NYSE:LH Laboratory Co. of America Q4 2023 Earnings Report $228.60 +0.02 (+0.01%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$228.50 -0.09 (-0.04%) As of 04/25/2025 04:12 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Laboratory Co. of America EPS ResultsActual EPS$3.30Consensus EPS $3.29Beat/MissBeat by +$0.01One Year Ago EPS$4.14Laboratory Co. of America Revenue ResultsActual Revenue$3.03 billionExpected Revenue$3.02 billionBeat/MissBeat by +$10.44 millionYoY Revenue Growth-17.50%Laboratory Co. of America Announcement DetailsQuarterQ4 2023Date2/15/2024TimeBefore Market OpensConference Call DateThursday, February 15, 2024Conference Call Time9:00AM ETUpcoming EarningsLaboratory Co. of America's Q1 2025 earnings is scheduled for Tuesday, April 29, 2025, with a conference call scheduled at 9:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Laboratory Co. of America Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 15, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good day, and welcome to the Laboratory Corporation of America Holdings 4th Quarter and Full Year 2023 Earnings Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kristin O'Donnell, Vice President, Investor Relations. Please go ahead. Speaker 100:00:39Thank you, operator. Good morning, and welcome to LabCorp's 4th Quarter 2023 Conference Call. As detailed in today's press release, there will be a replay of this conference call available via telephone and Internet. 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 www.labcor.com, we posted both our press release and an Investor Relations the most comparable GAAP financial measures, both of which are discussed during today's call. Speaker 100:01:23Additionally, 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 recently completed spin off of Portria Holdings, Inc, the impact of various factors on the company's businesses, operating and financial results, cash flows and and or financial conditions, including the COVID-nineteen pandemic and global economic and market conditions future business strategies Expected savings, benefits and synergies from the LaunchPad initiative and from other acquisitions and other strategic transactions and partnerships 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 ks and subsequent quarterly reports on Form 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. Speaker 100:02:24Now I'll turn the call over to Adam Schechter. Speaker 200:02:27Thank you, Chris, and good morning, everyone. It's a pleasure to be with you today to Our Q4 2023 results and our guidance for 2024. LabCorp delivered a strong finish what was a transformational year for the company. Looking back, we executed well on our strategic priorities. We successfully integrated the lab operations of Ascension, one of the largest health systems in the United States. Speaker 200:02:53We completed the Spiniportria, our former clinical development and commercialization services business. We announced 6 new laboratory partnerships, reinforcing our position as a partner of choice for health systems and regional local laboratories. And we launched new innovative tests in our focused specialty areas across the business. As we begin 2024, we have momentum in both diagnostic laboratories and biopharma laboratory services. We expect to drive continued growth by expanding our base business, finalizing and integrating acquisitions and partnerships by advancing our position in science, technology and innovation. Speaker 200:03:38We will continue to focus and lead in oncology, women's health, autoimmune disease and neurology. Now turning to the 4th quarter results. LabCorp performed well driven by strong base business revenue growth in both diagnostics and biopharma. In the 4th quarter, revenue totaled $3,000,000,000 Adjusted earnings per share was $3.30 and free cash flow from continuing operations excluding spin related items was $422,000,000 Enterprise revenue increased 4% compared to Q4 of 2022 with diagnostics growing 3% led by base business growth of 8% and biopharma growing 7% due to strong performance in central laboratories more than offsetting softness in early development research laboratories. Enterprise based business margin was flat compared to the prior year despite being constrained by the mix impact for recently closed hospital partnerships. Speaker 200:04:46Looking forward to 2024, we expect strong enterprise revenue growth of 4.7% to 6.5%. We expect margin improvement across both diagnostics and biopharma and we expect adjusted EPS of $14.30 to $15.40 an implied growth rate at the midpoint of 10%. We also expect free cash flow to grow in excess of earnings. In a moment, Glenn will provide more details on our results and our 2024 guidance. Turning to our enterprise strategy, In the Q4, we continue to see positive momentum from our health systems and regional local lab partnership strategy. Speaker 200:05:32LabCorp continues to demonstrate that we are partner of choice with several new health systems and regional local laboratory relationships. This is primarily due to our leadership in science and technology, our dedication to patients and our commitment to quality and efficiency. We announced a strategic partnership with Baystate Health in Western Massachusetts to acquire its Outreach Laboratory business and select operating assets. We completed the acquisition of select assets from Legacy Health. LabCorp now manages Legacy's inpatient hospital laboratories serving patients throughout Oregon and Southwest Washington State. Speaker 200:06:13And we entered into an agreement to acquire ambulatory lab draw stations and a stat lab from Providence Medical Groups in California. Looking ahead, our M and A pipeline is robust and we remain focused on integrating and expanding our health system and regional local laboratory partnerships. These partnerships are typically accretive in the 1st year with margins expanding over time during integration and they returned their cost of capital within just a few years. Turning now to our progress in science, technology and innovation. In the Q4, Ovia Health by LabCorp announced it will offer fertility and family building benefit. Speaker 200:06:57This benefit is the first of its kind that will allow employers and health plans to offer customizable solutions to employees and members to support their family building needs. LabCorp announced the availability of an ATM profile, The first blood bags test that combines 3 well researched blood markers to identify and assess biological changes associated with Alzheimer's disease. Last month, we announced the launch of the new FDA cleared blood test for risk assessment and clinical management of severe preeclampsia. LabCorp and Hawthorne effect announced a strategic collaboration to advance decentralized clinical trial capabilities for pharma, Biotech and Medical Device Sponsors. The collaboration is expected to increase patient diversity and inclusion to decrease site burden and to accelerate enrollment in clinical study timelines. Speaker 200:07:53Finally, for our central laboratory customers, We introduced a new sample tracking application to provide enhanced near real time visibility of specimens within the central lab. This phase is the first of many that will be launched for LabCorp customers. The application allows users to view events in the central lab specimen sample journey for each assigned protocol and to customize how their data is structured. Turning now to the year ahead, we are focused on advancing our growth drivers that outlined in our September 2023 Investor Day. We plan to continue to be a partner of choice for health systems and regional local laboratories. Speaker 200:08:37We will continue to develop, license and ultimately scale specialty testing including companion diagnostics. We will work to bring our specialty testing to other parts of the world, which increases our global reach by leveraging our scale. For example, we're enabling our central laboratories in China and Geneva to perform liquid biopsy tests for clinical trials. And we are well positioned for long term success and selling gene therapy and consumerism. We see tremendous opportunity for growth as we continue to focus on bringing new innovation, technology and markets products to market. Speaker 200:09:16In closing, 2023 was a strong and transformative year for LabCorp. We executed our strategy at exceptional scale and pace. I want to thank our more than 60,000 employees for their hard work and dedication to customers around the world. This enabled us to enter 2024 with considerable momentum that we intend to capitalize on to drive further value for our customers, our shareholders and our employees as we pursue our mission to improve health and to improve lives. With that, I'll turn the call over to Glenn. Speaker 300:09:52Thank you, Adam. Going to start my comments with a review of our 4th quarter results followed by a discussion of our performance in each segment and conclude with our 2024 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 $3,000,000,000 an increase of 3.5 compared to last year primarily due to organic base business growth and the impact from acquisitions partially offset by lower COVID testing. The base business grew 7.4% compared to the base business last year, while COVID testing revenue was down 73%. Speaker 300:10:33Organically in constant currency, the base business grew 5.2%. Operating loss for the quarter was $23,000,000 due to an impairment charge of $334,000,000 related to our early development research laboratories