that we have to learn to live with over time. At the same time, we have a war that's causing energy costs to rise and causing some impact to business, including ours. And then you've begun to see that the base business that we have has come back. So as I look at what's happening right now for COVID, we continue to do a significant number of tests every single day. We've done about 74 million of them since the beginning of the pandemic. We're launching new innovations. So we announced last week that we launched a new test that is available for consumers to order, that includes COVID, RSV and flu. I don't think there's a big need for that now, but we don't know what's going to happen in November, so we want to be prepared. And we also got an EUA that physicians can order that test for consumers. You've seen us also continue to do a significant amount of surveillance work. So we continue to work with the CDC to ensure that we're tracking variants and reporting on those variants. So we continue to be very involved with the response to the COVID pandemic, and we expect to continue to do so for as long as necessary. At the same time, our base business is coming back. And if you look at our diagnostics-based business, it was looking very good at the end of last year when we had the impact from Omicron, which was fairly significant In January, we certainly saw an impact. But as we sit here today, the base business has come back very well. If you look at our drug development business, we certainly saw an impact from Omicron in the beginning of the year. We continue to see some impact from Omicron because that is truly a global business, so China is impacted in that business. And because of the global nature of the business, we see impact, particularly in our central laboratories, from what's happening in Russia and Ukraine. At the same time, we've seen improvement in that business, and February was better than January, and March was better than February. And that gives us confidence in that business as we go through the rest of the year. In our strategy, we continue to make significant progress. So for example, we said that digitalization and technology is important to our future. We continue to do well in launching our clinical trial capabilities for trials that are done remotely. In about 70% of new trials, there's some type of remote monitoring or remote work that we do through digitalization. So we're at the forefront of that. We're going to continue to be there. We launched Labcorp on Demand, which is a way for consumers to order a significant number of different tests from us. And we announced last week, for example, a new test that they can order to check their diabetes or HbA1c and it comes in a little device. They take a little bit of their blood, they send it to us, and we can help them monitor their diabetes. In terms of other parts of our strategy, we're making significant progress in oncology. We talked about the acquisition of PGDx that gives us significant liquid biopsy capabilities, both in a kitted solution, which we believe will be important for clinical trials. Also in a central laboratory solution, which we think we can potentially bring globally for liquid biopsy in the future. And then we announced several other partnerships in the oncology area. So we continue to make significant progress in that part of our strategy as well. So as we move forward, we'll continue to focus on COVID, but that becomes much less of our time. We know what we're doing there, we know how to do it, and we're focusing much more on our strategy and ways for growth into the future. So with that, Glenn is here with me. We're glad to answer any questions that might be on your mind.

Great. Well, I will start. There's plenty to talk about here, but why don't we start with the clinical side of the business. You made mention that the beginning of the year wasn't negatively impacted, January, February, got better into March. Do you -- are you still seeing that? Was that -- does that commentary that you made on your first quarter call, that gave you the confidence throughout the year? Has anything changed since then?

I feel confident at the guidance that we've given. What I said in the February meeting before the first quarter was that we were seeing an impact from Omicron and we certainly did. And when we reported the first quarter earnings, there was no doubt what we saw in February actually continued through the quarter. The other thing that I said regarding drug development, in particular, is that inflation hits you all at once. So we're seeing a lot of inflationary cost in that business. But it takes time for you to get the cost out. We're working diligently and we're making huge progress in getting some of the cost out. So that gives me confidence in the growth of predicting the margin as we look into the future. The third thing that we said about the drug development business is that we continue to see very strong RFPs and RFP flow. We continue to hear from our colleagues in pharma and biotech that they have significant needs. So we feel good about the future growth potential as we move forward. So for all of those reasons, I feel good about the guidance that we've given. And the first quarter, we said, was going to be the toughest quarter, particularly as we look at margins. The second quarter, we said revenue, particularly in Central Laboratory, will be pressured, particularly because of Russia, Ukraine, and we'll see most of that in the second quarter. And the reason why is because we do central laboratory work not just for the studies that we run but for studies that almost everybody runs. So even though Ukraine, Russia is a small part of everybody's business, for our central laboratory, it will have some impact. But just because there's an impact there, it's just a timing issue. It's not like pharma is saying, we're going to run these trials with less patients. They're starting to open up other sites. They're starting to have other sites to enroll more patients. So that's just a timing issue that we'll see come back because you have to enroll a number of patients in the trial that you plan to enroll. So the third -- the second, third and fourth quarter, we expect to see significant improvement versus the first quarter.

