Conference Transcript - LH 2026-06-03

Tycho Peterson, Analyst — Jefferies

Okay, great. We're going to kick it off. I'm Tycho Peterson from the Life Science team. It's my pleasure to have LabCorp with us. We've got Julia. So welcome. Why don't we maybe just start just unpacking the one key results you shared about a month ago. You've been a revenue in EPS, raised four-year guidance. So, you know, things are looking good. What, I guess, pleased you most in the quarter? What gives you confidence in, you know, the momentum coming out and into TQ?

Adam Schechter, CEO

Thank you for hosting us, Tycho, and I'm excited to be here. Speaking of our business, we delivered strong results in the first quarter whereby we grew revenue by 6% and adjusted EPS by 11% while expanding operating margin by 30 basis points. As I look at the diagnostic business, we continued the trajectory of organic growth and price mixed variability. In terms of the BLS business, the central lab business unit in particular continued to to perform well, which delivered 5% organic constant currency revenue growth in the quarter. As we continue in the second quarter, we are highly focused on building upon the strong momentum in the first quarter and working towards delivering against the four-year outlook. As you pointed out, Tycho, on the first quarter earnings call, we raised the guidance for the four-year both for revenue and adjusted EPS. At the midpoint, we guided to a revenue growth of 5.6% and adjusted EPS growth of 10%, once again supported by expected expansion in operating margin, along with an expected free cash flow generation of $1.3 billion. All in all, I would say sitting where we are right now, we are optimistic about the balance of the year, and we continue to believe that the strong underlying demand, our market leadership position. Along with our consistent execution, we'll continue to position as well to drive the

Tycho Peterson, Analyst — Jefferies

growth forward. And maybe jumping into some of that, I'll start with diagnostics. You know, the bulk of the quarter was organic, which is great to see. Just talk a little bit about the contributions from volume versus price and mix in the quarter. Yes, you're right. So if you look

Adam Schechter, CEO

at our four-year guidance for the diagnostic business segment, we guided to a revenue growth range of 5.1 percent to 5.9 percent, with a midpoint of 5.5 percent. We said that we expect the majority of the revenue growth to be coming organically. In terms of the contribution from volume vis-a-vis price mix, we expect that to be roughly 50-50, which is broadly in line with how we deliver to 2025. Of course, from quarter to quarter, you could potentially see some variation for volume with the price mix, but I would really encourage us to look at that relationship with a slightly

Tycho Peterson, Analyst — Jefferies

longer-term perspective. And just the drivers on volume, have you seen an expansion in overall tests per accession, the metric with COVID a few years behind us, and if so, is that heightened

Adam Schechter, CEO

utilization structural? Yeah, I would characterize the utilization environment as structural. As you might recall, Taiko, immediately following COVID, we saw a meaningful step of inutilization driven by deferred care. But sitting where we are right now, we believe the drivers behind the utilization are more durable in nature. There are just a couple factors that are expected to contribute to long-term growth, which include an aging population, which would require an extended health care need as well as diagnostic testing need. In addition to that, we are seeing continued progress in diagnostic innovation as well as an increase in consumer engagements, among many other factors. Now, this dynamic has been manifested in test procession trend, which has been moving higher consistently and durably post-COVID. Now, this is actually an important development, not only from a volume growth perspective, but also from a margin management perspective. Because if you step back, think about the way that we operate. Every year, we process 750 million tests to serve our patients. If you take a single session, to the extent that we could drive more number of tests on that session, then it increases a compelling economic profile. Essentially, the fixed cost for that session is already covered. Therefore, the additional test will flow through to the bottom line after variable cost in a highly accretive manner from a margin perspective. Actually, this is the key driver behind our optimism about the durability of the testing volume growth over time as well as the associated margin improvement opportunity.

Tycho Peterson, Analyst — Jefferies

And then on the other side, pricing, you know, what does a typical year look like from a unit pricing perspective?

Adam Schechter, CEO

Yeah, unit price for the last few years has been essentially flattish, give or take. Therefore, when you think about the impact of price mix and its contribution to revenue growth, I would say the benefit is essentially being coming from mix improvement over time.

