Business Description
Labcorp is a global leader in laboratory services, operating through two main segments: Diagnostics Laboratories (Dx) and Biopharma Laboratory Services (BLS) . The company provides a wide range of laboratory testing services, including routine and specialty/esoteric testing, and is heavily involved in the development of new drugs, having worked on 90% of the new drugs approved by the FDA in 2023 . Labcorp's strategic focus includes expanding its specialty testing capabilities in areas such as oncology, women's health, autoimmunology, and neurology .
- Diagnostics Laboratories (Dx) - Offers routine and specialty/esoteric testing services, with nearly all revenues generated in the U.S. This segment is a major contributor to the company's revenue .
- Biopharma Laboratory Services (BLS) - Focuses on early development research laboratories and central laboratory services, with revenues nearly evenly split between the U.S. and other countries .
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Q3 2024 Summary
What went well
- Integration of Invitae is going extremely well, and it's expected to be slightly accretive to earnings in 2025 with revenue growth of approximately 10% .
- Oncology offerings are growing faster than the overall diagnostics business, with esoteric testing outpacing routine testing, making it a significant area of focus for future growth .
- Increased inorganic growth expectations from 1-2% to 1.5-2.5% in the long-term guidance, reflecting confidence in a strong M&A pipeline, particularly in hospital and regional laboratories .
What went wrong
- The acquisition of Invitae is negatively impacting margins, causing a 40 basis point margin reduction this year and expected to continue showing negative year-over-year margin comparisons through the first half of next year until integration is complete.
- LabCorp's consumer business, Labcorp OnDemand, lacks critical mass and is not contributing material revenue at this time, suggesting limited impact on financial performance in the near term.
- In the competitive hereditary testing market, LabCorp expects revenue growth from the Invitae acquisition to be approximately 10%, which matches market growth and may indicate challenges in gaining market share beyond industry averages.
Q&A Summary
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Margin Outlook
Q: How are margins progressing and expectations for next year?
A: Management highlighted that despite headwinds from the Invitae acquisition, weather impacts, and unfavorable payroll days totaling 210 basis points , underlying margins improved by 80 basis points. They expect these headwinds to become tailwinds next year, boosting margins further. LaunchPad initiatives are on track to deliver $100–$125 million in savings , helping offset wage inflation. -
Invitae Acquisition Impact
Q: What is the impact of Invitae on margins and growth?
A: The Invitae acquisition negatively impacted margins by 40 basis points this year. Management expects Invitae to be slightly accretive next year , with revenue growth of about 10%. Integration is progressing well, and margins will improve each quarter, turning positive in the second half of next year. -
Early Development Business Outlook
Q: How is the early development business expected to perform?
A: Early Development showed sequential revenue growth in Q3 , and management expects positive year-over-year growth in Q4. With a soft comp last year and solid backlog execution, they anticipate continued growth into 2025, contributing to margin improvement. -
Managed Care Contracts
Q: How are payer relationships and pricing environment?
A: Management feels very good about managed care contracts, securing renewals on good terms. Overall, they expect a neutral to slightly positive impact moving forward, which is better than historical trends. Nonexclusive contracts are preferred, allowing competitive positioning without significant downside. -
Inorganic Growth and M&A Pipeline
Q: What are expectations for inorganic growth and M&A?
A: The company increased its inorganic growth expectations from 1–2% to 1.5–2.5% in their long-term guidance. The M&A pipeline is robust, focusing on hospital, local, and regional laboratories that are accretive in the first year. Management is optimistic about future deals contributing to growth. -
PAMA Impact Deferred
Q: How does PAMA delay affect long-term guidance?
A: While PAMA impacts have been postponed, management still includes it in their long-term guidance but notes that further delays could positively affect margins and revenue. They remain confident in their ranges despite this potential upside. -
Debt Refinancing and Interest Expense
Q: What are expectations for interest expense after refinancing?
A: The company completed refinancing, raising $2 billion of debt with better-than-expected pricing. Interest expense is expected to be slightly favorable compared to previous forecasts of $210 million this year and $240 million next year. -
Diagnostics Utilization Trends
Q: How are current utilization trends in Diagnostics?
