Labcorp Holdings Inc.

Good day and thank you for standing by. Welcome to the Q3 2024 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 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, Kristin O'Donnell, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good morning and welcome to LabCorp's third quarter 2024 conference call. As detailed in today's press release, there will be a replay of this conference call available. With me today are Adam Schechter, Chairman and Chief Executive Officer, and Glenn Eisenberg, Executive Vice President and Chief Financial Officer. This morning in the Investor Relations section of our website at .labcorp.com, we posted both our press release and Investor Relations presentation with additional information on our business and operations, which include a reconciliation of the non-GAP financial measures to the most comparable GAP financial measures, both of which are discussed during today's call. Additionally, we are making forward-looking statements. These forward-looking statements include, but are not limited to, statements with respect to the estimated 2024 guidance and the related assumptions, the spinoff of Fortria Holdings Inc., the impact of various factors on the company's businesses, operating and financial results, cash flows, and or financial condition, including the COVID-19 pandemic and global economic and market conditions, future business strategies, expected savings, benefits, and synergies from the LaunchPad Initiative, and from acquisitions and other strategic transactions and partnerships, the completed holding company reorganization, and opportunities for future growth. Each of the 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 report on Form 10-Q and in the company's other filings with 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 Adam Schechter.

Thank you, Kristin, and good morning, everyone. Thank you for joining us as we review our third quarter financial performance and progress against our strategy. Before discussing our results, we'd like to acknowledge the communities across the Southeast and Mid-Atlantic, including our home state of North Carolina, which continues to face the devastating effects of hurricanes Helene and Milton. Our thoughts are with those impacted, including our employees and residents of those communities across several states who are grappling with a long recovery ahead. We continue to support relief and recovery efforts as a member of the American Red Cross Disaster Response Program. Turning to our results for the quarter, we continue to perform very well across both diagnostics laboratories and biopharma laboratory services. Our results reflect strong growth in diagnostics and central laboratories, driven by strong volume and poor performance and by advancements in science, technology, and innovation. Let's start by reviewing our financial results. Revenue in the quarter was $3.3 billion, an increase of 7% compared to the third quarter of 2023. Diagnostics continue to deliver strong revenue growth up 9%, driven by organic growth of 5%, while biopharma laboratory services revenue grew approximately 3%, driven by strong growth in central labs of 9%, partially offset by the expected decline of 11% in early development. We continue to expect early development to show -over-year growth in the fourth quarter. The truly 12-month -to-bill was 1.02. We expect the -to-bill to grow sequentially -over-quarter in the fourth quarter, but it's overlapping with a very strong fourth quarter last year. Overall, the -to-bill remains healthy for continued growth. Adjusted EPS of $3.50 was up 4% -over-year. Enterprise margins were down 40 basis points due to the impact of NVTA. We expect to finish the year with solid growth across both diagnostics and biopharma laboratory services. Glenn will provide more details on our results in just a moment. We continue to execute well on our strategic priorities by being a partner of choice for health systems and regional and local laboratories, by harnessing science and innovation to expand our leadership in important therapeutic areas, and by utilizing data and technology to bring important services and capabilities to our customers. In the third quarter, labs will continue to advance in these strategic growth areas. First, we maintain the leadership position as a partner of choice for health systems. During the third quarter, we announced an agreement to acquire select operating assets of Ballot Health Outreach Lab Services. Ballot Health expands our comprehensive laboratory and testing capabilities to rural communities in Tennessee, Virginia, North Carolina, and Kentucky. We also entered into a strategic collaboration with Naples Comprehensive Healthcare in Southwest Florida to manage the daily operations of its inpatient laboratory operations. Turning to regional and local laboratories, we signed a new agreement to acquire select assets of LabWorks, an independent clinical laboratory located in Alabama. And we closed the previously announced acquisition of select assets of BioReferences Health Laboratory Testing Business. We continue to have a strong business development pipeline, and we look forward to sharing more of those details in the future. We also made several notable advances in science, technology, and innovation in the quarter through strategic acquisitions, investments, and new product launches. First, we completed the acquisition of select assets of Invitae during the quarter. Performance was in line with our expectations, and we continue to expect it to be slightly accretive to earnings for 2025 with top-line growth of approximately 10%. We are excited about Invitae's complementary cutting-edge science, their genetic testing solutions, and technology, which align strategically with LabWorks' focus on specialty medicine and oncology. The acquisition extends our leadership in specialty testing capabilities and our ability to utilize genetic data to improve clinical trials and treatment regimens in oncology and select rare diseases. By integrating Invitae's genetic testing technology with LabWorks' specialty testing capabilities, we can offer a more complete set of insights for each patient, from testing to diagnosis to treatment. The integration is on track with our financial goals without impacting the great science and customer experience that Invitae provides today. In July, we announced an expanded collaboration with Ultima Genomics to utilize the sequencing solution and technology to explore new whole genome sequencing clinical applications, including MRD in patients with early-stage solid tumor cancers. In August, LabCorp received de novo marketing authorization from the FDA for our -eloplasma-focused DX, the industry's only kitted, pan-solid tumor liquid biopsy test. This test enables laboratories for form genomic profiling when tissue is limited or unavailable. LabCorp has an industry-leading, comprehensive oncology testing menu, and we are uniquely positioned as the only company offering FDA-authorized kitted solutions for both tissue and liquid-based solid tumor testing. We also continue to expand our LabCorp on-demand offerings with additional consumer-initiated tests in July and August, including syphilis and luteinizing hormone tests. Subsequent to the quarter end, we announced an exclusive agreement with Now Diagnostics to distribute the first -the-counter -of-care syphilis blood test granted marketing authorization by the FDA. We plan to make the tests available to providers by the end of 2024 and directly to patients through LabCorp on-demand in 2025. In the quarter, we also made improvements to our customer experience using data and technology to bring important services and capabilities to our customers. We introduced a new order tracking experience for our diagnostic customers, giving the majority of providers real-time visibility of test order status. This new capability offers comprehensive sample tracking, enhancing providers' ability to manage patient care effectively with clear, -to-date information on all test orders. OVIA Health by LabCorp announced the expansion of its Women Health Solutions to include a personalized, comprehensive postpartum experience. This 12-month program is designed to help women manage multiple aspects of the postpartum period through personalized recovery modes, symptom tracking, and alerts, and mental health support. I am proud of our accomplishments and how we operate as an organization. We recently earned EthisFair's Compliance Leader Verification, which recognizes organizations with an outstanding commitment to achieving a -in-class ethics and compliance program. Ethics and integrity are at the heart of everything we do and integral to our mission to improve health and improve lives. We were also proud to be named a best place to work with disability inclusion after earning the top score of 100 on the 2024 Disability Equality Index. In the quarter, Congress delayed the implementation of PAMA, removing a potential $80 million revenue headwind in 2025. While we are pleased with this further delay, we continue to work closely with our trade association to seek a permanent fix to PAMA, as there is bipartisan recognition that long-term reform is needed. In conclusion, we continue to execute well on our short-term financial commitments while also making progress on our longer-term strategy. I am confident in our growth opportunities and will remain on track to achieve our longer-term outlook. With that, I'll turn the call over to Glenn.

