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F500-2021-218-Laboratory Corp. of America

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Labcorp provides laboratory services to pharmaceutical and diagnostics companies, health care and health insurance providers, governments, hospitals and health systems, patients and consumers, academic institutions, and retailers. Labcorp operates in over 100 countries and performs more than 600 million tests around the world each year.

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Labcorp Holdings (LH): Company Profile, Stock Price, News, Rankings

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Labcorp Holdings

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Day, and thank you for standing by. Welcome to the Q3 2026 Labcorp Holdings earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Nickolo Russo, VP Investor Relations. Please go ahead.

Good morning, and welcome to Labcorp's third quarter 2026 financial results webcast. With me today are Adam Schechter, our Chairman and Chief Executive Officer, and Julia Wang, our Executive Vice President and Chief Financial Officer. This morning, in the events section of the Labcorp Investor Relations website at ir.labcorp.com, we posted both our press release and the supplemental financial presentation with additional information on our business and operations. We will also host a replay of this webcast on the IR website for one year. On today's webcast, we will focus on our adjusted non-GAAP results for the third quarter of 2026, our capital allocation strategy, and our updated financial guidance for the full year 2026. Our GAAP results and a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures are available in today's earnings release and the supplemental financial presentation.

Please see the Use of Adjusted Measures section in the supplemental presentation for more information regarding our use of non-GAAP financial measures. In today's remarks, the term organic growth excludes the impact from acquisitions, divestitures, and currency, as well as other strategic actions taken in the early development business. Our remarks will also include forward-looking statements, including but not limited to statements about our updated 2026 financial guidance and long-term financial outlook and the related assumptions of each, the expected impact of various factors on our business, operating and financial results, cash flows, and financial condition, global economic and market conditions, our future business strategies, the expected savings, benefits, and synergies from acquisitions and other transactions and partnerships, and our potential opportunities for future growth. Each of these forward-looking statements is subject to change based upon various factors, many of which are beyond our control.

More information is included in our most recent annual report on Form 10-K and subsequent quarterly reports on Forms 10-Q, and in the company's other filings with the SEC. We have no obligation to provide any updates to these forward-looking statements, even if our expectations change. Now, I'll turn the call over to Labcorp's Chairman and CEO, Adam Schechter. Adam?

Thank you, Nickolo. Good morning, everyone. We appreciate you joining us today to review our third-quarter 2026 results. Labcorp delivered another strong quarter with 7% revenue growth driven by volume, margin expansion across the enterprise, and 14.5% EPS growth. Our results reflect disciplined execution as we drive continued momentum in diagnostics and biopharma laboratory services. With these strong results, we are increasing our 2026 guidance. Before turning to the specifics of the quarter, I want to briefly address PAMA. We are disappointed by the recent announcement on the proposed fee schedule changes related to PAMA, which is expected to reduce Medicare reimbursement rates for hundreds of laboratory tests beginning in 2027. The preliminary fee schedule is not fully representative of the broader commercial laboratory market.

The proposed rates rely on data from only 2% of all laboratories paid under Medicare Part B in 2024, and very limited data from physician office laboratories and hospital outreach laboratories. In our view, these payment cuts will threaten patient access to laboratory services, they will negatively impact patient care and innovation, and they will impact the viability of laboratories across the U.S. We previously considered PAMA-related reimbursement pressure in developing our 2026 to 2029 long-term outlook, and we are reaffirming that outlook today. With our strong underlying business momentum, our strong biopharma laboratory business, and the business development opportunities before us, along with our LaunchPad initiatives, we remain very positive about the future. Labcorp continues to support the RESULTS Act, a solution with strong bipartisan support that would encourage a sustainable and innovative laboratory diagnostic system in the U.S.

Now, let's turn to our strong financial performance for the third quarter. Revenue grew 7% to $3.8 billion. AOI margin expanded 60 basis points to 15%. Adjusted earnings per share grew 14.5% to $4.78. And free cash flow was $412 million. Moving to our segments, diagnostic revenue increased 6.5% to $2.9 billion. Biopharma laboratory services revenue increased 8.5% to $867 million, driven by continued strength in central laboratories. Our BLS book-to-bill was 1.13 in the quarter and 1.10 in the trailing 12 months. Julia will talk more about our strong results and increased 2026 guidance in just a moment. At our Investor Day, we laid out the next phase of Labcorp's strategy and the priorities we believe will drive attractive growth over the long term, beginning with leading in specialty testing.