Tycho Peterson, Analyst — Jefferies

And as we think about going from routine more toward esoteric testing, how do we think about that portfolio evolution impacting mix and other specific targets you know

Adam Schechter, CEO

you could share we have seen the pace of growth for aesthetic testing to be faster than that for the routine testing at this point the esoteric testing is accounting for about 40 percent of our overall diagnostic revenue now when you step back think about the drivers behind that it's actually very in line with our strategic priority as well as our ability to execute. One of our strategic priorities is really around increasing our leadership in the specialty testing area and we do that for two major considerations. On the one hand the specialty testing area including oncology, neurology, women's health and autoimmune have been growing at a faster pace than that for the broader diagnostic market essentially is two to three times faster. Now in addition to that in the real world we found out that as we compete and win in the specialty testing area we also tend to win the broader testing need of a patient. This is really reflective of our company in terms of our value proposition. So essentially where we are strong at is we are a comprehensive provider of lab testing needs for the patients by leveraging the breast of a testing menu, the extensive testing infrastructure, our ability to continue to innovate for scientific breakthrough, as well as the leveraging of technology to create a set of customer and the patient experience that is differentiated. So all in all we are interesting in driving test groups, broadly speaking, including the specialty testing areas.

Tycho Peterson, Analyst — Jefferies

And then you touched on consumer-initiated testing earlier. I think your strategy at DTC is a little more nuanced than maybe your closest peer, but can you talk about how you're approaching the consumer market through both your in-house offering and with LabCorp on Demand and then partnerships such as Ovia Health?

Adam Schechter, CEO

Consumers have been and continue to be an important channel from a customer segmentation perspective for our company and our business and the patients that we serve. Essentially, the way we think about it is that as the consumers become more involved in their healthcare, we would like to take the breath of our testing manual, our testing infrastructure, our differentiated patient experience to meet the consumers where they are. So in that regard, we have been strategic in investing in our own online platform called MyLabCorp On Demand, MyLabCorp On Demand. That's where you can really access, I think it's over 120 tests right now. We've also expanded the biomarkers to be over 200. A consumer literally can just get online and order testing areas like men's health, women's health, cancer screening, allergy, wellness, and so much more. Now, in the first quarter we shared that our revenue growth from this direct channel was a very strong double digit and we continue to be optimistic about the growth to come in the future. Now, in addition to accessing the consumer in that direct channel, we also have been a lab partner to some other channel partners such as telehealth platform or virtual care providers. Now, we are excited about the consumer-initiated testing that will continue to explore partnerships that will help us generate durable growth. The considerations that we have been intentional and disciplined about are really the type of services we provide, the value we bring, the partners that we collaborate with, and equally importantly, the pricing architectures that actually fit into our strategic and financial

Tycho Peterson, Analyst — Jefferies

criteria for the long term and how do we think about you know the contributions this could add to the overall diagnostic portfolio I mean you mentioned the double-digit growth rate but how do we think about how you're just kind of sizing that opportunity and then also the operating margin profile yeah so at

Adam Schechter, CEO

this point in time we have not yet to break that out however with this level of growth and the pace of the growth it is imaginable that at the right time we we will be able to really disclose the size of that opportunity from a revenue perspective. And then in terms of margins, I would say on average from a direct channel perspective, it is constructive, although you would want to keep in mind that since we are still in the face of developing and expanding that market, so it would require some upfront investment, if you will. but all in all, we are comfortable with the trajectory of the top-line growth as well as the expected return out of this channel and the customer segmentation.

Tycho Peterson, Analyst — Jefferies

Are there particular priorities or focus areas for the consumer-initiated testing as you think about additional partnerships?

Adam Schechter, CEO

I think at the end of the day, you know, when we evaluate a partner, we wanted to make sure that when we put our competitive advantages along with the partners, we can indeed create a set of experiences for the consumer that is campaigning that is hopefully differentiated versus some other channel that they could really get that service for. And last but not least, we wanted to make sure that the pricing architecture of those partnerships are making it a scenario that is win-win for both parties. Maybe we could just spend a minute on

Tycho Peterson, Analyst — Jefferies

MRD and just anything you could say on the timing expectations for Moldex approval for MRD. We've heard from some of your peers that you know there's more back and forth with submissions it's taking longer is this something you're experiencing yes so

Adam Schechter, CEO

maybe before we touch upon the more DX approval for MRD let me start by sharing that we be if lab corp offers a comprehensive oncology portfolio that is designed to support the continuum of care for the cancer patients which includes screening therapy selection as well as recurrence monitoring through MRD. Now MRD is a platform technology that has long-term growth potential so it's a company while working very actively on expanding our offerings within that portfolio from a market access perspective we have been disciplined in both working with the MoDX as well as other commercial payer coverage. Now, the other thing I think is worthwhile noting as it relates to MRD is that it also highlights the strength of our particular platform and makeup in the sense that, you know, there's tremendous synergy between our central lab business and our diagnostic business. When you think about, you know, MRD, this is where that we can actually leverage the insights that are coming out of the clinical trial, helping our sponsors to better appreciate the therapeutic impact in the clinical trial, but also leveraging actionable insights that can guide the patient care over time.