Thank you, Adam. I'm going to start my comments with a review of our third quarter results, followed by discussion of our performance in each segment and conclude with an update on our full-year guidance. For reference, we've also included additional business information that can be found in our supplemental deck on our Investor Relations website. Revenue for the quarter was $3.3 billion, an increase of .4% compared to last year, primarily due to organic-based business growth and the impact from acquisitions. The base business grew 8% compared to the base business last year, driven primarily by organic growth of 4.8%. Operating income for the quarter was $254 million, or .7% of revenue, or .4% on an adjusted basis. During the quarter, we had $105 million of restructuring charges and special items, primarily related to acquisitions and LaunchPad initiatives. In addition, we had $18 million of expense for the transition service agreements related to the spin of Fortria, with the corresponding income recorded in other income. Excluding these items and amortization of $64 million, adjusted operating income in the quarter was $441 million, or .4% of revenue, compared to $424 million, or .9% last year. The increase in adjusted operating income was primarily due to organic demand and LaunchPad savings, partially offset by higher personnel costs and the loss from in-vitae. The 40 basis point decline in adjusted operating margin was due to in-vitae. Excluding in-vitae, as well as the impact from weather and days, margins would have been up approximately 120 basis points. Our LaunchPad initiative continues to be on track to deliver 100 to $125 million of savings this year, consistent with our long-term target. The adjusted tax rate for the quarter was .8% compared to 24% last year. The lower adjusted tax rate was primarily due to the geographic mix of earnings. We continue to expect the full year adjusted tax rate to be approximately 23%. Net earnings from continuing operations for the quarter were $170 million, or $2 per diluted share. Adjusted EPS were $3.50 in the quarter, up 4% from last year. Operating cash flow from continuing operations was $277 million in the quarter, which included an expected use of cash from in-vitae, compared to 276 million a year ago. Capital expenditures totaled $116 million in the quarter, or .5% of revenue. This compares to 105 million, or .4% in the prior year. For the full year, we continue to expect capital expenditures to be approximately .5% of revenue. Free cash flow from continuing operations for the quarter was $162 million. During the quarter, the company invested $458 million in acquisitions, paid out $61 million in dividends, and repurchased $75 million of stock. At quarter end, we had $1.5 billion in cash, while debt was $6.8 billion. These higher balances are due to the pre-funding of maturing debt. During the quarter, the company raised $2 billion of long-term notes to pre-fund $2 billion of maturing debt. The company expects to use cash to pay down the remaining $1.4 billion of debt maturing over the next four months. Our current debt leverage is 2.4 times net debt to trailing 12 months, adjusted EBITDA. Now review our segment performance, beginning with Diagnostics Laboratories. Revenue for the quarter was $2.6 billion, an increase of .9% compared to last year, with organic growth of 5% and acquisitions net of divestitures contributing 4%. The base business grew .8% compared to the base business last year, driven primarily by organic growth of 5.8%. Total volume increased .1% compared to last year. Base business volume grew .6% compared to the base business last year, as organic volume increased 2.7%, which was negatively impacted by approximately 40 basis points from weather, while acquisitions contributed 2.9%. Price mix increased .8% versus last year due to organic-based business growth and acquisitions that was partially upset by lower COVID testing. Base business organic price mix was up 3% compared to the base business last year due to mix, as we benefited from lab management agreements, an increase in tests per recession, and esoteric testing growing faster than routine. Diagnostics adjusted operating income for the quarter was $387 million, or .2% of revenue, compared to 386 million, or .5% last year. Adjusted operating margin was down 130 basis points due to in-vitae and the unfavorable impacts of days and weather. Excluding these items, margins would have been up around 80 basis points, as the benefit of organic demand and launchpad savings was partially offset by higher personnel costs. Now review the segment performance of biopharma laboratory services. Revenue for the quarter was $738 million, an increase of .6% compared to last year, due to an increase in organic revenue of 2%, and foreign currency translation of 0.6%. The revenue growth was driven by continued strength in central labs, which was up 9%, while early development was down 11%, primarily due to higher than normal cancellations in prior periods. However, early development revenue increased sequentially from the second quarter, and we continue to expect it to grow year over year, beginning in the fourth quarter. Biopharma adjusted operating income for the quarter was $121 million, or .4% of revenue, compared to 109 million, or .2% last year. Adjusted operating income and margin increased due to organic demand and launchpad savings, partially offset by higher personnel costs. We ended the quarter with a backlog of $8.1 billion, and we expect approximately 2.6 billion of this backlog to convert into revenue over the next 12 months. The trailing 12 month book to bill was 1.02. Now I'll discuss our updated 2024 full year guidance, which assumes foreign exchange rates effective as of September 30, 2024, for the remainder of the year. The enterprise guidance also includes the impact from currently anticipated capital allocation, including acquisitions, share repurchases, and dividends. We expect enterprise revenue to grow .6% to .3% compared to 2023, versus prior guidance, the midpoint is unchanged as a benefit of 20 basis points for foreign currency is being offset by a negative 20 basis points from weather. We continue to perform well in diagnostics, with revenue expected to be up .2% to .8% compared to 2023. This is an increase at the midpoint from our prior guidance of 10 basis points, due to the improved outlook within diagnostics. The acquisition of select assets of buyer reference, that was previously only included in the enterprise guidance until the transaction closed, is benefiting diagnostics growth by 30 basis points. This is being offset by the unfavorable impact from weather of 30 basis points. We expect biopharma revenue to grow 4.7 to .6% compared to 2023. The midpoint of our guidance increased 80 basis points due to the favorable impact from foreign currency of 100 basis points, partially offset by a slower recovery and early development of 20 basis points. We continue to expect early development to grow revenue year over year, beginning in the fourth quarter. We expect enterprise margins to be slightly down year over year, with diagnostics margins constrained by in-vitay and weather. We expect biopharma margins to be up year over year. Our guidance range for adjusted EPS is $14.30 to $14.70. We have decreased the midpoint of guidance by 10 cents due to the estimated impact from weather of 15 cents. Our free cash flow guidance range is $850 million to $980 million. In summary, we expect to drive continued profitable growth and strong free cash flow generation that'll be used for acquisitions that support our strategy and supplement our organic growth, while also returning capital to shareholders through our share repurchase program and dividends. 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. Please stand by while we compile the Q&A roster. And our first question comes from Ann Hines of Mizuho. Your line is open.