On the margin side, because that was to us the biggest surprise was the margin in the first quarter in that segment. What actually are you doing on the cost side to make sure that margins get better? Is it reallocating resources? Is it reducing costs? Or is it purely a revenue leverage?

No. So we're reducing costs. And we -- through our LaunchPad initiative, we have significant cost reduction measures in place that won't impact our ability to meet the customer needs, but are just ways that we're just looking where we can reduce. I think that the hybrid virtual trials helps us find other ways to reduce costs as well, and we'll use that lever where we can. The other thing that I've said before is -- and this is for both diagnostics and drug development, when we were going through the COVID pandemic, we increased our resources and we kept them at a level higher than you typically would in normal circumstances. If you went back to January and February of last year, the number of trials we were doing for vaccines in our central laboratories was through the roof. I mean, we had people working 7 days a week, 3 shifts a day through New Year's, through Christmas because we had so many COVID trials, not just vaccines, but therapeutics. When we saw Omicron hit in December of last year, we said we'd better be ready that if we have this deluge of things that have to get done for variants or for the booster shots, we didn't want to not have enough people. So we kept a huge number of people to be prepared, seeing what was happening at that time with Omicron. It turns out you didn't have to do large trials with boosters. You don't have to study as many patients. The trials weren't nearly as complicated. So we had significant excess capacity. So we are bringing that capacity down as we speak today. And we're getting to the levels that would be more commensurate with the amount of work that we're doing. We're not keeping those levels high. Now diagnostics is a bit of a different thing, because in diagnostics, we kept levels where we could do 300,000 tests through the end of last year per day. And even though in the summertime of last year, we were not doing anywhere near that, we weren't even doing 100,000, we kept those levels high just in case. Thank goodness, we did that. Because when Omicron hit, we were able to go right away, our turnaround time never suffered. We got full reimbursement because we were turning around the test in 1 to 2 days as required to get the additional $25 reimbursement from CMS, and we were able to meet the needs of the marketplace. As I sit here today, I don't know what's going to happen in November of this year. If I would have brought down in March the test -- to the level of number of tests that we saw, we'd be in trouble right now because we've seen an increase in the number of tests in April versus what we saw in March. Now it's not as high as it was in January, but it's still higher than March. So we're going to keep excess capacity in our diagnostic business. I'm not necessarily going to keep it at the 300,000 level for people, I'm going to bring it down. But I'm going to be prepared for a significantly higher number as we go into end of this year and beginning of next year. And when the time is right, we'll rightsize that in order to get the margins optimized in the diagnostic business. So I'm looking at the 2 businesses a little bit differently. I don't see a scenario that says there's going to be a huge bolus of drug development work for the pandemic at this point in time, so I feel more comfortable there where in diagnostics, I just can't predict for sure. Did that make sense?

Yes. That makes total sense, and it was clearly stated. I appreciate that. Let's talk a little bit about the RFP flow then. If you have a very difficult comp against COVID vaccines and therapeutic testing, but you said the RFP flow is very high right now. Do you feel like you're taking more than your share in that RFP? Like are you seeing more RFPs than you normally would? And where are they coming from? Like what is -- I mean there's -- the big concern right now is biotech funding and the slowdown of early-stage trials and the like. Just take us through where is that RFP flow coming from? And how are you faring?