Tycho Peterson, Analyst — Jefferies

And I guess, how do you think about the longer-term path to kind of winning in this market, and what does a successful launch look like for Plasma Direct?

Adam Schechter, CEO

The MRD market, clearly, is a compelling and important segment within specialty testing. I believe we've all seen research out there that is sizing the market to be extremely meaningful, including research from our own Jefferies team. I've seen research that suggests a market potential up to $20 billion and growing at a strong double digit. Now, the other aspect of the market is from a penetration perspective is about 5% right now. So while we are excited about the innovation, the breakthrough that the industry collectively has achieved, we also believe that when you look at those statistics together, it's suggesting that there's still a tremendous market out there for multiple players to come in, being able to use the innovation to help more patients benefit from the scientific breakthrough. In this particular area, we believe we are well positioned to be a meaningful player because we have the science, we have the scale, we have the access, we have the ability to really bring adoption, right, more broadly speaking. And if you look at the plasma detect launch that we did back in the first quarter, essentially we are leveraging this highly sensitive tumor-informed assays that span across stage 3 colon cancer, stage 1, 2, 3 breast cancer, stage 1, 2, 3A, non-small cell lung cancer. So we're excited about bringing that to the patients. Now, at the same time, it is also quickly important to keep in mind that the place that we went best is really being the comprehensive provider of the lab testing and diagnostic insight provider. So for us, as we continue to innovate, then we quickly plug those testing into our overall testing menu, which right now has over 6,500 on the menu. And then we leverage our broad portfolio, our extensive infrastructure, as well as the focus on really differentiating the customer and the patient experience through technology to really serve more patients over time and drive more business growth, both top line and bottom line over time.

Tycho Peterson, Analyst — Jefferies

Another growth driver is neurology. And just thinking a little bit about, you've talked about, I think Alzheimer's is a driver, a key driver of the double-digit growth you're seeing in the neurology portfolio. Can you maybe just talk on the RAMP, your in-house menu relative to some of the partnership assays? You've got Alexis from Roche and LumiPulse from Fuji Rebio. Are you starting to make inroads in the primary care setting as well?

Adam Schechter, CEO

Yeah, so early on we chatted about there are four specialty areas that we've been highly focused on as one of our strategic priorities, and neurology is one of the four. Neurology is also an extremely exciting therapeutic area for sure. in the first quarter, we share that we grew this particular franchise in revenue by a strong double digit, right? So we believe we're well positioned to be a leader in this space if you think about the type of test, the number of tests, as well as our ability to really bring the test at a large scale to a primary care setting. Now, the other interesting about neurology is if you look at the growth in the first quarter, the leading contributor is really from Alzheimer's, right? The Alzheimer's space is still going through very active development. There is a robust pipeline of clinical studies that right now are really assessing, you know, the possibilities to potentially expand treatment pathways as well as testing opportunities. Now, LabCorp is definitely well positioned to lead in this ever-evolving landscape. Early on, we talked about the strategic synergy between our central lab business as well as our diagnostic business. This is where we can really leverage the insights we are learning in those clinical trials with the big pharmaceutical company, the biotech and the biopharmaceutical company, and leverage that and translating into diagnostic applications. And through doing that, we could really generate also the evidence needed for adoption down the road. So if you think about the breadth of the portfolio in addition to Alzheimer's, we are also working on expanding that to include some other neurological conditions, which include ALS, Parkinson's, autoimmune neuropathies, even include concussion recovery, for example. So we are also working very hard in getting to a broad set of neurological conditions from a testing offering perspective. So all in all, I would say that we continue to be excited about neurology as a growth area, and we think we are in a perfect position to lead in driving innovation that can translate into meaningful patient impact.

Tycho Peterson, Analyst — Jefferies

And I guess just circling back on your own in-house menu versus partnering, like as we think about something like Alzheimer's, how do you think about that mix?

Adam Schechter, CEO

I would just say broadly speaking, when you think about innovation, we are extremely open-minded, right? So, you know, on the one hand, we continue to really march forward with our in-house scientific discovery and development efforts. In the meantime, if there are tests out there in the marketplace that makes sense for us to either partner, license, or acquire, we can then easily and quickly fold into our very broad testing menu while always open to explore those type of partnerships. So I would say that open mind flexibility, if you will, is also a mindset that we continue to drive in our company as a culture, right? open-minded, agility, speed to move.