As new therapies emerge, particularly in high-growth specialty areas like oncology, neurology, autoimmune disease, and women's health, Labcorp's testing solutions are integral for drug development, diagnosis, therapy selection, and ongoing disease monitoring. Our specialty testing business continues to grow about three times faster than the broader diagnostics market. Importantly, this growth creates a halo effect for our core laboratory business, as physicians often order specialty tests alongside other Labcorp tests for their patients, driving volume growth across both specialty and core diagnostic testing. During the quarter, we expanded our leadership position across important high-growth specialty areas. In oncology, we meaningfully advanced precision medicine. We announced FDA approval of a companion diagnostic supporting patients with advanced melanoma. This approval supports treatment decisions for both patients and providers and demonstrates the capabilities of our PGDx platform, strengthening our position in companion diagnostics.

This platform can support future companion diagnostic opportunities, and we are seeing increased interest from our biopharma clients. We also announced a collaborative clinical study with the Knight Cancer Institute at Oregon Health & Science University, evaluating Labcorp's Plasma Detect Genome MRD test to detect muscle-invasive bladder cancer reoccurrence, a significant clinical challenge despite advances in treatment. Moving to neurology, new therapies, blood-based biomarkers, and an increasing understanding of neurodegenerative disease are enabling earlier diagnosis, more informed treatment decisions, and improved patient care. Labcorp is a leader in this space, and our neurology portfolio spans Alzheimer's disease, Parkinson's disease, ALS, multiple sclerosis, epilepsy, stroke, and other neurological conditions. Subsequent to the quarter, we launched an FDA-cleared pTau-217 test for Alzheimer's disease, available in both primary and specialty care settings. This launch will help bring Alzheimer's testing to clinical practices, enabling earlier and more accessible detection.

This test will also strengthen our position in one of the fastest-growing areas of specialty testing. Beyond our specialty focus areas, we continue to leverage science and innovation to address many important healthcare needs. For example, we launched a hepatitis D reflex test to support earlier detection of the most severe form of viral hepatitis. We announced a collaboration with Waters Corporation that positions Labcorp as the first commercial laboratory to offer the FDA-approved BD Onclarity HPV Assay across clinician and self-collected screening options, including in-clinic, patient service center, and at-home settings. Focusing now on the priority of being a partner of choice for health systems and leading pharma. Partnerships and acquisitions expand access to testing capabilities and allow us to bring the benefits of scale, science, and operational excellence to customers. During the quarter, we acquired MLM Medical Labs, expanding our global central laboratory capabilities.

This acquisition establishes Labcorp as the only central laboratory provider with a wholly owned laboratory network across four continents: North America, Europe, Asia, and Africa. We also partnered with the National Association of Community Health Centers to strengthen leadership development, support practice improvement, and advance community health initiatives across the nation's community health center network. Subsequent to quarter end, we signed three acquisition agreements, each of which is expected to meet our financial criteria of being accretive to adjusted EPS in the first year and returning the cost of capital by year three. The timing of each of these is subject to regulatory approvals and customary closing conditions.

These include an agreement to acquire select assets of BioReference Health's laboratory testing business, an agreement with Myriad Genetics to acquire their prenatal health testing business, which includes the Prequel, Foresight, SneakPeek, and FirstGene tests, and an agreement to acquire Millennium Health, an accredited specialty laboratory with more than 15 years of experience in drug testing and surveillance. We continue to have a strong pipeline of partnership and acquisition opportunities that support our long-term growth strategy. We look forward to discussing those with you in the future. Moving to personalized health solutions, which encompasses both precision medicine and consumer health. In addition to several new companion diagnostics, we also launched solutions that help consumers better understand, manage, and improve their health. In the quarter, Labcorp OnDemand launched our Advanced Health Panel and the Marker by Labcorp genetic health panel.

With over 140 panels and tests across many conditions, we provide insights to consumers to understand their health over time. We also announced a collaboration with Thrive Global to launch the Thrive 5 Health Test on Labcorp OnDemand, a test that combines lab results with other health biomarkers to help improve cardiometabolic health. In addition to their results, consumers receive personalized educational content and a practical action plan. These examples demonstrate the value of Labcorp's lab testing capabilities to deliver more meaningful insights for consumers. Shaping our future through technology and innovation continues to be a focus of our organization. Our advanced technology solutions include the MyLabcorp app, Test Finder, and increased automation in our laboratories using robotics, digital pathology solutions to improve customer experiences, to enhance productivity, and to help transform our business.