Yes. So I'll break down the 3 businesses. So if you look at clinical, which is, I think, our largest growth opportunity over time because we're not a leader in that business, so we have the opportunity to take share. Most of that is coming 60-40 or so from large pharma, 60% large pharma, about 40%, the biotech. That's a rough estimate. If you look at our Central Laboratory business, that's where we are the leader by far, makes it a little bit harder to grow on a percentage basis. Makes it harder to steal share, you got to maintain share. And there, we're seeing the majority of the business from large pharma, smaller percent from the biotech, even a different 70-30 type of ratio. If you look at early stage, that's where we have more of our biotech work than big pharma as a percent. It's our smallest business, has the highest percent growth. But you see more from the smaller biotech companies because large pharma, in general, likes to do their early-stage chemistry and biology themselves. And there, we continue to see good RFPs in each of those businesses, but the breakdown is a bit different.

So have you -- is there really any issue yet? Are you seeing any real...

I haven't seen any issue. And we look -- I mean, we look at each of the business independently. We look at them in total, we look at it in number of RFPs and dollar amounts of RFPs. I mean, I've heard a competitor say that they thought there was an issue. We haven't seen an issue. I mean, do you see anything, Glenn?

No, other than one competitor, we really haven't seen it even from other peers.

Yes.

The -- and what kind of drugs are we looking at now if it's no longer -- I mean, are you still doing a ton of therapeutics for COVID? Or is it -- were we getting back to the oncology-driven model?

Yes. COVID is a very, very small percent of the trials. I think it's less than 5% now. So it's a very, very small amount of our trials right now. Oncology as a percentage is the largest percentage.

The -- it's amazing that you could have had this huge bolus of COVID and it roll off in your sort of backlog and your book-to-bill hasn't really moved around all that much.

Yes. You've seen some movement, but I've always said, you have to be above 1.2. When you start to be at 1.3, 1.4, you worry about, are you getting the trials done quickly enough? So I like to be between 1.2 and 1.28, something like that. We've been able to maintain in that. No problem. I don't expect to see any issues in that range. So I think it's healthy.

Well, we hosted an expert day back in April. And one topic that came up when we had a clinical research panel was staffing challenges within the industry. 2 of the experts highlighted that timing lags are a result of staffing issues. And that -- there was no visibility that, that was going to get any better. Are you seeing any of that? You've highlighted other labor challenges. I wasn't sure if it was specific to this topic. But have you seen that? And is it impacting? Or does it impact you in any way, shape or form?

So I think everybody in the world is facing some level of staffing issues. And the first question is, how many people are you able to retain, what percent of your workforce is turning over and then how many people can you bring in. If you look at the first 5 months of this year, I feel really good about the reduction in our turnover. I mean, our turnover has gone down significantly. We put a lot of things in place such as helping people get advanced education and helping people with some flexibility in the work environment, working from home versus coming to the office every day. And I think that's had a good impact on people leaving. The issue now is how do we get people in that we need. The good news is we need less of them because we don't have these people leaving. I haven't seen studies impacted by this. But I know that management is spending a lot of time hiring the people and training the people to get them in. So there's no doubt there's expense associated with it. You want to manage customer relationships, a good way to do it is to keep the same people over time with those customers, and we're working on that every day. But in general, a lot of our staffing issues have come at the entry levels, whether it be in drug development or in diagnostics. So for example, laboratory technicians, lobotomists, couriers, and that's where we're -- if you look at the -- a lot of what we're trying to hire, that's where some of the issues have been. Doesn't mean we haven't had problems with project managers or in the clinical trial folks and [ calling ] doctors. But that's been less so than some of the other areas. Anything you would add? Or...

I think that covers it.

