Labcorp Holdings, Inc. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Executing on partnerships with health systems and regional labs, including collaborations with Inspira Health and acquisitions of BioReference Health and North Mississippi Health Services. Launching new tests in oncology, women's health, etc., and using AI/tech for operational efficiencies.
• Invitae Integration: On track for over 10% revenue growth and slightly accretive to earnings for the full year 2025.
• LaunchPad Initiatives: Focus on cost savings, aiming for $100-$125 million in savings through operational improvements.

Segment Performance

• Diagnostics Laboratories: Revenue for the quarter was $2.6 billion, an increase of 6% compared to last year, with organic growth of 1.6% and net acquisitions of 4.7%, partially offset by foreign currency translation of 0.3%. Organic growth was impacted by weather and one fewer revenue day. Diagnostics adjusted operating income for the quarter was $428 million or 16.3% of revenue, down 60 basis points due to Invitae and weather.
• Biopharma Laboratory Services (BLS): Revenue for the quarter was $721 million, an increase of 1.5% compared to last year, due to an increase in organic revenue of 2.6%, partially offset by foreign currency translation of 1.1%. Excluding currency, early development revenue growth was approximately 5%, while centralized revenue growth was approximately 2%. CLI adjusted operating income for the quarter was $107 million, or 14.8% of revenue, up 80 basis points.

Guidance

• Reaffirmed enterprise revenue guidance at 6.7%-8%, with Diagnostics expected to grow 6.5%-7.7% and BLS 3%-5% (including foreign currency impact).
• Adjusted EPS guidance range raised to $15.70-$16.40, midpoint up $0.05 with implied growth ~10%.
• Free cash flow guidance unchanged at $1.1 billion to $1.25 billion, weighted towards the second half of the year.

Risks

• Regulatory Uncertainties: Impact of LVT rule, PAMA, and changing regulatory landscapes affecting test launches and pricing.
• Tariff Implications: Uncertainties around tariffs on supply chains, with efforts to manage through supply chain diversification and cost offsetting.

Question and Answer

Q: Michael Cherny of Leerink Partners on BLS segment variability and administration uncertainty A: Adam Schechter noted BLS had 3% growth, strong book to bill (1.13 for quarter, 1.07 trailing twelve-month), and guidance range accounts for macro uncertainties with midpoint as most likely scenario Q: Ann Hynes of Mizuho on tariffs embedded in guidance A: Adam Schechter explained tariffs impact minimal due to majority US-based contracts, multiyear agreements, and efforts to shift supply chains to favorable countries, with plan to offset impacts through expense focus Q: Erin Wright of Morgan Stanley on Diagnostics organic growth and weather impact A: Julia Wang clarified diagnostics organic growth adjusted for weather and revenue days would be 3.5%, with Invitae integration expected to boost margins Q: Elizabeth Anderson of Evercore ISI on personnel costs A: Adam Schechter stated higher personnel costs are typical due to inflation, offset by LaunchPad initiatives Q: Lisa Gill of JP Morgan on FDA animal testing impact A: Adam Schechter said animal testing impacts ~10-15% of BLS revenue, no significant impact expected this year, with focus on non-animal models development Q: Jack Meehan of Nephron Research on Invitae accretive and lab M&A A: Adam Schechter and Julia Wang discussed Invitae integration progress and strong M&A pipeline with ongoing discussions and partnerships Q: Luke Sergott of Barclays on diagnostics margin expansion A: Adam Schechter cited Invitae overlap, LaunchPad initiatives, and mix benefits as drivers of margin expansion Q: Kevin Caliendo of UBS on diagnostics margin year-over-year improvement A: Julia Wang confirmed directionally positive margin improvement expected in Q2 and throughout the year due to Invitae integration Q: Michael Ryskin of Bank of America on BLS pricing and trial timing A: Adam Schechter discussed BLS book to bill strength, monitoring trial timing for guidance range, and focus on volume growth and cost offsets Q: Patrick Donnelly of Citi on lab pricing and BLS pacing A: Adam Schechter noted constructive pricing dialogues, strong payer access, and focus on volume growth despite tariffs Q: Eric Coldwell of Baird on BLS backlog and tariffs A: Adam Schechter discussed BLS backlog business and monitoring trial timing as key drivers of guidance delta Q: Kieran Ryan of Deutsche Bank on Medicaid/ACA impact A: Adam Schechter stated Medicaid/Medicare shifts are manageable, with greater concern on uninsured paying out of pocket