In the quarter, our central laboratory service business launched the next generation of Labcorp Global Trial Connect, helping pharmaceutical sponsors and investigator sites more effectively navigate growing clinical trial complexity, reinforcing our commitment to delivering differentiated technology-enabled solutions for our customers. The strength of our technology strategy and continued focus on innovation was recognized by Forbes, which named Labcorp to its list of America's best employers for tech workers. With that, I'll hand it over to Julia to discuss our financials in more detail.

Thank you, Adam. Our third quarter results represented strong execution and continued progress against our strategic priorities. Enterprise revenue grew 6.9% versus prior year. Adjusted operating margin expanded 60 basis points, primarily driven by organic revenue growth and operating efficiencies. Adjusted earnings per share grew 14.5%, and we generated $412 million in free cash flow. These results demonstrated the earnings leverage in our business as solid organic growth, disciplined execution, and productivity improvement translated into margin expansion and double-digit earnings growth. We remain active in capital deployment with $256 million in acquisitions and $58 million in dividends. We ended the quarter with $262 million in cash and $5.9 billion in total debt. As approved by our board of directors, we currently have approximately $1.4 billion remaining in our share repurchase program, providing continued flexibility to return capital to shareholders. Moving to more details on the quarter.

Enterprise revenue was $3.8 billion, up 6.9% from the third quarter of 2025. Organic revenue growth was 5.5%. Net acquisitions contributed 1.5% of growth, partially offset by foreign currency translation of 0.1%. Adjusted operating income was $517 million, or 15% of revenue, compared to $513 million or 14.4% of revenue last year. The adjusted tax rate was 22.9%, in line with last year. We continue to expect our full-year adjusted tax rate to be nearly 23%. Adjusted EPS was $4.78, up 14.5% from last year. Free cash flow was $412 million compared to $281 million last year. The increase was primarily driven by the improvement in working capital, partially offset by planned increases in capital expenditures. Our strong cash generation provides continued flexibility to invest in the businesses while maintaining a disciplined approach to capital deployment. Turning to our segments. Diagnostics laboratories continued to perform well.

Revenue was $2.9 billion, up 6.5% compared to the prior year. We delivered organic revenue growth of 4.4%, consisting of 3.1% volume growth and 1.3% favorable price mix, largely driven by higher tests per accession. Acquisitions contributed 2.2% to revenue growth. Diagnostics adjusted operating income was $492 million, or 16.7% of segment revenue, compared to $450 million or 16.3% of revenue last year. The combination of healthy organic growth and continued operating efficiencies drove 40 basis points of margin expansion in diagnostics. As Adam Schechter mentioned, subsequent to the quarter end, we entered into agreements to acquire select assets of BioReference Health, Myriad Genetics Prenatal Health testing business, and Millennium Health. In addition to being strong strategic fits, each of these transactions is expected to meet our acquisition financial criteria of being accretive to adjusted EPS in year 1 and returning cost of capital by year three.

As typical with all of our acquisitions, we expect these transactions to become more accretive over time as we fully integrate. Related to the BioReference Health transaction, we would expect to generate $260 million of revenue in the first 12 months at an adjusted operating margin slightly higher than the diagnostics segment average, resulting in approximately $0.15 of adjusted EPS, including financing costs. We currently expect a mid-year 2027 close, subject to regulatory approvals and customary closing conditions. As it relates to the Myriad Genetics transaction, we expect to add approximately $160 million in revenue and to be slightly accretive to adjusted EPS in year one, and to reach average diagnostic segment margins by end of year two, once fully integrated. We currently expect an early 2027 close, subject to regulatory approvals and customary closing conditions. BLS revenue was $867 million, up 8.5% compared to last year.

Organic constant currency revenue growth was 9.6%. The strong organic growth was partially offset by the strategic actions in early development of 1.2%, and acquisitions offset the impact of foreign currency translation. Within the BLS segment, on an organic constant currency basis, Central Lab services delivered strong revenue growth of 11.3%, and early development grew 5%. The strong growth in Central Lab was essentially driven by a healthy underlying demand, while favorable timing related to study starts in the quarter also contributed. BLS segment adjusted operating income was $159 million, or 18.3% of revenue, compared to $132 million, or 16.5% of revenue last year. Adjusted operating margin expanded 180 basis points, driven by organic growth and operating efficiencies from the strategic actions we have taken in early development. Our BLS segment ended the quarter with a backlog of $8.9 billion.