How does -- a lot of the COVID trials, my understanding, there was a pretty quick turnaround. Some of the trials are shorter. If you're talking more -- it sounds like big pharma is becoming a larger -- it's normalizing back. How does that change what the backlog looks like? Is it -- are they bigger trials that are longer in duration? How does that impact the financials and your visibility on the business?

Yes. I mean I think the backlog is healthy, and Glenn will give you a number of what we predict to roll over each year. But in general, the trials in early stage are shorter and the trials in late stage are longer. And then the central laboratory is just a matter of the size of the average of all those trials because we do trials in all different areas. But in a later stage, they're typically longer. The more that are on oncology, those are typically shorter. So I think it's more of a mix issue in terms of the types of trials. So the longest trials, for example, are a diabetes trial where you have to give outcomes data. That could take you 4 to 6 years. There's not a lot of work being done in diabetes for outcomes data at this point in time. Many oncology trials are Phase IIas, b or IIb/III, and you can get a signal pretty quickly and the trial can end relatively fast. So to me, it's more the mix than it is pharma versus biotech. And then it's the mix of the business. So later stage is always going to be your longest trials, although on average, they're getting shorter because there's more oncology. And then the early stage are always going to be your shortest trials, and they're going to be the smallest numbers.

One last one on the clinical side, and we'll move over to the diagnostics business. Has the impact of the war in terms of where trial locations, is that all over now? Like are we reestablished? You said there was a lot of movement. Is there any further impact that you're seeing from that? Or any of the global sort of macro issues that we're facing?

Yes. I mean -- so I would say that a lot of companies have opened up additional sites. They're trying to enroll patients, but that takes time. It's not like you can just like bring in a site right away and get them the kits to do the trials and get the investigators educated. So I think it's happening, but it's not over at this point in time. It's going to take some more time to get more investigators and more people. I think you have a better shot at getting more patients per site. It's harder to get more sites added on fast. So it'll take some time, but it will all equal out over time because you have to get the same number of patients into the trial. In China, I mean, I give so much credit to our laboratory folks in China. I can show you pictures where we have tents in the lobby of our laboratory because once you're in the laboratory, you can't leave, you're quarantined. And we had people volunteer to live there that have been there since March. We bought washing machines and dryers, we've gotten people food, and we're doing everything we can to help those people. But if you can imagine, things aren't going as quickly as they typically would in a normal environment. At the same time, even getting samples to the laboratories have slowed down. The infrastructure for delivery of things has slowed down quite a bit. So we're not through it yet. But at the end of the day, we've taken into account Russia, Ukraine, China and all these things around us, and we've provided the guidance that we provided. We knew all those things, and we had a sense of those things. So we're looking at those. I don't see anything today that is materially different than what I thought when we did the first quarter earnings. But it's a crazy world and a crazy environment. So we'll continue to monitor these things. Do you want to add, Glenn?

Yes. No, I agree. And just getting back to your conversion, we do around a pretty consistent kind of in the low 30s, 30%, 33% conversion of our backlog into next 12 months revenues. And that accounts for roughly 80% to 85% of those revenues. So as Adam said, there's always a mix impact between the businesses that we're in, but for the most part, it's held fairly steady.

Fair enough. That's good. Let's talk a little bit about the diagnostics business. You've talked about base volumes returning to normal. Has that continued? I mean, are you still comfortable with that outlook? We track XIFIN data. And recently, we saw a big uptick in pathology testing. I don't know if that's just a -- if you've not seen anything, I just have to ask because the data looks a little weird.