business as we've experienced soft biotech markets. In addition, we had $125,000,000 of special charges related to acquisitions, COVID and the Spinipour Trio. Excluding these items and amortization, adjusted operating income in the quarter was $395,000,000 or 13 percent of revenue compared to $413,000,000 or 14.1 percent last year. The decrease in adjusted operating income and margin was due to lower COVID testing. Speaker 300:11:16Base business margins were in line with last year as the benefit of demand in LaunchPad savings were offset by higher personnel and stranded costs and the mix impact of recently completed hospital partnerships. Our LaunchPad and stranded cost reduction initiatives delivered around $125,000,000 of savings this year consistent with our long term target of $100,000,000 to $125,000,000 per year. The adjusted tax rate for the quarter was 19.5% compared to 25.4% last year. The lower adjusted tax rate was primarily due to the geographic mix of earnings and the benefit from increased R and D tax credits. We expect our adjusted tax rate for 2024 to be approximately 23%. Speaker 300:12:02Fully diluted EPS for the quarter was a loss of $1.95 due to the early development impairment charge. Adjusted EPS were $3.30 in the quarter, up 8% from last year. Operating cash flow from continuing operations was $580,000,000 in the quarter compared to $607,000,000 a year ago. The reduction in cash flow was due to lower COVID testing. Capital expenditures totaled $165,000,000 in the quarter. Speaker 300:12:30For the full year, capital expenditures were 3.7% of revenue and we expect this to be approximately 3.5% in 2024. Free cash flow from continuing operations for the quarter was $414,000,000 The company invested $155,000,000 in acquisitions and paid out $61,000,000 in dividends. While we did not use any cash for share repurchases during the quarter, we completed the accelerated share repurchase program, which reduced our share count by 1,100,000 shares in the quarter. At the end of the year, we had $530,000,000 of share repurchase authorization remaining. For the full year, free cash flow from continuing operations excluding spin related costs was $888,000,000 The company invested $672,000,000 on acquisitions, paid out $254,000,000 in dividends, repurchased $1,000,000,000 of stock and pay down $300,000,000 of maturing debt. Speaker 300:13:30We continue to have a robust pipeline of potential acquisition opportunities that will supplement our organic growth. In addition, we continue to believe that our share repurchase program is an important part of our capital allocation strategy. At year end, we had $537,000,000 in cash with debt of $5,100,000,000 Our leverage was and a half times gross debt to trailing 12 months adjusted EBITDA. Now review our segment performance beginning with Diagnostics Laboratories. Revenue for the quarter was $2,300,000,000 an increase of 2.6% compared to last year with organic growth of 0.8% and acquisitions contributing 1.8%. Speaker 300:14:13The base business grew organically by 5.7% compared to the base business last year, while COVID testing revenue was down 73%. Total volume increased 2.4% compared to last year As organic volume grew 0.3% which was constrained by lower COVID testing while acquisition volume contributed 2.1%. Base business volume grew 5.2% compared to the base business last year as organic volume increased 3.1% while acquisitions contributed 2.2%. Price mix increased 0.2% versus last year due to an organic base business increase That was mostly offset by lower COVID testing. Base business organic price mix was up 2.6% compared to the base business last year. Speaker 300:15:06Diagnostics adjusted operating income for the quarter was $354,000,000 or 15.1 percent of revenue Compared to $387,000,000 or 16.9 percent last year, the decrease in adjusted operating income was due to a reduction in COVID testing. Base business operating income was up due to the benefit of higher organic demand, acquisitions and LaunchPad savings, which were partially offset by higher personnel costs, including healthcare related costs. The decrease in margin was due to the reduction in COVID testing and the mix impact from recently closed hospital partnerships, Speaker 400:15:41which we Speaker 300:15:42expect to improve over time. Now review our segment performance of biopharma laboratory services. Revenue for the quarter was $695,000,000 an increase of 7.1% compared to last year due to an increase in organic revenue of 4% and foreign currency translation of 3.1%. The 7.1% revenue growth was driven by continued strength in central labs which was up 12% while early development was down 2% due to higher than normal cancellations. Biopharma adjusted operating income for the quarter was $109,000,000 or 0.7% of revenue compared to $95,000,000 or 14.7 percent last year. Speaker 300:16:26Adjusted operating income and margin increased due to organic growth in LaunchPad savings partially offset by higher personnel and stranded costs. We ended the quarter with a backlog of $8,200,000,000 and we expect approximately $2,500,000,000 of this backlog to convert into revenue over the next 12 months. Book to bill for the quarter was 1.26 with the trailing 12 months at 1.04. Now I'll discuss our 2024 full year guidance, which assumes foreign exchange rates effective as of December 31, 2023 for the full year. The enterprise guidance also includes the impact from currently anticipated capital allocation with free cash flow targeted for acquisitions, share repurchases and dividends. Speaker 300:17:14We expect enterprise revenue to grow 4.7% to 6.5% compared to 2023. This includes the favorable impact from foreign currency translation of 60 basis points. We expect diagnostics revenue to be up 3.2% to 4.8% compared to 2023. The impact from lower COVID testing of around $130,000,000 is expected to be offset by the annualization of acquisitions that were completed in 2023. We expect biopharma revenue to grow 5.5% to 7.5% compared to 2023. Speaker 300:17:48This guidance includes the positive impact foreign currency translation of 220 basis points. We expect Central Labs and early development to both grow within the segment guidance range. We expect margins in Diagnostics and Biopharma to be up in 2024 versus 2023 driven by top line growth and LaunchPad Savings. Our guidance range for adjusted EPS is $14.30 to $15.40 with implied growth rate at the midpoint of approximately 10%. While we do not guide to quarterly performance, it's worth noting that first quarter earnings will be below typical quarterly seasonality due to weather disruption in January that we expect will impact earnings by $0.10 to $0.15 in the quarter. Speaker 300:18:36Free cash flow is expected to be between $1,000,000,000 to $1,150,000,000 with an implied growth rate at the midpoint of approximately 21%. In summary, we expect to drive continued profitable growth and strong free cash flow generation that will be used for acquisitions that supplement our organic growth while also returning capital to shareholders through our share repurchase program and dividends. Operator, we'll now take questions. Operator00:19:04Thank you. At this time, we will conduct the question and answer session. Our first question comes from Jack Meehan with Nephron Research. Your line is open. Speaker 400:19:31Good morning, Jeff. Good morning. Hope you guys are doing well. I wanted to start with a question on capital So last year was obviously pretty active year for you guys integrating Ascension, doing the spin, feels like you have a little bit more bandwidth and The cash flow has been strong. I was wondering if you thought there could be any larger deals available either in the independent lab or health system space. Speaker 400:19:56Like I know it's tough to come up with something that's ascension size, but what does the funnel look like? Speaker 200:20:03Yes. Hi, Jack. So if you look at The pipeline for M and A that we have, it remains very strong. As we say, there's not deals the size of Ascension in health systems, but there's quite a few health systems that when you add them up obviously become meaningful. In fact, if you look at our longer term guidance, historically we've that we have 1% to 2% growth from inorganic means. Speaker 200:20:26We have now said we believe it's going to be 1.5% to 2.5%, Reflecting that we believe that there is significant opportunity before us. We also mentioned partnerships with regional local laboratories. I think that there could be some additional partnerships in that areas. But as I think about capital allocation in general, first off, that we're committed to our dividend. We then look to do as many of these hospital, local, regional laboratory deals as we can do because they're so Sensible to do. Speaker 200:20:56They return their cost of capital very quickly. They're accretive in the 1st year and we know how to do them really well. And then if there's something that is strategic to us in one of our strategic priorities, we would look to do those, albeit we're not looking at anything of massive size. But after that, we then look at our share buybacks, which we continue to believe is a good way to use our funds as well. Speaker 300:21:19Yes, Jack, the only thing I'd also add to your comment earlier is that our guidance assumes that again we're going to generate between $1,000,000 to $1,150,000,000 of new free cash flow this coming year and that will redeploy that for capital allocation of M and A buybacks and dividends, but the balance sheet is also strong. We