A: Diagnostics utilization is accelerating, with volume up 2.7% despite weather constraints. The company expects continued momentum, with organic revenue growth of 2.5–4.5% and increased inorganic growth. They are gaining market share through hospital deals and regional labs. -
Oncology Testing Growth
Q: How is the oncology testing business performing?
A: The oncology portfolio is growing faster than routine testing, driven by both basic and esoteric tests. Management expects this franchise to continue outpacing overall diagnostics growth, leveraging their comprehensive test offerings. -
LaunchPad Savings
Q: Are LaunchPad savings offsetting inflationary pressures?
A: LaunchPad initiatives are effectively offsetting wage inflation. The company is on track to achieve $100–$125 million in savings , comparable to a 3% merit increase , helping manage personnel costs despite competitive labor markets. -
Walgreens Partnership Impact
Q: How will Walgreens store closures affect Labcorp?
A: Labcorp maintains a strong relationship with Walgreens, operating about 400 patient service centers in their stores. While store closures may occur, they expect minimal impact as they can relocate centers to other stores or standalone sites. The initial site selection was strategic, focusing on high-volume locations.
Key Metrics
Revenue by Segment - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Dx | 2,382.8 | 2,340.8 | 2,344.7 | 2,346.8 | 9,415.1 | 2,479.7 | 2,524.9 | 2,553.5 | ||||||||||||||||||||||||||||||||||||||||||||||
BLS | - | 699.0 | 719.1 | - | 2,774.2 | 710.9 | 707.0 | 737.7 | ||||||||||||||||||||||||||||||||||||||||||||||
DD | 1,401.3 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Reimbursable Out-of-Pocket Expenses | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Intercompany Eliminations | -6.2 | -6.1 | -7.0 | -8.4 | -27.7 | -14.0 | -11.0 | -9.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 3,777.9 | 3,033.7 | 3,056.8 | 2,293.2 | 12,161.6 | 3,176.6 | 3,220.9 | 3,282.0 | ||||||||||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | FY 2013 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | FY 2014 | Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
North America | - | 2,637.1 | 2,650.4 | - | 10,177.7 | 2,654.6 | 2,698.8 | 2,738.4 | ||||||||||||||||||||||||||||||||||||||||||||||
- United States | 2,959.2 | - | 2,550.6 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Canada | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Europe | 453.3 | 273.0 | 275.1 | 93.1 | 1,094.5 | 285.9 | 289.9 | 295.4 | ||||||||||||||||||||||||||||||||||||||||||||||
- United Kingdom | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Switzerland | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
- Other Europe | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
Other Regions | 265.4 | 123.6 | 131.3 | -33.9 | 486.4 | 126.1 | 129.2 | 148.2 | ||||||||||||||||||||||||||||||||||||||||||||||
Total Revenue | 3,777.9 | 3,033.7 | 3,056.8 | 2,293.2 | 12,161.6 | 3,176.6 | 3,220.9 | 3,282.0 |
Executive Team
Questions to Ask Management
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Given the substantial growth of Labcorp OnDemand but its current immaterial impact on revenue, when do you anticipate this platform reaching a scale significant enough to break out its financials, and what are the main obstacles to achieving that critical mass?
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With Walgreens planning to close numerous stores and considering you have about 400 patient service centers within their locations, how do you intend to mitigate the potential impact on patient access and volumes, and what strategies are in place to ensure continuity of services in affected areas?
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The acquisition of Invitae has resulted in a margin decline this quarter, with expectations of slight earnings accretion only in 2025; can you elaborate on the integration challenges you're facing and how confident are you in achieving the projected top-line growth and margin improvement?
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You've mentioned ongoing strain in the employer testing-related business with no significant positive outlook for 2025; what strategic actions are you taking to address this underperforming segment, and is divestiture being considered to improve overall business performance?
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Despite underlying improvements, adjusted operating margins in the Diagnostics segment were negatively impacted by Invitae, weather, and calendar days; how sustainable are your margin improvement initiatives, and what measures are you implementing to mitigate such external factors affecting your profitability?
Past Guidance
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance:
- Enterprise Revenue Growth: Expected to grow 6.6% to 7.3% compared to 2023 .
- Diagnostics Revenue Growth: Expected to be up 7.2% to 7.8% compared to 2023 .
- Biopharma Revenue Growth: Expected to grow 4.7% to 5.6% compared to 2023 .