We expect approximately $2.8 billion to convert into revenue over the next 12 months. Quarterly book-to-bill was strong at 1.13, translating into a strong trailing 12-month book-to-bill of 1.10. The combination of robust organic growth, significant margin expansion, and healthy book-to-bill reinforces our confidence in the trajectory of BLS. Turning to our full-year 2026 guidance. Strong year-to-date execution and continued business momentum give us increased confidence in our outlook. As a result, we are raising the midpoint of our 2026 enterprise revenue range and adjusted EPS range by $65 million and $0.18 respectively. The increase in our outlook reflects stronger underlying business performance, partially constrained by approximately $10 million in incremental foreign currency headwinds versus our prior guidance. Enterprise revenue is expected to grow 5.9%-6.7%, which represents a 50 basis point increase at the midpoint.

The guidance includes a 30 basis point benefit from foreign currency translation versus a 40 basis point benefit in our prior guidance. Diagnostics segment revenue is expected to grow 5.5%-6.2%. This is a 20 basis point increase at the midpoint. We continue to expect the majority of the growth to be driven by organic performance. BLS segment revenue is expected to grow 7.4%-8.4%. We have raised the midpoint of our BLS revenue guidance by 109 basis points, primarily driven by continued strength in Central Lab. The current guidance includes a 130 basis point foreign currency tailwind compared with a 150 basis point tailwind in our prior guidance. For the full year, on an organic constant currency basis, we now expect Central Lab's revenue to grow in the high single digits, and continue to expect Early Development to grow in the low single digits.

We continue to anticipate enterprise margin expansion for full year 2026, driven by both Diagnostics and BLS relative to 2025. At the enterprise level, LaunchPad continues to deliver productivity improvement and remains on track for the $125 million full-year savings target. Our adjusted EPS guidance range is $18.30-$18.70, with an implied growth rate at the midpoint of 12.5%. Our free cash flow guidance range remains $1.24 billion-$1.36 billion. We continue to expect capital expenditures to be nearly 4% of revenue. Our full year guidance assumes foreign exchange rates as of September 30th of 2026. The guidance also reflects our current capital allocation assumptions, including the use of free cash flow for acquisitions, share repurchases, and dividends.

As we look towards 2027, based on the preliminary fee schedule proposed by CMS, we estimate the impact of PAMA to be approximately $125 million, and we expect to offset a portion of that impact. With our underlying business momentum in Diagnostics, strong Biopharma business development opportunities, and LaunchPad initiatives, we remain very positive about the prospects of 2027, and we look forward to providing 2027 guidance in February. Now, I will turn the call back to Adam for closing remarks.

Thank you, Julia. Let me close with a few takeaways. First, we delivered another excellent quarter with strong revenue growth, margin expansion, and double-digit adjusted EPS growth. Second, we are translating the strategy we laid out at Investor Day into execution, strengthening our leadership in specialty testing, expanding strategic partnerships and acquisitions, accelerating personalized health solutions, and leveraging technology to improve performance. Third, as a result of our performance, we are increasing the midpoint of our full year guidance for revenue and EPS and expect to move into 2027 with solid momentum. We are confident in our strategy. We are encouraged by the opportunities ahead of us, and we are well-positioned for continued strong performance moving forward. Operator, we will now take questions.

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In the interest of time, we do ask that you limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question comes from Erin Wright of Morgan Stanley. Your line is open.

Good morning. I have a question about margins and margin progression into next year and kind of where things land, just given in the context of PAMA and the 75 to 150 basis points of margin expansion over three years that you laid out at the Investor Day. Also, looping in sort of the acquisitions that you recently announced, how do you think about that margin cadence, particularly into 2027? Can you expand margins next year, and what are some of those moving pieces on that front if PAMA is implemented and obviously those deals close? Thanks.

Yep. Thank you, Erin, for the question. The good news is we have a lot to talk about here. We have continued strong momentum in our business. If you look at our diagnostic business and you look at margins, we have increased our margins for many quarters in a row now. We expect, if you put PAMA aside, that we would continue to improve those margins as we move into the future. Obviously, we will wait to see what happens with PAMA and the RESULTS Act. Obviously, the year that PAMA is introduced, we will do as much as we can to offset PAMA. I think we have four strong levers to do that.

The underlying diagnostic business, the strength in our biopharma laboratory business, the LaunchPad initiatives that we will continue to push really hard, particularly in a PAMA year, and also the business development opportunities that we have announced, and we have others before us. All those things will help offset the impact of PAMA. But obviously the year that PAMA is implemented will be a tougher year than the other years. It will get easier after the PAMA years. It also depends on the timing of the business development and when we close those deals. We expect each one of them to be accretive in the first year, so they should be helpful in terms of accretion, but it takes a bit of time before the margins get to our average margins.