ended the year at 2.5 times gross debt to trailing 12 months adjusted EBITDA and we have a targeted range of 2.5 times to 3 times. So to your point, if there were attractive opportunities out there on the M and A front, obviously share repurchases as well in addition to the free cash flow, we also have additional flexibility to pursue those opportunities. Speaker 400:21:59Great. Can you talk about what On the Diagnostic side, what realized unit price was in the quarter? What your expectation is for next year? And the reason I ask is, I get a lot of questions on the margins in the business and it feels like we're in this elevated inflationary environment. Just like what do you think Do you see opportunities to kind of use price more as a lever to offset that? Speaker 200:22:26Yes. So, Jack, let me first Talk about margins just in general. So if you look at 2023, the margins were basically flat versus prior year. If you look at some of the things that we had to overcome, they were pretty significant like COVID work that was significantly less this year than the prior year. But in addition to that, the hospital deals that we've done, in particular in the 4th quarter, had an impact on our margins because although they're accretive in the first here. Speaker 200:22:55They're dilutive in the 1st couple of months as we do the integration until we have the ability to reduce cost to a level that makes sense over time. So we saw some impact from that in the Q4 as well. I feel really good about our margin accretion as we go into 2024. And we've said that we expect the margins to increase, but we also expect an increase in each of the businesses, not just diagnostics, but also biopharma. Within biopharma, we expect them to be increased not just in central laboratories, but also in early development. Speaker 200:23:29We continue to look for ways to reduce costs through our LaunchPad initiative. We're committed to reducing costs by $100,000,000 to $125,000,000 this year and each year for the next several years. In addition to that, our volume growth is helping us significantly. In particular, as we see growth in biopharma, that's going to help us with our margins. Despite the fact that we still have COVID overhang in 2024 versus 'twenty three that we're continuing to improve the margins in our hospital deals, we're expecting to see the margins being accretive and growing this year, which to me is just a good sense of the underlying growth. Speaker 200:24:06With particular focus on price, I would say price is net neutral when you look at overall price. There is some benefit to mix and we continue to see mix helping us there. Speaker 300:24:21Yes, Jack, the thing too is as Adam said, when you think about the diagnostics business and the benefit frankly of seeing PAMA at least deferred out 1 year that we expect the margins within diagnostics to be up in 24 All in and that's even with the expectation that COVID testing is going to be down. Obviously, the underlying base business margin improvement would even be greater than that. And as Adam said, the nice thing is with the growth that we expect, it's demand driven. A lot of it is the volume side. Price mix is still going to be favorable at a lesser extent than obviously the volume, but with unit prices being relatively flat, We have the opportunity again to see favorable mix to help drive that improvement. Speaker 400:25:06Great. Thank you. Operator00:25:08One moment for our next question comes from Kevin Caliendo with UBS. Your line is open. Speaker 500:25:19Good morning, Kevin. Hi. Speaker 200:25:22Good morning. Thanks for taking my question, guys. Speaker 400:25:26On biopharma, just want to understand the expectations for margin there and how much of that There's improvement in early development. I know you have sort of an easy comp in 1Q versus sort of actual improvement in margin and mix. Can you just talk about the dynamics of that and sort of the cadence of that as we think about the course of the year? Speaker 200:25:47Yes, I'll talk a little bit and I'll ask Glenn to provide Some additional context. Our biopharma laboratory service business remains a leader in both segments. We're a leader in central laboratory. We're also a leader in oral development. Central Laboratory performed very well in the Q4 and we expect this is going to continue to perform well as we look at 5.5% to 7.5% growth in 2024 across the segment. Speaker 200:26:12But early development, we expect to continue to improve as we go through the year. And we also expect early development to grow about the same amount as the overall guidance that we're giving for biopharma. A lot of the early development growth we expect will be in the second half of the year as we continue to see improvement and ramp up. Our RFPs look good in both segments. The largest segment obviously by far is the central laboratories. Speaker 200:26:42The RFPs look good, our win rate looks good, big pharma is continuing to send us a lot of RFPs, I feel great. If you look at early development, the RFPs look good, the win rate looks good. What we faced are some cancellations that are well above normal levels We expect as we go through 2024 that that will normalize and get us back to the RFPs and the win rate being positive for us and therefore providing us with growth. Speaker 300:27:08Yes. Kevin, just would add that when you look at the cadence to your point, one, we expect biopharma margins to be up year over year. Given the softness that we experienced especially in the first half of twenty twenty three with the supply constraints that we experienced In the early development in particular, you would expect to see the stronger part of the margin improvement in the first half of the year versus the second, but margins that would still be up year over year even as we go through each quarter of the year. And as Adam commented that we expect margin improvement driven across both of our businesses. So we have early development in central lab both looking at revenue growth within that guidance range of 5.5% to 7.5%. Speaker 300:27:51So on good top line growth, Launchpad savings, we expect to see good margin improvement and to leverage that top line well. Speaker 200:28:01Great. If I can ask Speaker 400:28:02a quick follow-up to that. Just the outlook for NHP pricing and sort of your reliability of supply, How does what's happening in the marketplace there? We've heard pricing is coming under pressure a little bit. How does that How do you anticipate that helps or hurts on the margin front? Like how should we think about that impact? Speaker 200:28:21Yes. So Kevin, right now, Supply is not an issue. We have as much supply as we need. I feel very good about as we go through this year and into the future, we have multiple suppliers now. We've certainly seen some of the pricing come down in the market, which is a good thing for us because NHP cost is largely a pass through for us. Speaker 200:28:42We passed the benefit on to our clients. So you might see the revenue come down for us because the cost is coming down, But it shouldn't have any significant impact. In fact, it could help us a little bit when it comes to our margins. Speaker 400:28:58Great. Thank you so much, guys. Operator00:29:01One moment for our next question. Our next question comes from Erin Wright with Morgan Stanley. Your line is open. Speaker 600:29:11Good morning, Erin. Great. Thanks. Hi, good morning. So how would you characterize just general volume trends and utilization trends relative to pre COVID? Speaker 600:29:21And just excluding COVID dynamics, you also mentioned some of impact in the Q1, how big of an impact is that? And how should we think about just volume dynamics as we head throughout the year in 2024? Thanks. Speaker 200:29:35So first of all, I would say, we came into 2024 with significant momentum. The diagnostic Base business grew 8% in the 4th quarter. Biopharma grew 7.1% in the 4th quarter. So I feel good about the guidance that we're providing for each of those businesses. So for diagnostics, it's 3.2% to 4.8%, midpoint of 4% growth biopharmics 5.5% 7.5%, a midpoint of 6.5% growth. Speaker 200:30:02So very strong revenue growth. We are comfortable also saying that there will be margin improvement each of those businesses. That's despite the fact that there is going to be an impact in diagnostics from weather. And we expect it to be $0.10 to $0.15 in the first quarter. And therefore, the Q1 will be the hardest quarter for us of 2024. Speaker 200:30:25But the numbers I just gave you and the ranges that I gave you midpoints already we already know what it was in January. It already contemplates what happened in January. Speaker 300:30:36Yes, Aaron, the couple of comments too as well that Demand utilization is positive and frankly we're kind of at the higher end right now when you look at it year over year. When with the guide of Call it again midpoint of around 4% for diagnostics kind of organically next year. Our normal historical 2 thirds volume, 1 third price mix is probably a good indication which still speaks to the fact that volume levels are up nicely. When you compare them to pre pandemic levels, We're within the normal range where historically we would say kind of 1% to 2% from volume 1 on the price side, we're within that 1% to 2% Growth rate now, CAGR organically compared to 2019 kind of on the lower end, but Well north of kind of 1% growth. So we're at kind of a normal level right now, a little bit higher expected than historical. Speaker 300:31:36And the weather impact that we saw