Labcorp Holdings Inc. 2026 Q3 Earnings Call

Please go ahead. Good morning, and welcome to Labcorp's third quarter 2026 financial results webcast.

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

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

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

Adam? Thank you, Niccolo. Good morning, everyone.

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

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

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

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

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

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

This acquisition establishes Labcorp as the only central laboratory provider with a wholly owned laboratory network across four continents: North America, Europe, Asia, and Africa. We also partnered with the National Association of Community Health Centers to strengthen leadership development, support practice improvement, and advance community health initiatives across the nation's community health center network. Subsequent to quarter end, we signed three acquisition agreements, each of which is expected to meet our financial criteria of being accretive to adjusted EPS in the first year and returning the cost of capital by year 3. The timing of each of these is subject to regulatory approvals and customary closing conditions.

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