For example, the Myriad deal, which is a great deal, would not have margins reach our average margins until the end of year two. So it would take a little bit time for the margins to get there, and it really depends on the exact timing of those deals. For example, for the Myriad deal, we expect it to happen in early 2027. So we will provide exact guidance in February of next year. But what I will say is we are confident that we are moving into 2027 with momentum. We reaffirmed our guidance today, even after giving what we expect PAMA to be in year one. So it tells you that we are confident in the margin expansion over time.

Hi, good morning. Erin, maybe to add a bit more color as it relates to margin, we are very pleased with the progression we have made as an enterprise. Actually, Q3 represented the sixth consecutive quarter of margin progression across the enterprise, inclusive of the two operating segments. The other fact I would share is that when you step back, look at the fundamental drivers of our margin expansion, it really boils down to strong organic growth for both operating segments, particularly in the leading diagnostic and CLS business. It is our relentless focus on operating efficiencies through our LaunchPad initiatives. And of course, this year, we also benefited from the strategic actions that we have taken in early development.

As Adam also shared just now, when you look at 2027, we really have multiple levers that we can really pull, whether through the continued strength in diagnostics or continuing the momentum in CLS. But the business development will be another lever, in addition to our focus on LaunchPad, which we will be leveraging advanced technologies to help us fundamentally driving the cost out of the system in a sustainable way of working. All in all, we are looking forward to wrapping up 2026 with really strength and going into 2027 with momentum. So stay tuned with more guidance coming in February of 2027.

Thank you. Our next question comes from Lisa Gill of JPMorgan. Your line is open.

Good morning, Adam. Good morning, Julia. I want to follow up on those comments on the business development side. Adam, you have done four deals here in the last couple of weeks. Can you maybe just talk about what you are seeing currently in the pipeline, number one? Two, we have had some questions from investors about the margin progression for some of these acquisitions, because inside of some of the current companies, they are not accretive. Can you maybe help people to understand, is it that you just convert that to the contracts you have with managed care, and that is why you have the visibility around how the margin profile will look for the business development? Then just lastly, anything else you would want to share as we think about an M&A pipeline as we go into 2027? Is it increasing? Do you see incremental opportunities?

Just how do we think about business development?

Sure. Thank you, Lisa. First of all, the pipeline remains strong. It is interesting, I have been talking about the strong pipeline for some time now, and several people have said, "Adam, you keep talking about it. When are these deals going to happen?" I think this just shows you cannot control the exact timing of deals, but when the pipeline is strong, the deals will come. We have other deals in the pipeline. I am excited about that pipeline. We expect to have more announcements in the future as we move forward. The pipeline remains strong. The interesting thing about PAMA, where on the one hand it has a significant impact to us in one year, I think it also increases the pipeline for business development.

I think smaller hospital laboratories, regional local laboratories, they are going to struggle a lot with PAMA, and it really does cause them to rethink about their business. The second question regarding the individual deals and margin expansion, I would say each of these deals are a little bit different. MLM is a deal that was for our central laboratory business. It expands our capabilities. It gives us a presence in a part of the world where clinical development is very strong, and it is a very separate part of our business that is integrating that deal. If you look at the other three deals, we will start with the Myriad deal, which I think is a very good deal for us because it is in women's health. It is an area we know well. It brings new tests to us.

The FirstGene, the Prequel, the Foresight, the SneakPeek, they are all good women's health products that we can add to our existing portfolio of products. We already have sales forces. I think that together we can reach more patients, we can improve access, we can bring new tests that we do not currently have to the patients that need those tests and the physicians that want those tests. So it will actually be a very competitive environment of which we can now compete much more effectively with these tests than before. It will be accretive in the first year. It folds in nicely to a business we know how to run. We have done deals with Myriad before, so we know how to work with them and how to integrate. So it is an exciting opportunity for us.

If you look at the Millennium deal, that is a part of our business that is a separate business unit. We do very well in that business. But this increases our presence in parts of the country that we do not have a presence in or we do not have a strong presence right now. So it is a business we know how to run.

It is a business we have been involved in for many years, and it just expands our geographic footprint. It enables us to be more competitive, improve access to parts of the country that we do not have as much access to as of today. If you look at the BioReference deal, we have done two deals with them already. We know how to work with them very well. We have worked with them on integration, so we know how to integrate with them very well.

They have presence in parts of the country that we're not as strong in, so it increases our relevance in parts of the country where we want to increase our presence, increases access, and we know how to work with them to integrate the business well into our existing business. The timings, we tried to give you a sense of what those timings were. Myriad, early 2027, BioReference mid-2027, Millennium later this year. Based upon the timing, we would expect that margins would be accretive to earnings in the first year, margins would improve over time.