in January, to give you kind of the rounded numbers, probably impacted our revenue by around $25,000,000 and we incrementally the drop down on that would be at around 60% margin. So call it around $0.15 ish of operating income or that $0.10 to $0.15 range that we gave in our prepared remarks from an earnings per share standpoint. Speaker 600:32:01Perfect. Thanks. And just your quick thoughts on sort of the regulatory environment as it stands now, whether it's LDTs, PAMA, SALSA, you think PAMA just continues to be pushed out at this point? What are your thoughts there? Thanks. Speaker 200:32:15Yes. So Aaron, we continue to support Salsa and we continue to be optimistic that Salsa will get passed. We have support from both sides of the aisle and ACLA, our trade organization is working really hard to get that legislation passed. If it doesn't get passed, then we'll try to see if there's a way to get another year delay. In our guidance, longer term guidance, we assume that there will be an impact from PAMA. Speaker 200:32:42So therefore, we continue to say, it's not this year, will be next year. If it's not next year, it will be the following year. Until the SALSA legislation is passed, then I'm not going to take lot of comfort that it could be another year delay or so forth. We're going to really work hard to have that passed. With regard to LVTs, We do not support the FDA's kind of what they're currently thinking about in terms of taking legislation that was created for the device industry and applying it to the diagnostic industry. Speaker 200:33:13We were very supportive of Ballad And that was legislation that would give FDA oversight of laboratory developed tests. We think that's the right path to go. We'll continue to work with the trade organization to see if we can make progress there. But we think legislation that is fit for purpose for the diagnostic industry is the right path forward. Speaker 600:33:36Great. Thank you. Operator00:33:38One moment for our next question. Our next question comes from Stephanie Davis with Barclays. Your line is open. Speaker 200:33:48Good morning, Stephanie. Speaker 600:33:49Hey, guys. Congrats on the quarter. Thanks for taking my question. I was hoping you could walk us through what's driving some of your diagnostics market growth being so above market, especially on the EPS side. Because I historically attribute some of your above market growth to the extension deal, but I also thought about the lower margin profile. Speaker 600:34:12So I guess I'm a little surprised at this level of profitability bifurcation versus your largest peer? Speaker 200:34:20Yes. So what I would say, Stephanie is, Number 1, we have momentum in the diagnostics business. And the momentum is coming from our base core business. We see it in both routine and esoteric testing. We have 4 therapeutic categories that we focus on that have higher growth in other specialty areas, and we're going to continue to focus in those areas oncology, women's health, autoimmune disease and neurology. Speaker 200:34:49And I believe that those are going to help us continue to grow because those parts of the market should grow disproportionately as we continue to go into the future. At the same time, there's no doubt that the acceleration of the hospital and local laboratory partnerships has enabled us to go faster than what we've grown in the past. And the good news is we have a strong pipeline of those as we go into the future. That's why we've raised the longer term guidance for inorganic growth 1.5% to 2.5%. Historically, we would have said 1% to 2%. Speaker 200:35:20So I think all those things combined give us momentum when it comes to the diagnostic volume. Speaker 600:35:27Understand. Looking forward to it. And changing gears a little bit for the follow-up, could you dig a bit more into the Ovia announcement? How much of that was driven by inbounds from your existing employer clients versus the decision to expand into the market? And what does this mean in terms of investment list in employer facing sales or platform tech investments and the like? Speaker 200:35:52Yes. So if you look at what we've done with Ovia, we think it's a terrific way for us to have a digital capability in a very important Core therapeutic area that we're focused on women's health. And it really is what they've offered a first of its kind fertility family building benefit that we will be bringing to customers. The service offers care navigation and concierge services that helps individuals throughout their family building journey. And we can offer directly to patients if they like, we can offer it to employers. Speaker 200:36:22We have a very strong employer group, laboratory employer services. And this is just one of many offerings that we're going to be bringing to the marketplace. But because women's health is so important And because we are so focused on it, this is just another avenue for us to help in the women's health arena. Speaker 600:36:43Awesome. Thank you so much. Operator00:36:46One moment. Our next question comes from Patrick Donnelly with Citi. Your line is open. Speaker 500:36:57Good morning, Patrick. Hey, good morning. Thanks for taking the question. Maybe on the biopharma booking side, the book to bill picked up a little bit from last quarter. I know last quarter you guys were flagging Maybe some elevated cancellations on the emerging biotech side. Speaker 500:37:13Can you just kind of let us know what the environment looks like now? How you're feeling about that backdrop? Again, just given a little bit of volatility there and we've seen some biotech IPOs trickle out, how are you feeling about the backdrop and how should we think about bookings this year? Speaker 200:37:30Yes, absolutely. I'll start broadly about our biopharma business and then I'll talk about the individual segments as well. So broadly, we had a good quarter of 1.26, which we said in the Q3, we expected the Q4 to be improved and obviously it was improved. The deals that are trailing 12 months, it's about 1.04 And we believe that that's you want to be around 1.05 to 1.1 and 1.1 is typically what we're targeting. I feel confident we'll be able to get there as we go through this year. Speaker 200:38:01We dropped off a really strong quarter in the Q4 of 2022. If I break apart the businesses and we start with a much larger business, which is the central laboratory business, our RFPs are very strong. Our book to bill is very strong. Our win rate is very strong. We're not seeing as many cancellations as we're seeing in the other part of business because it's focused more on larger pharma. Speaker 200:38:25Although there are some cancellations there, there always are. It's not nearly as large as what we're seeing in early development. In early development, I feel comfortable as we go through 2024 because our RFPs coming into us are still very strong. Our win rate remains good. I feel good about where our win rate is. Speaker 200:38:44What's happened here is there's been a lot of cancellations. I think there's two reasons for that. One is, I think with NHP pricing the way it was, some very small biotech companies that got in line just decided to say we're just not going to do it now. And then I also think that there are other pressures with smaller biotech companies that they're going through financially. As I look at This year, I feel good about both businesses and in early development, we're actually even seeing a larger amount of our business come from large and Middlesized pharma versus early pharma or early biotech and I think as we kind of make that transition to get more and more larger pharma in early development, we'll be able to even have a stronger book to bill moving forward. Speaker 200:39:26But net net, I feel confident in both of the businesses, the ranges that we've provided and where we are today with the book to bills. Speaker 300:39:33Yes. Patrick, just one other thing to think through as well. Again, we had a strong Q4, which obviously is very encouraging, but it was still driven more on the central app side. So while the orders and the RFPs and our win rates for even early development are doing well, it's those cancellations that have impacted it. So as you think about the cadence too for next year, when you look at The biopharma expect to be kind of a second half weighted year on the revenue growth. Speaker 300:40:03So both businesses again within that 5.5% to 7.5% growth. But because of those cancellations, we do expect to see early development growth rate will be much stronger in the second half than the first where on the central lab Given the continued strength of its backlog, we expect that normal cadence of improvement each quarter as we go. Okay. That's helpful. And then just a Speaker 200:40:24couple of quick ones on Speaker 500:40:25the P and L for 24. Glenn, you talked a little bit about the Diagnostics margins. Can you talk about the COVID headwind is. I'm just trying to figure out maybe the core expansion versus the COVID headwind, if you have that. And then just quickly, the interest expense expectations for the year and how you think about the debt load addressing that at all during 2024? Speaker 500:40:42Thank you. Speaker 300:40:44Sure. Again, expect to see margins in both businesses that are up, but specifically in diagnostics, we do expect margins to be up in total diagnostics, albeit slightly up because of the impact to your point of COVID still being a headwind and the underlying base business margins doing well. But Overall, we would say that we're going