Good morning, Ann.

Good morning. Just heading into 2025, is there any specific headwinds and tailwinds that you would like to call out? And then secondly, I'm sure you're seeing some of the late stage probably traded peers have not done really well this quarter. Revenue growth is declining, or I should say accelerating, but it seems like the opposite is happening to your central lab. How should we think about the impact of what's happening with some of your customers from a time and perspective? Do you expect that to impact revenue? Is there a lag? Six months, 12 months, how should we view it in the future? Thanks.

Sure, I'll start with 2025. And so, first of all, I feel great about the momentum that we have in both our diagnostics and central laboratory business. And we expect early developments gonna go into fourth quarter and will grow as we go into 2025. We're not giving any 2025 guidance today, but as you look at our longer term guidance where we have organic revenue growth of three and a half to five and a half percent, plus another one and a half to two and a half percent growth or inter-anarch growth, we remain on track. And we're gonna be entering 2025 with real momentum and strength. As I think about the central laboratory business, it continues to perform very well. Central laboratory have very strong growth year over year of 9%. I would say that that's based off of a easy compare last year, because as you recall, last year, there was a lot of sites that didn't have the ability to enroll patients, they had staffing issues and so forth. But as we look forward into the future, and I look at the longer term guidance for BLS, I expect central labs will be consistent with that guidance and so continue to grow. If you look at the central lab books, we have solid orders, we have good consistent win rates, and we are a leader in that field. And in that field, the majority of our business is with larger pharma. It's much less with the smaller biotechnology companies.

Great, thank you. Thank you. Our

next question comes from Lisa Gill of JP Morgan. Your line is open.

Morning, Lisa.

Good morning, Adam

and Glenn. Just wanted to follow up on NVK and the margin progression. So you talked about the impact in the quarter. As I think about going into 25, how should I think about one, that margin progression? And then secondly, is there anything to call out when you think about the mix in the diagnostics business, when we look at the price per rec, coming in much better than what we had anticipated in our model?

Yeah, so let me start first with Invita. So we continue to be really excited about their science, the genetic testing solutions and technology that they have, and it really aligns with us strategically. The integration is going extremely well. We're on track with all the integration metrics that we have in place. If you look at the financial metrics, we're performing as we expected based upon what we provided guidance last quarter. And as you look at this year, we expect that there'll be an impact of about 40 basis points negative. But as we go into next year, we expect Invita to be slightly accretive. So you can assume if it's negative in the first two quarters of the launch and it's slightly accretive for the full year, that it'll take us a little bit of time as we go through the year before you see that accretion occur. But overall, we remain very bullish about that acquisition, and the revenue growth will be about 10% as we think about next year as well. And then in terms of mix, I'll ask them to provide some comments.