I don't recall seeing anything in our internal data there. I feel good about the waste business and diagnostics. It's mostly in the United States. And things are -- we're all here. Things are open in the United States, and we've seen continued strength in that business. We've seen it in our esoteric business and in our non-esoteric business. We've seen it in almost every geography. People say there are differences. There's minor differences. But I think those differences are like certain parts of the country are getting hit at different times with these increased spikes in the virus. And there, you see for a little short-term impact but then it goes away. I mean, the thing with Omicron that's been remarkable is as fast as it comes in and hits a geography, it leaves that geography. So it hasn't been long-term impact. So I don't see a difference across the types of tests we do. I don't see a difference geographically if you look over months, not days. So overall, the base business looks strong. In addition to that, I didn't mention in earlier comments, I mean, I'm sure you'll get to capital allocation. But for years, I've been talking to people about my biggest surprise since I've taken this job outside of COVID and some of the other things, has been how long it takes to get hospital deals done where you acquire hospital laboratories or you find ways to work with them. We finally, I believe, cracked the code on that. If you look at the announcements that we've had with Ascension, a very important big hospital deal, Prisma in South Carolina, the Franciscan Hospitals, AtlantiCare in New Jersey. So we've seen kind of -- it's taken years for some of those to happen, but the pipeline there remains strong, too, for our diagnostic business. So that's why I feel comfortable as I look at the long term that those are going to help us as we go through the future.

I definitely want to touch on those. Just one more on the volumes. Has mix changed pre-COVID to now?

Not dramatically. I mean, we now provide mix of esoteric and non-esoteric, so you'll be able to see that over time. I mean don't look at any one quarter because you'll see a 2% or 3% blip here or there. But if you look over time, they've been relatively consistent.

Okay. You mentioned before the excess capacity that you're keeping. This is a question we get all the time. It's like what happens to this. What are we talking about when you said we're holding that excess capacity? It's a negative margin impact for now, but you have to do it. And what is the margin impact from that? Like are we talking 100 basis points? Are we talking 50 basis points?

Yes. Again, while we're still doing the COVID testing, the COVID testing is more than offsetting any impact you'd have on the margin.

I'm saying if COVID testing -- let's just say COVID goes away tomorrow, we have monkeypox now.

If COVID goes away, when you're talking about depreciation, we've already accounted for the vast majority of that depreciation in the numbers that we've given. So you're not going to see like a big bolus of a depreciation from those assets. I mean I don't know if you'd add anything, Glenn, but there shouldn't be any surprise on that.

Yes. No, the margins on COVID testing have been very attractive. They're coming down, in part because volumes are coming down while we've maintained the labor costs. As Adam said, as we rightsize more to the lower volumes, we'll leverage well, but it will come down. But overall, still very attractive margins and the margin is much higher than the diagnostics average.

Just remind us what your expectation is around the [ PAG ] timing?

Around the...

When it would be -- if it's going to be continued through the rest of the year?

Yes. So we've given a range for the COVID testing, and we did that purposely because I've been wrong every single time I've given that range. And if you look at last year, it was one of the worst forecasting I can remember doing in 25 years. So we've given you a range of what we think it will be. There's multiple ways to stay within that range. One is that you get the higher price for the rest of the year because you have the emergency that continues. One would be if the emergency goes away, the volume at the end of the year is much higher than we predict because there's another COVID outbreak. I'm assuming in my model that it continues with the emergency through the end of this year. I mean, if people were thinking about removing it in July, I mean, just look at what's happening right now. I mean, I think it will be hard with everything going right now. So then if you get to July, August, September, then you're going to sit there right before flu season. We'll be looking at flu season and saying, remember what happened last year in November, December? Is this the time to remove that? And -- but there's also an election in November, and so politics have ways of coming into play. So I'm assuming it continues for the rest of the year, but I'm assuming even if it doesn't, that there'll be other things in terms of volume and so forth that will keep us within that range. But the reason I give it to you separately to be as transparent as we can be is because that range is just a range, and we've changed it 4 times in the past...

For every quarter.

Every quarter. And we're just doing the best we can with the information we have at the time.

And even with that, what's predicated in the guidance is the assumption that volume levels continue to go down throughout the rest of the year. So even if the public health emergency went away and it caused a reduction in price, it's a reduced price of what's already expected to be fairly low volume levels. As Adam said, those volume levels still could be higher than we expected. So we feel within the range that we've given, we're adequately as -- where we are today, I feel good about it.