to be down around $130,000,000 due to COVID from a margin standpoint, call it 20 basis points to 30 basis points of kind of headwind that we're going to get that again will be more than offset by the growth of the business and our LaunchPad initiative. When you look at the interest expense, you can effectively take the run rate where we ended the Q4 and kind of annualize that. And then we do have around $1,000,000,000 of debt that's due late in 2024. Speaker 300:41:36So we're in $600,000,000 in September, another $400,000,000 in December. So we'll look to refinance it. The absolute debt levels that we have at that $5,000,000,000 $5,100,000,000 we expect to maintain. So we'll just refinance at obviously slightly higher rates than what will be maturing. So If you wanted to add 10% to the annualized number on top of that to reflect the refinancings at the end of the year, that would be a decent ballpark to be in. Speaker 300:42:06And again, the debt load from where we stand, we'll look for refinancing. We commented a little bit earlier that The leverage that we have as a company is still within our targeted range of kind of the 2.5 to 3 times, But we're at the lower end. So obviously, we could potentially use additional leverage, additional debt as we see potential other opportunities to deploy capital above the $1,000,000,000 plus of free cash flow that we'll generate this year, plus we're sitting on a little bit of excess cash. Speaker 500:42:39Okay, great. Thanks a lot, Glenn. Operator00:42:43One moment for our next question. Our next question comes from Brian Tanquilut with Jefferies. Your line is open. Speaker 700:42:53Hey, good morning guys. Good morning. So I guess my question, Glenn, as I think about the P and L lines, the cost of sales and G and A and factor in labor and obviously Launchpad, Seeing that it outpaced both those large outpaced revenue growth in Q4, how are we thinking about the I hear you about margin improvement this year. So Just curious how you think about the labor environment and how that factors into driving margin improvement in terms of like actual dollars and the growth in those P and M lines? Speaker 300:43:26Yes. So Brian, we normally view well, one obviously continues to be a tight labor market, but a market that's improved From a nutrition standpoint, we continue to see improvement. But as a company, we're still higher than we were pre pandemic. And that varies across the segments because actually our biopharma is back to where we've been and we still see some additional pressure within the diagnostic side, but again improving. Our general premise is that the labor market inflation for labor is around 3%, you can say 3% to 4%, but within that range, We've always commented that our Launchpad initiative was really in place to help offset that inflationary pressure. Speaker 300:44:06For us, 3%, give or take increase in our labor, call it merit in particular would be a little bit over $100,000,000 And again, we target that $100,000,000 to $125,000,000 a year. So Again, we think things are leveling off, if you will, and that part of the margin improvement will be the LaunchPad initiative to help offset those inflationary costs. Speaker 700:44:28Understand. And then maybe just housekeeping, I just missed this, but share buybacks, how much are how much share buyback activity is baked into the guidance? Speaker 300:44:38So what we do guide to is that the free cash flow generation that we have will be used for share repo, M and A and dividends. So it'll be across the board would be our expectation. We don't comment about how much is in each of the components, if you will, because it may vary based upon the acquisition opportunities that we see. So but it'll be blended across. And again, we commented as well that We have some additional balance sheet strength if we wanted to use that for additional M and A or buybacks. Speaker 300:45:10But the guidance that we gave And the earnings guidance, if you will, is reflected with all three of those capital allocation opportunities. Speaker 400:45:21All right. Got it. Thank you. Operator00:45:24One moment for our next question. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. Speaker 500:45:36Good morning, Pito. Yes. Good morning, guys. Thanks for taking Speaker 400:45:39my questions. Back on the 'twenty four guidance, the diagnostic business, can you just help quantify the margin improvements next year? Any details on the split between SG and A and gross margin. And how much is coming from acquisitions improving versus just pure organic improvement? Speaker 200:45:56Yes. So let me I'll give some context and I'll ask Ben to add on. So if you look at the Diagnostic business, I'd say the first thing is if you look at 4th quarter, saw very strong revenue growth about 8%. If you look at margin versus prior year, it was down slightly about 30 basis points. What drove that primarily was that there were some minor things like increased health care costs and so forth, but it was driven primarily by The hospital deals that we did that although they're accretive in the 1st year, in the 1st several months, they're typically dilutive. Speaker 200:46:30And we did several of those deals at the end of last year. As we come into this year, we're confident in the margin accretion for several reasons. One is obviously PAMA has been delayed. So that would have been a real headwind that we're not facing this year. We pushed that off into 2025. Speaker 200:46:47If you look at our volume increases, that's going to help us. The volume is going to be strong. If you look at the hospital deals that we said Ascension would continue to to give us some margin improvement over the next several years. Each of the hospital deals get a bit better as we go year over year. So we'll get some improvement from the hospital deals continuing to improve. Speaker 200:47:08We're also going to be looking to reduce costs across the enterprise, but a significant amount because of the size is in diagnostics of $100,000,000 to $125,000,000 And when you look at all those things together with a We're expecting inflation to be about 3%, which is more in a typical rate than it's been in prior years. So if you kind of put off and that's for our inflation of our people costs and so forth should be around 3%, 3.5%. You put all those together and that's why we're confident that even though we have a headwind COVID that's fairly significant of kind of $130,000,000 we'll still be able to get some margin improvement in the Diagnostics business. Speaker 300:47:48Yes. No, I think that's right. Pito that when you look this year as COVID becomes less of an impact, still an impact, It's kind of being offset by the acquisitions that we did late in the year. Really it's the hospital partnerships and to your point, The margin is constrained a little bit when we do the in hospital lab management agreements, but a typical M and A for us that would include hospital labs management tend to be more weighted to frankly the acquisition component. Ascension as we've talked about, we called out one because of its sheer size, but also was disproportionately tied to the in hospital labs. Speaker 300:48:25So less of an impact, a little bit of a headwind, but less of an impact. So it's really Top line growth, cost controls, Launchpad Business Process Improvement Initiatives is really what's going to help drive the margins across both of our businesses. Speaker 400:48:43Okay, great. And then back on the for Q4 on the early stage cancellation, is there any color sort of why You saw that spike, was that a single customer or is that sort of swap the customer? Is it sure why you think that should normalize 2024? Thanks so much. Speaker 200:48:59Sure. And it wasn't specific to Q4, although there was an increase in the Q4. We saw it throughout last year. We think there were several reasons. 1, when there was an NHP supply issue, people were getting in line to run their NHP trials well in advance of what they typically would. Speaker 200:49:18By the time it was their turn, they would look and say, you know what, we're not going to do that trial either they reprioritized the pipeline, They decided the NHP costs were higher than what they had budgeted for. They decided just not to move forward at that time. The second thing is the funding in smaller biotech has been more difficult. So they're choosing their trials very carefully in the compounds that they move forward. But as we go forward, we're seeing the RFPs look good as well as our win rates look good. Speaker 200:49:47So the cancellations we believe are going to normalize. We're also starting to see a shift in our business a bit more towards midsize to larger pharma as some of the small biotechs have had those cancellations. They have less cancellations typically than the smaller ones. So that's why we think we're going to see improvement as we go through this year. Speaker 400:50:09All right, great. Thanks so much. Operator00:50:12One moment for our next question. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open. Speaker 800:50:24Hi, guys. Hi, good morning. Thanks for the question. So I just wanted to follow-up on that last question. So the shift towards mid to larger Pharma in early development, is that really solely a function of this cancellation dynamic that you're seeing over the shorter term? Speaker 800:50:39Because I thought maybe one of your prior comments, it seems like that was also maybe more of a strategic shift moving up market there. So any additional color there would be helpful. And then secondarily on the cost improvements in BLS, I understand what you're saying about the continued revenue improvement there. Are there any other sort of cost improvements as we move further away from the spin? Or should we sort of think about those cost opportunities as largely you've already done them and this is really just like an organic opportunity? Speaker 800:51:08Thank you. Speaker 200:51:09Yes, sure. So as I came up with the development business, I've been saying for quite some time that we would like to see a shift towards more mid to larger size. And I want to be clear, it's not significant. It's still more in a smaller biotech than it is to the mid to larger size. It's been something that we've been working on for multiple years now and we're seeing some progress. Speaker 200:51:31But also a part of it is that cancellations are occurring more often in the smaller biotech companies. So we were purposely moving in that direction. There is A reason that we're able to move a little bit faster, but we still have work to do there. But over time, I would like to see that mix move more towards mid size to larger pharma. Speaker 300:51:51Yes. Elizabeth, also on the cost side for BLS, it's not only the growth, but there are cost opportunities kind of in the post spin environment. We still have stranded costs that affect our biopharma business that we're continuing to take out and Obviously, that's getting wrapped in our overall LaunchPad initiative as we talk to the $100,000,000 to $125,000,000 of savings each year. We did take out a meaningful amount of costs that were stranded. We had talked about having a $25,000,000 run rate of cost savings in the Q4, which we achieved. Speaker 300:52:25We'll get the benefit of that going forward. But there's still opportunities to consolidate. We still have A little bit excess capacity within our early development side of the business. So we're managing that cost and the capacity leaving ample room though because of the expectation we're going to start to see good growth in that business as well. But it's not only obviously top line growth, but still opportunities to take some costs out. Speaker 800:52:51Got it. And maybe just one quick follow-up. Anything you can comment on the expected 2024 tax rate? Speaker 300:52:59Yes. So we've kind of guided that we think of 23% adjusted tax rate is reasonable for the company. And What's interesting, if you think about LabCorp today post spin, we actually have a higher percentage of our earnings now that are generated in lower tax rate jurisdictions than we did when we had the clinical business. In addition, we have a higher percentage of R and D, so a higher percentage of R and D benefit than we did when we had clinical. So overall, while we've historically have trended and seen our tax rate decline year to year over the last few years, The profile of the company gives us confidence that the 23% rate now is a sustainable rate plus or minus going forward. Speaker 800:53:42Great. Thank you very much. Operator00:53:45One moment for our next question. Next question comes from Eric Coldwell with Baird. Your line is open. Speaker 200:53:55Good morning, Eric. Speaker 900:53:57Good morning, guys. Of course, All of my self proclaimed good questions have just been asked in the last couple of minutes here, but I'm going to dive into that last one on R and D tax Credit. Can you tell us what specifically might have happened in the Q4 to drive what appears to be some additional upside And thoughts on legal or regulatory changes in addition to Glenn's comments here about the geographic mix and the higher proportion of revenue associated with businesses that now would get an R and D tax credit. I'm just Curious on how much of a sustainable impact this might be for favorable long term tax rate? Speaker 300:54:42Yes. So Eric, when you think about the focus of the company, one of the key areas of target is in oncology and obviously with PGX, OmniSeq, other areas that we've acquired as well are more R and D driven than historically LabCorp was. So Each year we continue to make more investments, more opportunities and with that increased investment come the tax deductibility of that. Obviously, there's still some pending tax laws that are out there right now. We're trying to amortize that benefit over a number of years from a cash standpoint. Speaker 300:55:16We're kind of prefunding it. So hopefully we'll get that will change and we'll get more. There's obviously the impact of potentially global minimum taxes That really don't affect us that much given as we look at where again geographically we generate our earnings, really not going to have any meaningful impact. So From a sustainability standpoint, we think that 23% plus or minus rate is a reasonable rate to go forward. But obviously the more we grow, the more we grow internationally gives us an opportunity to structurally change that maybe a little bit more favorably as well. Speaker 900:55:51And Glenn, maybe education on my behalf, but are you seeing R and D tax credits on the CRO side as well, the BLS segment or is it mostly or entirely associated with your internal investments in advanced diagnostics and LDTs, things of that sort? Speaker 300:56:12Yes. I mean, it's across the board. We have investments that span The entire company, I think the increase that we've been seeing that has been driving the more favorable amount has been driven more on the diagnostic side, but frankly, our oncology spans the enterprise. So everything that we work on and where we work on and who's working on it. Again, we would say is across the enterprise, but more weighted to diagnostics. Speaker 900:56:39Great. And if I could get one more in here. The stranded cost commentary, could you just remind us What you're sharing in terms of what those total costs were, how they phase out and What happens at the end of 2024 when Fortrea thinks they're going to be completing their biggest TSA transitions, particularly on the IT side. I'm just what is the impact to LabCorp over the next handful of quarters and into 2025 as you face these stranded costs, but they start to come out and then what happens at the end of the TSAs? Thank you very much. Speaker 300:57:21No, sure, Eric. So from the stranded costs, we commented that we had around $45,000,000 of stranded costs and that our initial target was to take out that $25,000,000 at a run rate this year, which Again, we've achieved. So there's more to come. So in the Q4, call it around a $6,000,000 headwind that we had due to stranded costs that obviously impact margins. As we go forward with the TSA support, So what we're doing to support Fortria IT and other areas, that's effectively a pass through, right? Speaker 300:57:53We're providing the service they're paying us for that service. Once they're fully sustainable on their own and the TSAs would go away, Our costs go away because frankly most of the costs are contract labor related on the IT side. So when the job is done those costs are gone overall. But we continue to tackle the other stranded costs as well. So when you look at it, the goal was to have all the TSAs completed within 2 years. Speaker 300:58:23I can tell you for Tria and LabCorp are both very motivated to see and incentivized to see That transition happened as soon as possible. The good news is that both are focused on it. We're making good progress. Fortria is making very good progress. And we would expect to hopefully see those TSAs expire earlier than what we had planned or at least what we that plan for, but again the cost will go with that. Speaker 900:58:50That's very helpful. Thank you again. Operator00:58:53One moment for our next question. Our next question comes from Lisa Gill with JPMorgan. Your line is open. Speaker 200:59:04Good morning, Lisa. Speaker 100:59:05Good morning. Thanks for taking my question. I first wanted to start with the guidance range. Glenn, can you help us understand, it's pretty wide range. What's in the low end of the range and what gets you to the upper end of the range would be my first question. Speaker 100:59:19And then secondly, Just want to understand managed care contracting and pricing for 2024. You talked about volume and pricing mix, but just curious as to do you have Many contracts that are up for renewal, is there anything that's different when we think about contracting with managed care entities? Speaker 200:59:36Yes. So I'll take that second one first, which is we feel confident in our contracts that we had put a few in place last year, but this year there's no major exploration. So we feel good about where we are and there's not much risk in the guidance range as we go through this year and to next. But with regard to the ranges and certain things that go to the upper end of the bottom end, I mean, obviously, I'll start with the revenue range. Obviously, the diagnostic volume looks great and we're expecting that to continue. Speaker 201:00:10The weather is a bit of what's taking us a little bit back to that midpoint. So the weather is $0.10 to $0.15 impact, but the Volume continues to be very, very strong. The rate in which we integrate the hospital deals will help us And we have very good track record of doing that. But the good news is there's not as much volatility this year as there's been in years in the past with COVID. I feel good about the range. Speaker 201:00:37And in fact, the EPS range we've narrowed it versus what that range would have been last year or the year before that because There is less volatility. And then I'd say in the