First, just also just wrapping up on the Invita as well, as Adam commented that, yeah, we would expect margin improvement sequentially going forward. So each quarter that we have it, once we integrate the business, it'll improve. We'll still show negative comps on margin year on year through the first half of next year, just until it annualizes. And then Lisa, once it's annualized, you'd expect to see then margin improvement or it'd be a tailwind to margins beginning in the second half of next year. With the price mix, we actually had a good top line growth within diagnostics overall. If you looked at our base business organically, we grew around 6%, and that was pretty evenly split between utilization, volume was up around 2.7%, and even that was constrained by weather of around 40 basis points. But to your earlier comment, the mix impact, we were up around 3%. And really what drove that this quarter more than anything was the in-hospital lab management agreements, which we continue to do, and we treat that as price mix. But we've also seen a steady increase in our tests per session, which we've seen over time. That continues to progress, and we continue to see growth in more of our esoterics business growing faster than our routine. So really the combination of those three things is what drove the favorable mix this quarter.

Great, thank you.

Thank you. Our next question comes from Michael Cherney of Learing Partners. Your line is open.

Morning, Michael. Morning, everyone. Thank you so much for taking the question. Maybe to come at the margin question a different way. I know it's harsh because moving pieces, especially stuff that I would say is out of your control, obviously in VTEC, but as you think about the savings that you've been able to generate on the cost side, as you think about where you've landed, I think I heard 120 basis points of underlying margin expansion in your view, X and VTEC, X-Weather, et cetera, where do you think have been the most successful sources of margin expansion? How do we think about the pull through on what still remains an elevated revenue growth level on incremental pull through versus restructuring and I guess to lease this question a little bit, how do we think about the cost cutting impacts above and beyond the VTEC playing forward into 25, both within LaunchPad and outside?

Yeah, so Michael, I'll take a first cut of it and Ed may want to add as well, but we actually do feel very good about the underlying performance of the company. And to your point, we have a bunch of headwinds that we've identified that we call, obviously, would be more non-operational, the strategic acquisition that we did within VTEC, the impact of weather in this quarter and actually will also have a quarter impact in the fourth quarter from just days, so kind of timing related. And so that gets to that 120 basis point expansion that you commented about. But the underlying business, when we take those out and also we obviously still have a little bit of a headwind from COVID testing, that's now leveled off, but still year over year, it's a negative impact. But the underlying business, we're benefiting from the top line growth, we're benefiting from our LaunchPad initiatives, we're still on track to 100 to 125 million of our LaunchPad savings. So as we think about operating leverage, ideally we target kind of around a gross margin. When you kind of peel out those unusual items, if you will, or the headwinds that we had, we're operating in the high 20s and practically a little stronger even in the third quarter, but we're kind of in the ballpark of our gross margin. So we think underlying our business, we're where we need to be. What's interesting as well is a lot of the headwinds that we're having this year in 2024 will become tailwinds to our margins next year. So we still expect our underlying performance to be good, but then when you think about in VT, when you think about days, obviously if we would have normal weather, all those three headwinds that we had this year will become tailwinds to margins next year.

And Michael, the only thing I would add to that is, when we talk about LaunchPad, it really is continuous improvement. And we know as we go into the future, we're gonna have to continually find ways to reduce costs to improve margins. And I think with all the work that we're doing with technology, with some of the work that we're doing with artificial intelligence, we see other opportunities now above and beyond what we've talked about in the past to continue to find ways to reduce costs moving forward. So that's just something that's built into our DNA as a company, and we're gonna continue to find ways to reduce costs where we can.

Great, thank you.

Thank you. Our next question comes from Patrick Donnelly of Citi. Your line is open.

Morning, Patrick. Hey guys, good morning. Thanks for taking the questions. I wanted to just ask them on the diagnostics business, just the core utilization trends you guys are seeing, obviously again, the weather impact moves things around a little bit, but what you're seeing there, and just the expectations going forward, certainly looking, eyes are turning towards 25 as we talked a little bit about here. Any reason why you would kind of be inside that LRP as you think about the utilization rate and heading into next year?

Yeah, Patrick, as you look at utilization rates, we certainly see an acceleration in healthcare overall. And the question is, with what hospitals have seen and other parts of healthcare, will that continue? I would expect at some point that will slow down a bit to more historic levels. But at the same time with our business, I believe we're seeing share increases, in particular as we do more of these hospital deals and the local regional laboratory deals. So when you look at our longer term guidance for diagnostics, we expect organic revenue growth of two and a half to four and a half percent. And then on top of that, inorganic, which we've actually increased our longer term inorganic growth expectations, historically it was one to two percent. Now we have it at one and a half to two and a half percent. So when you look at those numbers, it would tell you that we expect continued strong momentum as we

move forward with the business. Great, thank you.

Thank you. Our next

question comes from Aaron Wright of Morgan Stanley, your line is open.

Good morning, Aaron. Great,

thanks. Good morning. You spoke to some of the pricing dynamics and ASPs, but I guess how would you characterize just underlying kind of current payer relationships in the pricing environment around those? And I think you have a new blues relationship, I guess anything else to call out, or what does that add for you, or anything else to call out from a payer relationship standpoint? Thanks.

Yeah, sure. Now we continue to feel very good about our managed care discussions and the contracts that we've negotiated. We're very confident that the renewals that we've secured are good terms. And if you look across everything we've done this year, we believe as we move forward, net, we're neutral to slightly positive, which historically that has not been the case. So I feel great about the different managed care discussions that we've had this year. Our position as we go into 2025 is strong. I don't see any major contracts that I'm concerned about. So I think that the momentum will continue.