On COVID specifically, your primary competitor called out some COVID-related investments in 2022 related to staffing and compliance. Did you have any OpEx pressure related to this? Is this something that we should think about?

I'm not aware of any -- I mean, as I said, we're keeping levels higher. If we would have brought levels down last year, we'll be bringing them back, but we didn't do that. So they might have done things a little bit differently to get to where we are today, but I think all of us are carrying some increased costs that in a normal environment, you just wouldn't do. If you really run your business to maximize your margin and your OI, I think we'd all be doing something a bit different right now. The way we got here might be different, but I think we're all here frankly.

I think one question that we all struggle with is just how much extra investment is there? Let's just say the COVID -- they put a dome over us all and there's no more COVID and it goes away, and you guys say, "We're going to take all this capacity and this cost out." How much is that? I mean, I guess...

Well, again, when it happens, it's going to impact our overall margin because no matter how much cost you take out, the margin of this business is so good that it's going to have a negative impact on -- yes, on your margin. But what I would say is that you go back to our 2019 margins, you can look at those. You know the impact on margins from PAMA that we've had and stuff like that. If you then look at margins moving forward, I think in diagnostics, we're going to continue to have some pressure on margin, flat to maybe slightly down, and especially as we do more of these big hospital deals where the margins aren't necessarily as strong as in the typical diagnostics. And then over time, those big hospital deals margins get better. In their beginning, they're tough, but they get better over time. So I think you have enough that you can kind of get a sense from '19 as to what they would look like normalized. And I don't see anything that's like a major storm ahead that could have a severe impact. In our base case, we assume PAMA comes back next year, and that has somewhere between a $70 million to $90 million impact. That doesn't mean it's going to happen. We're still going to work, and it hasn't happened for 2 years now because of what's happening in the world. We'll continue through ACLA to make the argument of why that's not the right thing to do. But in our base case, you build it in because hope is not a strategy. And you say if it happens, we still have to be successful even with that in there. If it doesn't happen, we'll be even more successful. But I don't see any like major contracts I sit here like losing sleep about coming up in the next 12 or 18 months. So I feel pretty good that there's nothing significantly coming our way other than the increased inflation and pressures that everybody is feeling. I don't think there's anything specific to the Labcorp business I'm worried about at this moment.

Let's talk about the inflation. This is what everybody asks about is the overhang. Like how is it? We all did our checks, right? And we talked to some of the regional labs and they said, "Geez, if it wasn't for COVID, we would be breakeven because we can't staff, we can't hit the -- we can't even staff to hit the volumes that we have. We have so many openings. We had to increase our comp by a meaningful amount, 20%, 30%, 40% or more." How is it that you guys have kind of downplayed it to a certain extent, like is that still the case?

I mean the pressures are real. Everybody is facing it. But I think we've managed it well. I mean, you saw us raise our minimum wage to $15. I mean, obviously, it had some impact. But we continue -- I mean, our laboratories continue to run really well and really efficiently. And when you have the type of scale that we have, you continue to build on the capabilities of scale. And there's still ways in our business to reduce costs in other areas. So for example, sometimes you get a sample and the sample comes in and you do the accession, meaning you prepare the sample in one laboratory. And then you might send it to one test for another laboratory, then you might have to go to another laboratory for a third test. If you can do all that in one laboratory, you can save a lot of cost, a lot of time, a lot of effort, and those are the types of things that we're able to do. We have a system, a proprietary system called Propel. If you haven't seen it, it's remarkable, but it's an automated way that we can handle the samples. It's almost completely automated. And if you look at what we've been able to achieve there, it's faster, it gives you more accuracy. And we're now rolling that out in other laboratories more quickly than we otherwise would have because of some of these things that we're doing, so we're rolling out more of those Propel systems. So a lot of what we're doing through LaunchPad isn't just to reduce cost, like the easy stuff everybody has done, we've done. It's now looking for ways to kind of have a more efficient supply chain, a more efficient way of moving our samples around, a more efficient way once the samples get there to use automation and artificial intelligence to figure out how to automate a lot of things that you used to do by hand. Our COVID testing, our pipetting, when we first started, it was by hand. It's all automated now. It's all automated. So we use our ability to scale, and that's our strength, to help reduce costs where we can and to get rid of some of the reliance that you have over time on so many people.