biopharma services business, I would say the strength we have and momentum is great. The thing that we're watching carefully are when the cancellations in particular in the early development start to come back to more normal. Speaker 301:01:03Yes. And Lisa, I think on Adam's comment that when you look at the profile of LabCorp now that we've spun the clinical development business, it has taken out some of The volatility and variability, if you will. So the guidance ranges really across the businesses and the enterprise are actually a little bit tighter than what we normally do. Obviously, we're just starting out the year, the midpoint obviously our guidance is our best expectation that we have realizing obviously Higher demand would promote more on the upper end or softer demand down below. But needless to say, as we go through the year, we'll continue to tighten the ranges with less time left in the year. Speaker 801:01:41That's great. Thank you so much. Operator01:01:57Our next question comes from Derik De Bruin with Bank of America. Your line is open. Speaker 1001:02:02Good morning, Derik. Hey, good morning. This is John Kim on for Derek. I think a lot of the key questions I had have been answered, but I wanted to ask about the esoteric versus routine testing you laid out or you reaffirmed your focus on the 4 therapeutic areas. And it seems like the esoteric had a pretty good growth in the Q4. Speaker 1001:02:27But going forward, can we continue to expect that high single digit, low double digit growth in esoteric and then the rest of it would be made up in routine? Speaker 201:02:37Yes. So if you look at the esoteric Testing volume, we continue to have a significant focus on the 4 therapeutic areas that we talked about. And we did in fact see in the Q4 and the full year that esoteric testing volume grew slightly faster than the routine, but it's strong. I know that both of them grew strongly and we expect them to continue to both grow strongly, But we would expect Esoteric to grow at a slightly higher rate in both volume and the volume obviously is at higher dollars, so maybe a little bit faster in the dollars. Speaker 1001:03:13Got you. And then in terms of pricing, You mentioned that you're expecting mostly flat pricing in 2024. There are no major contract renewals coming up and PAMA has obviously been pushed out. But if I look at the margins between biopharma and diagnostics, Biopharma had a pretty strong margin compared to the diagnostics in the 4th quarter. And you mentioned that there's going to be a slight expansion in diagnostics, what's going to be the dynamic between the two for the full year 2024. Speaker 1001:03:55Can we is the 4th quarter a good jumping off point for the biopharma margins? Speaker 201:04:02Yes. No, I wouldn't use any one quarter for the margins. We expect the margins to actually improve across the business, across both Diagnostics and Biopharma. Diagnostics in the 4th quarter was impacted to some degree by the hospital integrations that we're doing that there were several new ones and although they're accretive in the 1st year, they were dilutive in the 1st couple of months. We expect that to improve as we go into next year. Speaker 201:04:28As we go to next year, there's still a COVID overhang in the diagnostics business, probably about $130,000,000 or so. But even with that, we expect to get some slight margin improvement in that business and overcome that. Speaker 1001:04:44Appreciate it. Thank you. Speaker 201:04:46Okay. So in closing, I know we're at the end of the hour. I just want to thank everybody for joining us today. I want to thank our team here at LabCorp for their focus and dedication and everything that they do to serve the patients that we all are trying to do the best we can to improve health and to improve lives and we look forward to sharing more with you as we go through the year. Thank you. Operator01:05:08Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallLaboratory Co. of America Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) Laboratory Co. of America Earnings HeadlinesLabcorp acquires North Mississippi Health Services’ laboratory businessApril 24 at 8:25 PM | bizjournals.comLabcorp Holdings (NYSE:LH) Expands Precision Oncology Portfolio with FDA-Authorized Liquid Biopsy TestsApril 24 at 3:21 PM | finance.yahoo.comHere’s How to Claim Your Stake in Elon’s Private Company, xAIElon Musk has done it again. He’s developed a powerful new AI model that’s already turning heads — and turning the industry upside down. Some say it could threaten Google’s search engine dominance. Others believe it could mark the beginning of the end for ChatGPT.April 26, 2025 | Brownstone Research (Ad)Labcorp Launches Molecular Residual Disease and Liquid Biopsy SolutionsApril 23 at 1:48 PM | gurufocus.comLabcorp Launches Molecular Residual Disease and Liquid Biopsy SolutionsApril 23 at 7:00 AM | prnewswire.comThe three-year earnings decline is not helping Labcorp Holdings' (NYSE:LH share price, as stock falls another 6.9% in past weekApril 22, 2025 | finance.yahoo.comSee More Laboratory Co. of America Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Laboratory Co. of America? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Laboratory Co. of America and other key companies, straight to your email. Email Address About Laboratory Co. of AmericaLabcorp Holdings, Inc. engages in providing medical testing services. The company was founded on April 16, 2024 and is headquartered in Burlington, NC.View Laboratory Co. of America ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 11 speakers on the call. Operator00:00:00Good day, and welcome to the Laboratory Corporation of America Holdings 4th Quarter and Full Year 2023 Earnings Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kristin O'Donnell, Vice President, Investor Relations. Please go ahead. Speaker 100:00:39Thank you, operator. Good morning, and welcome to LabCorp's 4th Quarter 2023 Conference Call. As detailed in today's press release, there will be a replay of this conference call available via telephone and Internet. 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 www.labcor.com, we posted both our press release and an Investor Relations the most comparable GAAP financial measures, both of which are discussed during today's call. Speaker 100:01:23Additionally, 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 recently completed spin off of Portria Holdings, Inc, the impact of various factors on the company's businesses, operating and financial results, cash flows and and or financial conditions, including the COVID-nineteen pandemic and global economic and market conditions future business strategies Expected savings, benefits and synergies from the LaunchPad initiative and from other acquisitions and other strategic transactions and partnerships 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 ks and subsequent quarterly reports on Form 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. Speaker 100:02:24Now I'll turn the call over to Adam Schechter. Speaker 200:02:27Thank you, Chris, and good morning, everyone. It's a pleasure to be with you today to Our Q4 2023 results and our guidance for 2024. LabCorp delivered a strong finish what was a transformational year for the company. Looking back, we executed well on our strategic priorities. We successfully integrated the lab operations of Ascension, one of the largest health systems in the United States. Speaker 200:02:53We completed the Spiniportria, our former clinical development and commercialization services business. We announced 6 new laboratory partnerships, reinforcing our position as a partner of choice for health systems and regional local laboratories. And we launched new innovative tests in our focused specialty areas across the business. As we begin 2024, we have momentum in both diagnostic laboratories and biopharma laboratory services. We expect to drive continued growth by expanding our base business, finalizing and integrating acquisitions and partnerships by advancing our position in science, technology and innovation. Speaker 200:03:38We will continue to focus and lead in oncology, women's health, autoimmune disease and neurology. Now turning to the 4th quarter results. LabCorp performed well driven by strong base business revenue growth in both diagnostics and biopharma. In the 4th quarter, revenue totaled $3,000,000,000 Adjusted earnings per share was $3.30 and free cash flow from continuing operations excluding spin related items was $422,000,000 Enterprise revenue increased 4% compared to Q4 of 2022 with diagnostics growing 3% led by base business growth of 8% and biopharma growing 7% due to strong performance in central laboratories more than offsetting softness in early development research laboratories. Enterprise based business margin was flat compared to the prior year despite being constrained by the mix impact for recently closed hospital partnerships. Speaker 200:04:46Looking forward to 2024, we expect strong enterprise revenue growth of 4.7% to 6.5%. We expect margin improvement across both diagnostics and biopharma and we expect adjusted EPS of $14.30 to $15.40 an implied growth rate at the midpoint of 10%. We also expect free cash flow to grow in excess of earnings. In a moment, Glenn will provide more details on our results and our 2024 guidance. Turning to our enterprise strategy, In the Q4, we continue to see positive momentum from our health systems and regional local lab partnership strategy. Speaker 200:05:32LabCorp continues to demonstrate