Thank you. Our next question comes from Ann Hynes with Mizuho. Your line is open.

Morning. Thank you. Staying on that women's health topic. I know we've seen some meaningful changes in cardiovascular screening recommendations from the AHA and the American College of Cardiology. I think in March, they expanded testing for high certain risk patients. But yesterday, they really expanded recommendations for women's cardiovascular health. When major organizations like this do change their recommendations, how should we think about the potential impact for you? Do physicians typically change their ordering patterns quickly? Is there a lag time and adoption time? Just from an insurance perspective, if some of these tests aren't covered, do they usually start covering them because of these organizations' recommendations? Thanks.

Yeah. No, thank you, Ann. I think women's cardiovascular health has been something that I've personally been focused on for a long time, and I'm glad to see that it's now being focused on by these additional societies and so forth. It's an underdiagnosed disease, particularly in women. It goes undiagnosed in the way in which it presents itself, cardiovascular disease, and I think there's a lot more that we can do to enhance the cardiovascular health of women. So it's nice to see that the societies will move in that direction. I would say many physicians have already moved in that direction, have already begun to screen women for cardiovascular. They teach women how cardiovascular disease presents very differently at times in women versus men. And I think that we've seen a movement to actually improve cardiovascular health in women already.

Separate and distinct from that, when societies provide recommendations, I do think it's a way for us to reinforce with payers the importance of paying for those tests. I do believe that physicians will tend to prescribe more of those tests faster when they become a core recommendation of a very strong society, or group of highly thought of physicians and thought leaders. So I do think it's helpful, although when you do 750 million tests per year, it's hard to pull out any type of change like this. I do think that it's for benefit of women. I do think it will help us over time.

Thank you. And our next question comes from Eric Coldwell of Baird. Your line is open.

Good morning, and congrats on really nice results and outlook. I am probably going to deliver my worst question of the quarter here because-

There is a lot. We actually like your deals. You have been very clear about the capital deployment, but I have been particularly concerned about the BioReference, the BRL deal, because we do have their financials, we know the revenue that you expect. I think we have a reasonable estimate on cost of capital, et cetera. It was very hard for me to initially come up with year one accretion on that deal, particularly when the first quarters are typically well below what your exit rate is post synergy. Help me figure out what I am missing here. Is there like a tax benefit driving that $0.15 of accretion? Because, at face value, rough scratch pad on the math, it looks like you are actually guiding to a year one operating margin of something like 22% or 23% to get to $0.15 of accretion.

Tell me what I am missing on this, because that is, quite frankly, a lot better than I expected.

Yeah. So, once again, BRL is a company that we have worked with, we have done two deals with, so we understand their systems, we understand their cost structure, we understand the way in which they do business very well. When we looked at the business, they are in geographies where we think we can increase access, we can bring our testing capabilities more broadly, and they are in areas, frankly, we are not as strong in where they were strong.

Overall, when we gave the revenue estimate, we have included the impact from PAMA that could be in there. We have included some other things in terms of where the revenue we expect to be in the first year versus what they might have reported before. But we also have a very good handle on what their cost structure is and what that would look like in our hands versus in their hands.

I don't know, Julia, if there's anything you would add to that.

Hey, Julia, I appreciate any comments you make. I think if I remember, they have something like 80 service centers. Are you planning to just do big consolidations here, drive all of their volume to your lab in the area? Anything you could help us with on the synergy path and the cost path would be helpful to assuage the concerns that at least I had, anyway.

Over time, when it comes to the service centers, where there's overlap, we'll decide which service center is best to keep. It could be that we close down some Labcorp service centers, it could be that we close down some BioReference, but where there's overlap, we would look obviously to have synergies. We also will be able to look at the capacity in their laboratory, the capacity we have in our Raritan laboratory, both of which are close to each other, and where we were going to expand because of our business development and growth opportunities, we might not have to expand in areas that we had before, or we'll look to say, are there synergies there as well? So it could be a reduction of the expansion that we're planning based upon the number of deals that we've done in this part of the country.

I think that you'll find synergies across the business, Eric, but in addition to that, I just believe when you look at contracting and stuff like that, there's always things that are helpful.

Yeah, good morning, Eric. I believe Adam has covered the ground. I think the only thing I would say is that, as Adam already said, because we have had this long-term partnership with BioReference with two prior acquisitions already having been successfully integrated and demonstrated our ability to really deliver against our expectation as it relates to return on investment. We are feeling very comfortable with the outlook that we put out there as it relates to the first-year contribution. And actually, if you step back, look at the few transactions we've just announced subsequent to the quarter end, they are all tuck-in nature, whereby we have a very proven track record of successfully integrating them into our extensive operating scale and infrastructure, and then being able to really drive synergistic value through both growing the top line and also optimizing the cost structure.