Fair enough. Okay. So it doesn't sound like net-net-net, the takeaway here should be we should not think about it as being incrementally worse than the last time you talked about this.

I would say it's hard for everybody. If anybody tells you they're not worried about inflation, if anybody tells you that they're not focused on it, then you ought to have a different discussion. What I'm saying is that in the guidance that we've given, we've taken into account the inflation that we see and we know the difficult things that we have to do in order to meet those numbers. So I don't want to minimize it in any way, shape or form. But I want to say, it's not like we don't see it coming. It's not like it's something that we don't see as an issue. So what we need to do is just to manage that as best we can. And the inflation hits you right away. It takes some time to get some of these costs out. It takes time to put these Propel systems in the laboratory and so forth, but we're doing all of those things. And that's what enabled us to commit to taking out $350 million over the next several years through LaunchPad.

And I'd say also that we've done some things that don't change the base rate, if you will, other than normal wage rate increases. So for non-bonus-eligible employees, we gave special bonuses each year given the profitability of the company. So we've done things to incentivize above and beyond just the normal wage rate. And then as Adam said, just a normal wage rate expectation right now. And frankly, on the diagnostics side, we brought in a lot of people. We talked about, frankly, having more than we need for the current levels of demand. So normal attrition right now is actually a positive thing, depending upon the positions, as we manage through the lower levels of demand.

It sounds like a hedge fund model. We have about 6 minutes left. I'd be remiss if we didn't talk about the fact that the valuations in the market have changed quite a bit. You guys have never fully dismissed or said that your strategic review is over. You've always left the door open and said, listen, we're still looking. Your stock price isn't as high as it was, the market is lower, CRO valuations are lower. Take us through sort of how the market -- what's happened in the market over the last couple of months? Interest rates are higher. The cost to do business is higher. How has that changed in any way, shape or form the way you're thinking about strategic review and/or capital allocation, which is obviously a big part of that strategic review?

No, I think it's a -- if you didn't ask that question, I would have been disappointed. I mean...

I would have been fired, actually, if I didn't ask that question.

There you go. I mean it's an important question, obviously. And last year, we committed to doing the strategic review and we looked at everything. We looked at our capital allocation. We looked at our structure. And then in December, we announced 5 things that we were going to do, right? First one was to start a dividend, which we started. Another thing was to take out $350 million in cost with LaunchPad, which is underway. Another thing was to do a significant share repurchase program of $2.5 billion, of which $1 billion was accelerated. That acceleration is complete. We said we were going to give additional disclosures, and we've given significant number of additional disclosures. And we said we're going to give long-term guidance, and we've given our long-term guidance. So everything that we said we were going to do, we did. And we did it exactly in the time line that we said we were going to do it. We said at that time, we didn't see a need for a structural change. But we also said the words at that time because a good board and a good management team is going to continue to look at all their options. I still believe Labcorp is undervalued. You cannot convince me or anybody that we are fairly valued in the marketplace. So being undervalued, we've done some things to try to unleash shareholder value. Some of those things have just been implemented in the last couple of months. We're watching, monitoring very closely, but we continue to have ongoing discussions on other options for other ways to enhance shareholder value. And we're open-minded. We're going to continue to look. We're going to continue to evaluate everything. And I think that's what you're supposed to do as a good management team and board. So nothing has changed in our openness, in our mindset in terms of what we've done and what we continue to look at. I don't know, Glenn, if you would add anything in that? I'll go through the capital allocation strategy.