Great, and then on early development, I guess, can you parse out a little bit more how you're thinking about the quarterly progression from here, just giving some of the lumpiness across kind of that business, I guess, how are you thinking about the longer term performance across early development? Has anything changed in terms of your longterm goals? And then how you get to kind of that fourth quarter ramp? Thanks.

Yeah, so I'll give some comments, and then I'll ask for Glenn to jump in as well. If you look at our early development business, we certainly saw sequential positive growth in terms of revenue. We saw less of a decline in third quarter as a percent that we saw in second quarter. As we move into fourth quarter, we have good insight to the studies that are underway. It's not like we have to get new studies to understand what fourth quarters are gonna look like. Based upon what we see today, we expect that there will be growth in early development in the fourth quarter. Now, to be fair, it's off of a relatively easy comparison versus fourth quarter of last year. And as we go into next year, and the book continues to build, and the cancellations continue to hold, then we would expect to see growth as well, but also based upon an easier compare, because this year it continued to struggle for several quarters. So over time, we continue to have good expectations for that business. We are a leader in that field. I believe that the biotechnology companies with interest rates should continue to do well. And over time, that business has had some cyclical ups and downs, but over time, it's a very good business.

Yeah, the only thing I'd add is, as you think about even just the segment, the implied guide for the fourth quarter's revenue growth is, call it, 9.5%. So obviously a lot stronger, around six points higher than what we had for the first nine months. Currency is around two points of that, but the underlying 4%, really the strong improvement is being driven off of early development. You would have seen that on the, call it the nine months, we're down around 11% in early development business, but we expect positive -over-year growth in the fourth quarter. And as Adam said, we have a soft comp in the fourth quarter, but more importantly, we saw sequential growth in ED in the third quarter from the second. We expect to see sequential growth again in the fourth quarter. Obviously, given the time of year with the fourth quarter, we're effectively now executing on our backlog, where this has been a business a little bit more difficult to forecast because of the short nature of the studies. So you count on the new business coming in to turn into revenues in the same quarter. So we feel pretty good about the outlook, the growth. And as Adam said, the long-term for biopharma, we're looking kind of at the midpoint of our growth rate of 6%. So we're already there and doing well within central lab. ED obviously is now gonna be positive, and you would expect given the lower comps, there to be even a little bit higher growth rates over the next couple of years coming from ED, including from the margins. Again, one of the benefits of the tailwinds as we think about 25, just with that top line growth, we'll also get positive margin improvement there as well.

Okay, great, thank you. Thank you.

Our next question comes from David Westenberg of Piper Sandler, your line is open. Morning,

David.

Hey, good morning and thank you for taking the question. So just another one on the LRP and as we look into next year, I mean, it sounds like you have a lot of favorable things in the environment. You raise your inorganic outlook because of lab acquisitions, PAMMA looks like it's on hold for next year, biotech funding is at least not getting worse. Is there anything else to flag in the industry or lab course specific that would might be of surprise into the LRP and then can you just remind us the factors associated with the high end and the low end of the LRP? Because it definitely it seems like all the macro factors are working kinda in the favor, thank you.

Yeah, so again, without giving specific 2025 guidance today which we'll give in February of next year, we have momentum and you can feel the momentum you've seen over the past few quarters, diagnostic business continues to perform well both organically and inorganically, central laboratories performing well and ED will be back to growth. As I think about PAMMA, we still have an impact of PAMMA in the longer term guidance and we just pushed it out a year, there's another year. So if PAMMA were to be pushed out again, obviously that would have a positive impact on our longer term guidance. But until such a point that I'm confident that there won't be an impact of PAMMA in 2026, we continue to keep it in our longer term guidance and model. We continue to watch the broader trends, the utilization rates, the business development that we're doing and the trends remain strong. So, you know, barring surprises, we remain confident as we look at the momentum we have.

Yeah, no, I would agree. The other thing is you look at normally, yeah, the upside of ranges and the downside obviously is demand driven to get to the upside or maybe some unforeseen headwinds. And as Adam said, where we sit today and as again, we'll comment more about 25, which would be the second year into our long term ranges, if you will, we feel very good about the ranges just even from a just a general profile of kind of that mid single digit top line growth, organically margin improvement, capital allocation that will help fuel top line growth through acquisitions as well as strong cash for free cashflow to get to a double digit earnings per share kind of growth profile. So we feel very good. And even with some of the headwinds tailwinds, as Adam said, we got the benefit from PAMMA being delayed, but still within the range from a margin profile and revenue. And the flip side is on in detail, a strategic deal we did, but that would be, call it dilutive to the margins, if you will, relative to our general profile that we would put in there. So overall, you know, net net, we feel pretty good about the ranges that we have.

Thank you so much.

Thank you.

Our next question comes from Jack Meehan of Nefron Research, your line is open.

Morning, Jack. Good morning. I wanted to start with Invitai. For Glenn, within the M&A contribution in the quarter, can you just call out how much of the sales came from Invitai? I penciled in 45 million, is that a good bogey? And then for Adam, the hereditary market, you know, the market is still in the middle of the market. So is pretty competitive, just any perspectives in the early days of the deal, how any share shifts are going? Thank you.

Yeah, I'll take Jack, the first one on Invitai. And Adam, I think mentioned it in his opening comments. We're pretty much in line with expectations. So we originally said that for the year, we'd pick up around 120-ish of revenues, and it would be weighted kind of 50 and 70 between the third and the fourth. So your number for the third is in line with what our expectation is. But across the board for Invitai, we feel very good about the integration that's going on, what was expected and continue to drive to get that to be obviously positive from earnings and revenue and a margin standpoint next year.