We look forward to updating you as we continue to make progress, but we are confident of our ability to really continue to drive acquisitions to contribute 1.5%-2.5% revenue growth to our overall growth trajectory, but also continue to drive more accretion over time as we fully integrate those transactions.

The last thing I would say, Eric, is when you look at our procurement capabilities, you look at our cost based upon scale of what we do, all that comes into play and is helpful as well.

Thank you. Thank you very much, guys. Great job with the quarter.

Thank you. Our next question comes from Michael Cherny of Leerink Partners. Your line is open.

Good morning, Adam. Thank you so much for the question. One just quick housekeeping and one additional question. First, just on the change in revenue guidance, can you just remind us how much is from M&A in terms of what's built into the update for the year? Then relative to PAMA, Adam, I think we all hear you completely on your view on the RESULTS Act and the logic behind it. That being said, it is a tough environment in D.C. Can you just give us a flavor as you think about the offsets for 2027, what the organization is starting to do now to prepare for that?

Yeah. Good morning, Michael. Let me start addressing the question. So relates to the guidance raise, I would say that the raise is driven by strength in the organic performance of our businesses. If I break it down segment by segment, starting with BLS, we raised the midpoint of our guidance by 190 basis points, $59 million on an absolute basis. In addition to strength in organic performance, particularly in CLS, we also shared in the release that we have about 10 basis points of an FX headwind when you look at this guidance versus prior guidance. That FX impact was actually offset by expected contribution from the MLM acquisition that we closed in September. Then if you were to move to the diagnostics segment, we raised the midpoint of our guidance by 20 basis points and $22 million on absolute basis.

I would say there's a little bit expectation about potential revenue contribution from the Millennium Health acquisition, which we expect to close later in this year, but it's very minimal. In the scheme of things, I would really consider that as immaterial. In short, we are raising the midpoint of our guidance for the full year from a revenue perspective by 50 basis points, $65 million. If you neutralize FX, it would be a raise of 60 basis points and $75 million, all driven by strength in the organic performance of our businesses.

Regarding PAMA, obviously we remain disappointed by the recent announcement. In our base case, we're going to assume that PAMA happens next year, that there's $125 million impact from the traditional Medicaid Medicare segment. We're still cautiously optimistic about RESULTS. We'll still continue to fight for that. We'll fight for a delay if RESULTS doesn't get passed this year. In our base case, we want to assume that it does happen next year. If you look at the four things that we're doing to offset it, one is the underlying diagnostic business is strong, and we will continue to focus on it. The volume looks good. Our strength is there. The underlying business, we expect to remain strong. The second thing is our BLS business continues to remain strong, and we're going to continue to focus on that, to grow that business.

The book-to-bill looks great. That's another way to offset part of it. Our LaunchPad initiatives, we're accelerating, and we're already focused on that. We have things underway that we're putting in place in fourth quarter to prepare for first quarter. We'll give you the exact amount, but you saw at Investor Day, we raised our expectation of what we expect for LaunchPad from prior guidance. It's meaningfully higher now than it has been in the past, and we are accelerating our efforts as we speak today. The fourth thing is the business development, which you've seen us announce four business development things in the past month or so, and there's more to come. We're continuing to have a very strong pipeline. There's a lot we can do there.

You can't accelerate those per se, but we continue to focus on those other opportunities, and I would expect that there's more to come in the not-too-distant future.

Thank you. Our next question comes from Luke Sergott of Barclays. Your line is open.

Morning. I just want to talk on the biopharma services and the demand that you guys are seeing. You had really strong pickup there in bookings. I understand it was a little bit easier comp, but really nice acceleration there. Your conversion is also kind of picking up as well. Can you just walk through the dynamics, where you're seeing the demand? Is it any particular indication or therapy? Just give us an overlay of how that visibility into that continuing through the beginning of next year.

Yeah. If you look at the central laboratory business in particular, it's very strong growth. In the quarter, the growth was driven by healthy underlying demand. We also had some favorable timing related to study starts in the quarter, but it's mostly the underlying demand. As you look to the book-to-bill, as you said, it is strong. I would say that it's strong in both our central laboratory business, but also in our early development business. In our central laboratory business, it's driven by large pharma. It's driven by not only oncology and specialty areas where we've seen growth in the past, but we are seeing an increase in cardiometabolic areas. When you look at the GLP-1s and the number of different trials and types of trials, we are seeing some accelerated opportunities in that area as well.