No. Obviously, I agree with all the comments and we were very public about the strategic review. We brought in outside advisers. We looked. We did a lot of talking with the marketplace to really get a good sense, so we feel good about where we came out. We meet as a management team and as a board annually on our strategic review. And then at each Board meeting, we talk about what has changed. So as Adam said, this is an ongoing review. We clearly feel we're undervalued. We're taking a lot of actions to hopefully address that, most importantly, operating performance in the current environment. And we'll continue to assess strategic opportunities as they come available. And in fact, one of the opportunities also, given the displacement of the shares and the multiples, could also be an opportunity to either deploy capital for acquisitions that are now more attractively priced than they would have been otherwise or taking advantage of acquiring our shares that are obviously down as well.

Yes. And we continue to look at everything. I mean when we did the strategic view, we looked at buying, selling, spinning, everything that you can look at. And we continue to look at all of those options. Now the one thing I said that I didn't see the need for was a large-scale acquisition, particularly in the CRO space. I still don't believe that, that would be the right opportunity for us, frankly. But other than that, we're looking at everything that's available to us. And yes, things have changed, valuation has been a hard market for lots. And there's a lot of opportunities. So we're looking at them in active discussions.

Are interest rates being higher part of the narrative here or an impact on how you think about things?

I mean, overall, yes, we're in a rising rate environment. The good news for the company is we tend to have pushed out a lot of our debts, so no near-term maturities to work about. We're mostly fixed rate debt as well, so we can always float some of that. So from a company standpoint, balance sheet is strong. As far as the bigger concern of what it has to do with the economy and potentially going into a recession and frankly, we have businesses that actually fare pretty well or historically have through those economic environments. And we'll manage it through those times, but also potentially being opportunistic for opportunities that come up that wouldn't have otherwise been, were it not for people now being more constrained because of the impact that rates are having with [ them ].

Is it easier to do M&A right now or harder?

I think there's a lot of things to look at. The hospital deals, I think, are a bit easier than they have been before because of the pressure that hospitals are feeling, what they've learned from trying to manage their own labs through COVID. I think we're going to continue to see a lot there. There are some other things. We've talked about local laboratories. Our laboratories, the valuations have come down significantly. They're worth looking at. But a lot of people running those companies or the Boards would say, "Well, this isn't going to last." We're going to -- so I think it takes time to see how that plays out before for certain. But I can tell you, when you're the size of Labcorp and you have the presence that we have, there's almost nothing that we don't see or we're not able to evaluate. And I feel really strongly that if something is out there, we'll know about it. And we look at our capital allocation very strongly. I first look for these hospital deals because they're accretive in the first year, return our cost of capital typically in 2 years, and we can integrate them like crazy. I look for strategic moves like we've done with GlobalCare and PGDx and those types of things. I don't see us doing a lot of PGDx types of things, but that one I thought was special. And then we have a dividend now that we're accountable for. And the share repurchase program -- I mean, I think our shares are undervalued. So we'll continue to do what we can do there.

The talking up of the Ascension and deals like that -- and this is a question for you, Glenn, has the Street modeled that properly?

Overall, yes. When we do deals like that, when we give our guidance, we reflect it in the enterprise. And then when the deal is closed, we put it within the segment guidance that we've done. But as Adam said, the pipeline on deals is very strong. The balance sheet is as strong as we've seen it because of all the cash flow that we've generated in the COVID environment, and we've been pretty judicious in how we've allocated it. So the good news is as M&A comes in there, we're well positioned to take advantage of it. But if not, we have other good uses of that capital. And another...

And you can do another $1 billion ASR. I'm sure everybody out here would really love to hear that. Gentlemen, we're out of time. This has been fantastic. Thank you so much. And thanks, everybody, for joining us today.

Thanks. Have a good day, everybody.