Tycho Peterson, Analyst — Jefferies

Maybe shifting over to Biopharma Lab Services, you've taken some strategic actions. You obviously divested the non-core pieces of early development. You're building a new central lab facility. Talk to maybe what prompted those strategic decisions.

Adam Schechter, CEO

Let me start by talking a bit about the central lab business, and then I will move to cover the early development side of the house, if you will. I'm always excited to talk about our central lab business because I believe it is a compelling and differentiated value creator within our enterprise. I know you know this well right if you step back think about what our central lab business is about. It's essentially a global leader of lab services for clinical trials. So in other words what we are doing there is we are doing a we are taking a core strength of our company which is delivering high quality lab services at a scale and apply that capability to serve a different customer segmentation in this particular case in central lab we are servicing the global pharmaceutical of the world the biotech and the bio farmer of the world in supportive of their phase two and phase three trials worldwide now if you look at the central labs they actually mirror that for the diagnostic labs in the sense of infrastructure technology science and talent but a key difference between the central lab and the diagnostic lab is really in central lab we are focusing on servicing clinical trial sponsors and therefore I will our operation there is really designed to meet the complex and global regulatory requirements in clinical research. Now, the other thing I would say about the central lab business is that we generate unique downstream insights that can be leveraged and create a synergy between central lab and diagnostics, right? You leverage those insights coming out of your clinical trial and they inform actually the diagnostic applications down the road, but we also help generate evidence that will enable downstream adoption. And from a performance perspective, in the first quarter, we generated revenue, organically speaking, at a constant currency basis of 5%. Last year was 5.2% equivalent growth. And then we guided for the full year this year to continue to be mid-single digit. So in light of the strength in the pipeline, the growth prospect, and the sustainability of that, we actually are investing in the central lab facility, which is the testament of our confidence about the value of this business in our portfolio.

Tycho Peterson, Analyst — Jefferies

And then the early development divestitures, $50 million in annualized revenue, have those been completed? And how do we think about impact on operating profile of the business heading into the back half of the year?

Adam Schechter, CEO

The early development business is the smallest business unit. The revenue is about 6% of our total company revenue, and the operating profit is even less. As you were saying, we have been taking some strategic actions by divesting non-core assets, as well as consolidating certain performance size. And we expect the strategic actions to be largely complete by end of this quarter. So you shared that the annual revenue would be about 50 million. And this year, due to time, it's more like $14 million. Now, in doing this, we do expect the business will be more streamlined coming out of it and therefore more profitable. As a matter of fact, we did guide on the first quarter earnings call that we expect the margin expansion for the BLS segment this year to be at a faster pace than that for the diagnostics, partially benefiting from the strategic actions that we are taking in ED along with the strong top-line growth in central labs.

Tycho Peterson, Analyst — Jefferies

And then book-to-bill, I think there's been some investor confusion around this metric. It was 1.16 in the fourth quarter, 0.94 in the first quarter. Why is there such volatility in this KPI?

Adam Schechter, CEO

Yeah, so if you look at the BLS business in general, what our focus is really being a partner of choice for our pharmaceutical, biotech, and the biopharma companies around the world while building a strong pipeline on a continual basis. So in that regard, the quarterly book-to-bill is a matrix, although it has its own pros and cons, and sometimes it's impacted by timing of things, right? Therefore, we always say that the trading 12-month book-to-bill is a better indicator of the long-term health of the segment when it is evaluated along with other business and the financial metrics. Now, if you look at the trading 12-month book-to-bill, at the end of Q1, it was healthy at 1.04. Now, if you look at the quarterly book-to-bill, we had a strong ratio in the fourth quarter of last year, which was 1.16. In the first quarter, we were slightly below one. We did share that we expect the second quarter to sequentially improve. Now what I also would say is when you step back and look at the operational aspect of the orders and the bookings, we feel good about the number of RSPs we are getting. We feel good about our wineries in terms of just the market sharing and winning the RFPs. Therefore, we have confidence about the book to build as we move through the year. And on the first quarter earnings call, we did raise the revenue guidance for this segment, and we look forward to providing more updates as the year progresses.

Tycho Peterson, Analyst — Jefferies

Obviously, there's been a lot of focus on AI and potential impact on wet lab spending. You could argue more targets, better targets coming through the funnel. How do you think about AI impacting the BLS segment longer term?