- Adjusted EPS: Guidance range is $14.30 to $14.70 .
- Free Cash Flow: Guidance range is $850 million to $980 million .
- Enterprise Margins: Expected to be slightly down year-over-year .
- Capital Expenditures: Expected to be approximately 3.5% of revenue for the full year .
- Adjusted Tax Rate: Expected to be approximately 23% for the full year .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Adjusted EPS: Guidance range is $14.30 to $14.90 .
- Free Cash Flow: Guidance range is $850 million to $1 billion .
- Enterprise Revenue Growth: Expected to grow 6.4% to 7.5% compared to 2023 .
- Diagnostics Revenue Growth: Expected to be up 6.9% to 7.9% compared to 2023 .
- Biopharma Revenue Growth: Expected to grow 3.7% to 5% compared to 2023 .
- Enterprise Margins: Expected to be flat versus the prior year .
- Diagnostics Margins: Expected to be down .
- Capital Expenditures: Expected to be approximately 3.5% of revenue for the full year .
- Adjusted Tax Rate: Expected to be approximately 23% for the full year .
- Invitae Revenue Contribution: Expected to add approximately $120 million in revenue for the remainder of the year .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: FY 2024
- Guidance:
- Enterprise Revenue Growth: Expected to grow 4.8% to 6.4% compared to 2023 .
- Diagnostics Revenue Growth: Expected to be up 4.8% to 6% compared to 2023 .
- Biopharma Revenue Growth: Expected to grow 3.7% to 5.7% compared to 2023 .
- Adjusted EPS: Guidance range is $14.45 to $15.35 .
- Free Cash Flow: Guidance range is $1 billion to $1.15 billion .
- Adjusted Tax Rate: Expected to be approximately 23% for the full year .
- Capital Expenditures: Expected to be approximately 3.5% of revenue for the full year .
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: FY 2024
- Guidance:
- Enterprise Revenue Growth: Expected to grow 4.7% to 6.5% compared to 2023 .
- Diagnostics Revenue Growth: Expected to be up 3.2% to 4.8% compared to 2023 .
- Biopharma Revenue Growth: Expected to grow 5.5% to 7.5% compared to 2023 .
- Adjusted EPS: Guidance range is $14.30 to $15.40 .
- Free Cash Flow: Expected to be between $1 billion to $1.15 billion .
- Margins: Expected to improve in both Diagnostics and Biopharma segments .
- Adjusted Tax Rate: Expected to be approximately 23% for 2024 .
- Capital Expenditures: Expected to be approximately 3.5% of revenue in 2024 .
- Impact of Weather: Expected to impact earnings by $0.10 to $0.15 in the first quarter .
Latest news
Recent developments and announcements about LH.
Corporate Leadership
CFO Change
Labcorp's CFO, Glenn Eisenberg, has announced his plans to retire. Julia Wang will take over as the new CFO starting December 2, 2024. Eisenberg will remain with the company as a Special Advisor to the CEO until April 2025 to ensure a smooth transition .
Leadership Change
Glenn Eisenberg is leaving his role as Chief Financial Officer (CFO) at Labcorp. He is retiring and will step down on December 2, 2024. He will remain as a Special Advisor to the CEO until April 2025 to ensure a smooth transition and assist with strategic initiatives .
Julia Wang will step up as the new CFO starting December 2, 2024. She brings extensive experience from her previous roles at BeiGene, Alexion Pharmaceuticals, Quest Diagnostics, Johnson & Johnson, and PepsiCo .
Board Change
Julia Wang has been appointed as the new Chief Financial Officer of Labcorp, effective December 2, 2024. She will replace Glenn Eisenberg, who will retire on April 30, 2025 .
Financial Actions
New Share Buyback Program
Laboratory Corporation of America Holdings has announced a new buyback program involving the issuance of $2,000,000,000 in debt securities. This includes $650,000,000 of 4.350% Senior Notes due 2030, $500,000,000 of 4.550% Senior Notes due 2032, and $850,000,000 of 4.800% Senior Notes due 2034. The interest on these notes is payable semi-annually on April 1 and October 1, starting from April 1, 2025. The company has the option to redeem these notes before their respective Par Call Dates at a price equal to the greater of 100% of the principal amount or a make-whole premium, plus accrued interest .