And Jack, with regard to the hereditary market, and we've been competing in that market for quite some time. Invitai was an additional way for us to be larger a competitor in that market. So we know it well, we know how to compete in it, we know how to win in it. It's still early days, frankly, when you look at revenue, but so far so good. And our customers seem to be pleased. They now have lab-fork testing capabilities available to them. We're continuing to work on the customer experience so it could become much easier for the customers over time to order directly all the tests that they might want for a patient for women's health or for oncology. So I think over time, we're gonna continue to do very well. The 10% growth that we expect in revenue is almost what the market is growing. So my hope is over time, we'll be able to accelerate that. But in the meantime, we're basically saying we're gonna grow about the market rate.

Awesome. One follow up for Glenn, just with all the debt refinancing underway, could you just share like, and sorry if I miss this in the opening remarks, what your forecast was for interest expense this year? And is there any color you can share online what the moving parts would suggest number might be for 2025? Thank you.

Yeah, Jack. And I think on our last call, when we knew we were going through the financings, at that time, we kind of talked just in line of around 210 of interest expense for this year, growing to 240. We did all of our financing, so we actually feel good about where we came out. We raised the $2 billion of debt. We actually had an order book of over $8.5 billion, so we were able to get tighter pricing and we hit the market a good time. So directionally assume that we're coming in a little bit better on the interest expense this year, and therefore, and next. Obviously, the bulk of it will be annualized for next year, but the year over year change should be comparable, but the absolute numbers should be a little bit favorable to what we shared before.

Got it. Thank you. Thank you. Our next question comes from Pito Chickering of Deutsche Bank. Your line is open.

Morning, Pito. Hey, good morning, guys. Thanks for taking my question. If I could ask a managed care question, slightly different than Erin's. A competitor this week is talking about expanding a deal with a large national payer in three states, where it looks like you had an exclusive deal. And then losing a state where it looks like you won. So looking at the total volumes of managed care for 2025, will they be headwinds or tailwinds with the contract movements that it's occurring for next year?

Yeah, so Pito, as you look across all of our contracts that we've negotiated as we went through this year, net-net, I think it looks really good. And in fact, it's gonna be neutral, slightly positive for us. If you look at areas in general, I prefer non-exclusive contracts overall. And I've been saying that for five years now, because I think when you have exclusive contracts with managed care organizations, it just leads to price erosion every three or four years. Where if you have open contracts, I think you can compete in the marketplace, and we compete very well in the marketplace. And when exclusive contracts open up, typically the rate structures change as well. So there's not significant downside in many ways in that case also. So I feel very good about our managed care position. I feel very good about the momentum that we have in managed care as we go into next year.

Great, thanks so much.

Thank you.

And our next question comes from Andrew Brackman of William Blair, your line is open.

Hi guys, good morning. Thanks for taking the questions. Hey Adam. Adam, maybe just following up on your comments related to the oncology offering. You guys have expanded that portfolio nicely over the last two years. So can you maybe just sort of talk about the trends you saw this quarter in those advanced cancer tests, and just how are you sort of thinking about future growth there over the coming quarters and years? Thanks.

Yeah, no, thank you, Andrew. And if you look at oncology, I mean, we really do have a very broad menu of oncology offerings. Whether it be the basic testing and routine testing that you need for oncologists, or it be the more esoteric testing, whether it be lipid biopsy, solid tumors, we continue to have a very strong, broad portfolio. When I think about oncology, I don't look at any one test as the answer to how we're doing. I look across all of the oncology business that we have. And if you look across our business, we're seeing that business grow faster than our underlying routine testing business. In general, esoteric testing is growing faster. And I think what you wanna make sure of is that when you offer a very high esoteric oncology test, a physician has the ability to order all the other tests that they may want. And when you put yourself in a physician's shoes and you say, do I wanna go to multiple different ordering systems to order all the different tests that I might need for an oncology patient, or do I wanna have one system and get one report with all the results on it versus getting multiple reports across different systems, I think the advantage that we have over time is the full portfolio of oncology offerings. So what I look at is not only the individual offerings that we have, but how do we do across the entire portfolio, including routine tests that you would do for oncology patients, like white blood cell counts and so forth. So overall, it's a very good franchise for us. I expect it to grow faster than the overall underlying rate of diagnostics, and it'll continue to be an area of focus.

Great,

thanks guys.

Thank

you. Our next question comes from Kevin Caliendo of UBS. Your line is open.

Good morning, Kevin. Good morning, guys. Thanks for getting me in, I appreciate it. I just wanted to clear up a couple things that I had questions on. The 80 basis points margin that you called off for diagnostics, X, weather, and in-vitay, that's a fantastic number. Wasn't there also a negative impact from calendar and sort of payroll days and the like as well? Like would the margin have actually been better like for like?

Yeah, no, Kevin, when we gave the 80 basis point improvement excluding, we did include the days. So in-vitay, weather, and days combined for, call it 210 basis point headwind. So we would have been up 80, but that's still absorbing, call it 30 basis point impact from COVID as well. But that's why when we talk about the underlying improvement in our margins, we feel good about how the business is performing, we just have these headwinds that again next year will hopefully turn to tailwinds.

Well, that was sort of my first follow-up was fourth quarter, we should have a little bit of this. And then next year, can you sort of quantify what the calendar at least and the payroll might be? Like in terms of a positive, is it a couple days? Is it like, how should we think about that?

So we had, the big impact this year was we had two days of unfavorable payroll. Next year we'll have one day of favorable payroll. So again, it'll be a positive year over year in 2025.