Adam Schechter, CEO

We view AI and its associated development as potentially a tailwind for the BLS segment. Let me explain why. So as AI evolves, it is expected to accelerate innovation, including precision medicine, biomarker development, data-driven endpoints, which all will require increased demand in standardized and global lab infrastructure, as well as global regulatory expertise. As we just chatted, those are the areas that we are truly differentiated from. Now, the other thing I would say, if you look at our customers, right, biopharmaceuticals, pharmaceuticals, biotech, one of their focus has been and continues to be speed. Because speed means growth both in terms of patient impact as well as business impact. Now, as you think about how AI could potentially help from a speed perspective, if you look at central lab site, we think AI could potentially help us accelerate clinical trial and drive operating efficiency in the trials. We talked about AI could potentially enable virtual control groups. When we do that, it would help accelerate patient recruitment, but also overall reduced trial complexity. On the early development side, we've been investing into non-animal testing methodologies, which once again will help us continue to really be meeting with the emerging regulatory guideline and as well as strengthen our leadership in the space. And even as a pharmaceutical company gets more targeted in their clinical trials and all of that, we believe that all this development could enable them to do more choice with the same R&D budget. And this is where their reliance upon the lab expertise on the global scale, as well as the global regulatory expertise and data analytics capability will be increasingly important. And that's where exactly reinforcing the value of BLS in our overall portfolio and our offering to our customers.

Tycho Peterson, Analyst — Jefferies

Should we think about AI as adding, you know, a new revenue stream, additional services to wrap around, or more that you can get, you know, maybe better milestones for faster enrollment and deeper customer relationships?

Adam Schechter, CEO

Yeah, the way that we are approaching AI in our companies and enterprises, we are really embedding that across the entire enterprise to achieve three goals, hopefully, which include enhanced customer experience, improved operating efficiency, and accelerated innovation. And let me give you some examples in all three pillars, if you will. At the front end, we are really leveraging AI to simplify and enhance the way that our patients and our providers are interacting with LabCorp. One example is recently we just launched MyLabCorp app, which is secure, AI-enabled kind of experience where patients can go online and really get their testing results over time, but also access personalized health insights and education. The other example is our test finder capability. This is where it's very simple now for the clinicians to go and search for tests that are more relevant for the patients that they are trying to prescribe for. Now, from an operational perspective, we're really embedding deploying AI across the entire network, whereby we're trying to streamline workflows, we are reducing complexity, removing friction, and also improving turnaround time through automation, digital pathology, optimized drug development processes, to just name a few. Now in terms of accelerating innovation, we also recently announced a partnership with Amazon Web Services as as well as data vent. This is where we are putting all of our brain power together and leveraging AI to enable faster analysis of large data set to really support the research and drug development for Alzheimer's. So all in all, I would say all these efforts taken together combined with many, many other more are representing a very coordinated approach that we have taken around leveraging not only just AI, but also other formats of technologies such as robotics, right, to help us drive better outcomes, improve operating efficiency, and deliver system long-term growth.

Tycho Peterson, Analyst — Jefferies

Great. Maybe just in the last minute here or so, we can just hit on capital allocation. How are you thinking about the M&A landscape? Any focus areas, whether it's hospital labs, regional independence?

Adam Schechter, CEO

M&A has always been continuous to be a core part of our strategy. We are constantly evaluating opportunities that are leaning into our core competencies. And at this moment in time, we continue to have a robust and active pipeline that we can tap into and leverage that to help deliver inorganic growth. Now, over the first few months of this year, we've closed a few transactions, which included a regional independent lab, that is the Empire City Labs, as well as two health systems. One is Cross Health, the other is Parkview Health. And our focus is really on the 250 largest health systems in the country, with outreach labs along with regional and local independent labs that fit our strategic considerations as well as our financial criteria. Now from a strategic point of view, we are looking for acquisitions and opportunities that would enable us to expand patient access as well as enabling us to build relationships with partners that we can grow with, innovate with, collaborate with, and create a long-term value together. Now the opportunities we are also interested in are those that can help us accelerate growth broadly speaking, including the specialty testing area. From a financial criteria standpoint, we are looking for transactions that are creative to adjust the earnings in year one and the return cost of capital by year three. We take this financial discipline seriously as we continue to focus on driving accelerating in a durable revenue growth in a capital efficient and a profitable manner.

Tycho Peterson, Analyst — Jefferies

Great, I think we'll leave it at that, thank you.