When it comes to early development, we are seeing that the funding environment looks pretty good. It is driven by smaller biotechnology companies, but we are trying to change that a bit by getting more large pharma business in that area, and we are beginning to see some early signs of success in doing that. In summary, both businesses are doing well. The business is driven by central laboratories. Central laboratories book-to-bill looks really strong. Specialty areas, particularly oncology, continues to grow, but we are also seeing more growth in areas like cardiometabolic.

Great. Then a follow-up on that. As you look, the demand continues to pick up. Can you talk about what you are seeing from a capacity expansion in the industry, and how tight is that getting? Then obviously, it would bode well from a pricing perspective as we think about the out years.

Yeah. As I look at our capacity, we continue to have plenty of capacity. We have a very large footprint. We have central laboratories now in four continents as wholly owned subsidiaries, but we also have access to other parts of the world, and we are increasing our access in other parts of the world, like, for example, in Latin America. So our geographic presence, our ability to have these large laboratories, gives us capacity for even more growth as we go into the future. So I am not concerned about our ability to take on new business. In fact, we are looking for as much new business as we can get moving forward.

Luke, earlier, we shared that we are in the process of building a state-of-the-art lab facility in Indianapolis. That is in response of anticipated continued strong momentum growth, particularly for the CLS business. We are in the middle of that engagement right now, and that is reflected in our capital expenditure for this year and next couple of years.

Thank you. Our next question comes from Tycho Peterson of Jefferies. Your line is open.

Hey, good morning. Adam, I want to follow up on the Myriad deal. You are buying the assets after the management team talked about a 60% revenue decline, share loss and payer friction, and that was all before the CLFS rate proposal, which is an additional drag on revenue. Why is now the right time to do that deal, and why are you the right partner to turn around that business?

Yeah. No, great question, Tycho. We feel very comfortable and confident in taking over that business. In fact, it is a very strong business for us today. But they have, in particular, the FirstGene test, which we think has tremendous opportunity. So it is newly launched. It is an innovative single-gene NIPT solution. It screens for chromosomal conditions, select single gene disorders, maternal carrier status, and RhD compatibility. So it is going to compete really well in the fastest-growing part of the segment, where we do not necessarily compete today.

Taking our strong existing tests and infrastructure and relationship with customers and our scale, now combining it in particular with this new test, which will compete in a very competitive part of the market, I think bodes well for us to be the right group to launch that, and also the right time to launch it, because that market is still being defined, and we think we could be a winner ultimately.

Okay. That is helpful. And then one quick follow-up on BRL. Appreciate all the momentum and strength you are seeing, especially on the pharma side. I guess, as we think about biotech funding getting a little softer here, how do you think about the impact there on early development?

Yeah. The early development business, much smaller, much less important part of our business, but it is performing well right now. We have made some good strategic moves. We are seeing our RFPs strong there. The study starts are strong there. We are trying to switch more of our load to larger pharma, and we are seeing some early signs of success. I feel good about where we are today.

Thank you. Our next question comes from David Westenberg of Piper Sandler. Your line is open.

Good morning, Adam and Julia. I am going to ask a question about PAMA. I prepared for a bunch of questions on Myriad and Fresenius and all that, but it seems to be a lot on acquisitions, so I am going to pivot to PAMA. Sorry if the question is bad because I was preparing for something else. I want to talk about PAMA from a multi-year perspective. We know the worst part is obviously in year one, which is BE 2027. It does look like a number of tests are above that 15%, which kind of suggests there could be some headwinds into 2028 and 2029.

Can you talk about the strategies both from a Labcorp perspective and how you anticipate industry might change in the way they are thinking about contracting or discipline or any other approach that the industry and Labcorp, again, is going to take to maybe think about if indeed PAMA is the law of the land, how just the industry might evolve and you evolve in terms of discipline and all that other kind of thing?

Yeah, no, thank you for the question. The majority of the impact is in 2027, the first year. Again, that assumes that PAMA actually happens, which is our base case, but we are still cautiously optimistic about results and/or delay. There are incremental impacts in 2028 and 2029, but they are meaningfully less than what 2027 would be, and I believe they are manageable, and they are within what we should be able to manage in our ongoing running of the business. As I think about over time, we continue to decouple other parts of our contract from referring to the fee schedule, and we will continue to do that. But I feel like 2027 will be the biggest impact, and we can manage through the outer years.

Thank you. Our next question comes from Lu Li of Bank of America. Your line is open.

Labcorp Holdings (LH) Q3 2026 Earnings Call Transcript

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