Great, okay, that's super helpful. And one thing on in-vitay I wanted to clarify, I understand that there's accretion. Is that an absolute dollars, meaning next year, if in-vitay was just the standalone, it would actually be AOI positive? Or is the accretion just on a year over year basis versus the dilution that you're seeing in the third and fourth quarters? Meaning like, is it positive?

Yeah, no, Kevin, when we say that in-vitay will be accretive in 2025, that's on a standalone business, fully funded, fully burdened with the cost for the acquisition. So slightly accretive last year, or next year, where it's dilutive this year. When we talk about margins, similarly, we expect to have obviously positive margins generating positive earnings. So in the first half of the year, margins will still be, even though let's say they're positive, they'll still be a headwind to overall margins. They're not back up to diagnostics margins in the first half. But then once we get into the second half of the year, they'll start to be positive for diagnostics year over year because we'll be comping to negative margins where now they're positive margins. But accretive to earnings in absolute terms.

Perfect, that's great. And one last quick one, LaunchPad versus inflationary pressures. I know there was a period of time when LaunchPad wasn't necessarily able to keep up. Was it able to keep up in 3Q to anticipate LaunchPad, hitting its targets, at least being able to offset the wage and inflationary pressures?

Yeah, we've actually been tracking pretty good. That 100 to 125 a year of LaunchPad savings is comparable to kind of a three, a little bit over 3%, call it merit increase. This year, again, personnel costs were higher in part because of the days. But when you take out days, you just focus on the merit. LaunchPad does track and help offset those costs.

Guys, thanks so much, super helpful.

Thank you. Our next question comes from Elizabeth Anderson of Evercore ISI, your line is open.

Morning Elizabeth.

Hi, good morning, thanks for the question. I have a question about your consumer business. Obviously that continues to show some nice momentum. Can you talk about your expectations for that as we round out this part of the year and where we should think about that from a margin contribution perspective?

Yeah, so if you look at our consumer business, I'll focus on lab group on demand. We continue to add testing options on the on-demand system. So we announced two new ones in the quarter, luteinizing hormones as well as syphilis. And we launched a couple tests last quarter and we continue to look for a new test to bring into that platform. We don't break out the revenue for on-demand because it's still not of a material amount that it makes sense for us to break out. But the growth rate of that business is pretty substantial. And if it does reach a point or when it does reach a point where we think it's worthwhile to model and to provide for your models, we'll break it out at that time. But we're gonna continue to add tests, it continues to grow well, it's just not a critical mass yet.

Okay, and then just from a margin perspective, is that, is it sort of, like how do we think about those margins like -a-vis the corporate average? I know, as you said, it's still small, but just think conceptually. And again,

it's kind of like that Elizabeth. Given the size of it relative to the big business we have, it doesn't round really on the margins. Obviously we're making investments in that part of the business that will help fuel the growth, but you won't really see the impact on the margin.

Got it, perfect. Thank you very much.

Thank you. Our next question comes from Eric Caldwell of Baird. Your line is open.

Morning, Eric. Eric?

Eric,

your line

is open. If you're muted, please unmute.

Can you hear me now? Can you hear me now? We can hear you now. Good morning, Eric. Hey, good morning guys, sorry about that. So if you'll allow me to squeeze in two quick ones. First, just, street's a little bit focused on your relationship with Walgreens. I don't think you've mentioned that on this call, but obviously Walgreens is closing a number of stores over the next few years, and I think you have about 400 units in those stores today. So just any comments on that and where that relationship is. And then second, on the employer testing related business, I know you've been reluctant to really highlight some of these kind of nitpicky things that are smaller, but that's obviously been a headwind, and I think masking some of even better growth, but when will those comps possibly normalize? When do you think you get to more of a basal rate in the employer testing facing businesses, and might that also be a favorable comp for 2025?

Okay, so let me start with the Walgreens question first. I mean, we continue to have a good relationship with Walgreens. We started a relationship back in 2017, and it continues to be a very good discussion between our teams. Obviously they're making some strategic decisions. The good news for us is that we've increased our capabilities at our standalone service centers. So if you look at the technology we've added, the ability for people to check in, the ability for people to check in remotely, we've done a lot. So the MPS scores of our standalone PSCs have actually increased over time, and they continue to increase. So at this point we do have about 400 PSCs, service centers in Walgreens. We expect that many of us, if not all of us, will continue as they make their decisions. If we have to stand up some standalone PSCs, it's not a problem for us to do it. We know how to do it, we do that all the time. With regard to employer testing, for us it's still a relatively small part of our business. We do continue to see strain in that business, and the comps are still difficult, but it's so small it's not worth for us to break it out. In terms of overlapping, it's hard to say. It's hard to say what the bottom could be on that, to be honest. But I don't think it'll add much positive or negative as we think about 2025.

Yeah, yeah, I'd agree. It's definitely, when you think about the strength of our organic demand and volume this year, that's what the headwind of employer services. So again, it speaks to, it's not a big headwind, but similarly as we go next year, even though we would hope and expect to see improvement there, you're not gonna see a big tailwind from that as well.

I'm not overly worried about the Walgreens situation, but if I could just ask, would it not make sense that perhaps you're in some of their better and higher traffic stores, i.e. those less likely to be facing closures?

So when we work with them to decide the stores that we choose, we do choose stores that are mutually beneficial to them and to us. So areas where they see a lot of volume, stores where they know that if they have a service center in there, they'll get even more volume in a high volume store. So when we first choose those, we chose the 400, we were very deliberate. We worked very closely with them to strategically choose those stores. That's why I feel pretty good about where we are with them.

Yeah, and also, Eric, from that, to the extent a store would be impacted where we would have a patient service center, we'll have the opportunity to find another store with them to go into that where not that could be in close proximity, or we'll also have the option of just setting up a patient service center in that location that would be outside of where they are. But to your point, we're not expecting many to be impacted, but frankly, we just don't know yet, and once we do, we'll adapt from it.

Perfect, well, thanks for being a ray of sunshine in a tough healthcare services world. Good job.

Thank you. Our next question comes from Stephanie Davis of Barclays. Your line is open.

Morning, Stephanie.

Good morning, thank you for taking my question, guys. I was hoping we could dig into BLS again. There's been some noise in the market around pricing from some of your peers. I was hoping just given the upside, you'd comment on what you're seeing in pricing, maybe why it differentiates, and any further color you can give around from the metrics around orders and cancellation.

Thank you. Sure, so let me start with the second question first. So if you look at our trailing 12-month -to-bill as a 1.02, that's with the quarter being at a .96. So we had a relatively easy compare versus the same quarter last year. The -to-bill remains healthy for both businesses. We have good, consistent win rates. We have solid orders across the businesses. So I feel good as I look into the future for those businesses. The thing I would say is the quarterly -to-bill changes. So it was an easy compare this quarter versus last quarter. In fourth quarter, we expect to have sequential growth versus this quarter in dollars and also in terms of the -to-bill for the quarter, but it's gonna be a very rough comparator versus fourth quarter of last year. Then if you look at the first quarter of this year versus 2025, it'll be a much easier comparison. So what I would say is overall, the -to-bill remains healthy, but you do see fluctuations quarter over quarter, and that's gonna continue for the next couple quarters and moving forward. With regard to pricing, I'll start with our early development business. In general, when capacity is not fully utilized, you see some pricing pressure. We see some pricing pressure, but at the same time, because the price of NHPs have come down pretty significantly and the NHP prices don't impact us because it was just a pass-through for us, our customers are seeing a price decrease just based upon the cost of the NHPs, which I think helps us with some of the pressure that they're feeling. And in central laboratories, we continue to have some longer-term contracts over time. We have lots of long-term agreements, so there's always gonna be pricing pressure there, and we're gonna always look for ways to reduce costs as we face those pressures. But overall, net-net, the momentum in central labs is very strong, and we expect the early development business to be back to growth next quarter.

Thank you, Mike. Thank you.

And our next question comes from Michael Riskin of Bank of America. Your line is open. Good

morning. This is John Kim for Michael. So, INDITEA seems to be progressing well. So, looking ahead, you've talked about the M&A contribution to still be 1.5 to .5% here. Where will your priorities lie? Is there perhaps any geographical exposure that you would want to increase?

Hi, John. What I would say is we continue to have a very deep business development pipeline. The vast, vast majority of it is in hospital and health systems, local and regional laboratories. And that's where our focus is when it comes to deals. We're looking for things that are creative in the first year, return it across the capital, in two or three years that we know how to integrate really, really well. What I'd say is something like INDITEA is not typical. We don't typically do a deal that would be dilutive in the first year. Those are not the types of deals that we would typically be interested in. If it's strategically aligned and a one-off, we'll consider it. But in general, what we're really looking for are those hospital, regional, local laboratories.

Got it, understood. And then also great to hear that the LaunchPad savings are on track to offset the wage inflation. But wanted to ask how the frontline workover to an overrate has been like?

Again, the LaunchPad is being very effective in helping offset the wage rate. We have seen improved, call it attrition, especially within our biopharmacide, kind of back to normal levels of pre-pandemic. We've seen nice progress within the diagnostic side of our business. But to your point, in select areas, especially the frontline workers, it is more competitive. They have a lot of other choices to try find higher hourly wages at different industries, even not necessarily just what we do here. So we continue to work hard on making it a good, inclusive experience. We are focused on our teams. Obviously, the longer we keep people working for us, the more loyalty and the more likely they stay. So overall, it's being managed. It is part of the overall increase in the labor environment costs, but we continue to make progress on it. Got it, appreciate that.

Thank you. Our next question comes

from Brian Tankalot of Jeffries. Your line is open.

Morning, Brian.

Hey, guys, this is Megan on for Brian. Thanks for taking the question at the end here. Can you guys just speak to your M&A pipeline? You guys obviously had a lot of deals over the last year. We'd like to just know kind of if you have any visibility of what that's gonna look like into 2025.

Yeah, hi, Megan. So we continue to be very optimistic about our pipeline of deals, particularly in a hospital, local regional laboratory businesses. And if you look at what we've said is gonna happen in our longer-term outlook, we've actually increased the revenue growth that's gonna come from the acquisition strategy that we have. So we expect historically, the inorganic growth to be one to 2%. We've actually raised that in our longer-term guidance, where it's now gonna be .5% to 2.5%. Historically, it was 1% to 2%. Now it's .5% to 2.5%. I think that just shows our confidence in the pipeline of deals that we have. It's impossible to predict the exact timing, but I look forward to talking about those in the future.

Thank you. Thank you. This concludes the question and answer session. At this time, I'd like to turn it back to Adam Schechter for closing remarks.

Thank you, everybody, for joining us today. And I hope you see we continue to advance our mission to improve health and improve lives. And we look forward to updating on our fourth quarter of full year 2024 financial results as we get into the new year. I look forward to seeing you all soon. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.