that we are partner of choice with several new health systems and regional local laboratory relationships. This is primarily due to our leadership in science and technology, our dedication to patients and our commitment to quality and efficiency. We announced a strategic partnership with Baystate Health in Western Massachusetts to acquire its Outreach Laboratory business and select operating assets. We completed the acquisition of select assets from Legacy Health. LabCorp now manages Legacy's inpatient hospital laboratories serving patients throughout Oregon and Southwest Washington State. Speaker 200:06:13And we entered into an agreement to acquire ambulatory lab draw stations and a stat lab from Providence Medical Groups in California. Looking ahead, our M and A pipeline is robust and we remain focused on integrating and expanding our health system and regional local laboratory partnerships. These partnerships are typically accretive in the 1st year with margins expanding over time during integration and they returned their cost of capital within just a few years. Turning now to our progress in science, technology and innovation. In the Q4, Ovia Health by LabCorp announced it will offer fertility and family building benefit. Speaker 200:06:57This benefit is the first of its kind that will allow employers and health plans to offer customizable solutions to employees and members to support their family building needs. LabCorp announced the availability of an ATM profile, The first blood bags test that combines 3 well researched blood markers to identify and assess biological changes associated with Alzheimer's disease. Last month, we announced the launch of the new FDA cleared blood test for risk assessment and clinical management of severe preeclampsia. LabCorp and Hawthorne effect announced a strategic collaboration to advance decentralized clinical trial capabilities for pharma, Biotech and Medical Device Sponsors. The collaboration is expected to increase patient diversity and inclusion to decrease site burden and to accelerate enrollment in clinical study timelines. Speaker 200:07:53Finally, for our central laboratory customers, We introduced a new sample tracking application to provide enhanced near real time visibility of specimens within the central lab. This phase is the first of many that will be launched for LabCorp customers. The application allows users to view events in the central lab specimen sample journey for each assigned protocol and to customize how their data is structured. Turning now to the year ahead, we are focused on advancing our growth drivers that outlined in our September 2023 Investor Day. We plan to continue to be a partner of choice for health systems and regional local laboratories. Speaker 200:08:37We will continue to develop, license and ultimately scale specialty testing including companion diagnostics. We will work to bring our specialty testing to other parts of the world, which increases our global reach by leveraging our scale. For example, we're enabling our central laboratories in China and Geneva to perform liquid biopsy tests for clinical trials. And we are well positioned for long term success and selling gene therapy and consumerism. We see tremendous opportunity for growth as we continue to focus on bringing new innovation, technology and markets products to market. Speaker 200:09:16In closing, 2023 was a strong and transformative year for LabCorp. We executed our strategy at exceptional scale and pace. I want to thank our more than 60,000 employees for their hard work and dedication to customers around the world. This enabled us to enter 2024 with considerable momentum that we intend to capitalize on to drive further value for our customers, our shareholders and our employees as we pursue our mission to improve health and to improve lives. With that, I'll turn the call over to Glenn. Speaker 300:09:52Thank you, Adam. Going to start my comments with a review of our 4th quarter results followed by a discussion of our performance in each segment and conclude with our 2024 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 $3,000,000,000 an increase of 3.5 compared to last year primarily due to organic base business growth and the impact from acquisitions partially offset by lower COVID testing. The base business grew 7.4% compared to the base business last year, while COVID testing revenue was down 73%. Speaker 300:10:33Organically in constant currency, the base business grew 5.2%. Operating loss for the quarter was $23,000,000 due to an impairment charge of $334,000,000 related to our early development research laboratories business as we've experienced soft biotech markets. In addition, we had $125,000,000 of special charges related to acquisitions, COVID and the Spinipour Trio. Excluding these items and amortization, adjusted operating income in the quarter was $395,000,000 or 13 percent of revenue compared to $413,000,000 or 14.1 percent last year. The decrease in adjusted operating income and margin was due to lower COVID testing. Speaker 300:11:16Base business margins were in line with last year as the benefit of demand in LaunchPad savings were offset by higher personnel and stranded costs and the mix impact of recently completed hospital partnerships. Our LaunchPad and stranded cost reduction initiatives delivered around $125,000,000 of savings this year consistent with our long term target of $100,000,000 to $125,000,000 per year. The adjusted tax rate for the quarter was 19.5% compared to 25.4% last year. The lower adjusted tax rate was primarily due to the geographic mix of earnings and the benefit from increased R and D tax credits. We expect our adjusted tax rate for 2024 to be approximately 23%. Speaker 300:12:02Fully diluted EPS for the quarter was a loss of $1.95 due to the early development impairment charge. Adjusted EPS were $3.30 in the quarter, up 8% from last year. Operating cash flow from continuing operations was $580,000,000 in the quarter compared to $607,000,000 a year ago. The reduction in cash flow was due to lower COVID testing. Capital expenditures totaled $165,000,000 in the quarter. Speaker 300:12:30For the full year, capital expenditures were 3.7% of revenue and we expect this to be approximately 3.5% in 2024. Free cash flow from continuing operations for the quarter was $414,000,000 The company invested $155,000,000 in acquisitions and paid out $61,000,000 in dividends. While we did not use any cash for share repurchases during the quarter, we completed the accelerated share repurchase program, which reduced our share count by 1,100,000 shares in the quarter. At the end of the year, we had $530,000,000 of share repurchase authorization remaining. For the full year, free cash flow from continuing operations excluding spin related costs was $888,000,000 The company invested $672,000,000 on acquisitions, paid out $254,000,000 in dividends, repurchased $1,000,000,000 of stock and pay down $300,000,000 of maturing debt. Speaker 300:13:30We continue to have a robust pipeline of potential acquisition opportunities that will supplement our organic growth. In addition, we continue to believe that our share repurchase program is an important part of our capital allocation strategy. At year end, we had $537,000,000 in cash with debt of $5,100,000,000 Our leverage was and a half times gross debt to trailing 12 months adjusted EBITDA. Now review our segment performance beginning with Diagnostics Laboratories. Revenue for the quarter was $2,300,000,000 an increase of 2.6% compared to last year with organic growth of 0.8% and acquisitions contributing 1.8%. Speaker 300:14:13The base business grew organically by 5.7% compared to the base business last year, while COVID testing revenue was down 73%. Total volume increased 2.4% compared to last year As organic volume grew 0.3% which was constrained by lower COVID testing while acquisition volume contributed 2.1%. Base business volume grew 5.2% compared to the base business last year as organic volume increased 3.1% while acquisitions contributed 2.2%. Price mix increased 0.2% versus last year due to an organic base business increase That was mostly offset by lower COVID testing. Base business organic price mix was up 2.6% compared to the base business last year. Speaker 300:15:06Diagnostics adjusted operating income for the quarter was $354,000,000 or 15.1 percent of revenue Compared to $387,000,000 or 16.9 percent last year, the decrease in adjusted operating income was due to a reduction in COVID testing. Base business operating income was up due to the benefit of higher organic demand, acquisitions and LaunchPad savings, which were partially offset by higher personnel costs, including healthcare related costs. The decrease in margin was due to the reduction in COVID testing and the mix impact from recently closed hospital partnerships, Speaker 400:15:41which we Speaker 300:15:42expect to improve over time. Now review our segment performance of biopharma laboratory services. Revenue for the quarter was $695,000,000 an increase of 7.1% compared to last year due to an increase in organic revenue of 4% and foreign currency translation of 3.1%. The 7.1% revenue growth was driven by continued strength in central labs which was up 12% while early development was down 2% due to higher than normal cancellations. Biopharma adjusted operating income for the quarter was $109,000,000 or 0.7% of revenue compared to $95,000,000 or 14.7 percent last year. Speaker 300:16:26Adjusted operating income and margin increased due to organic growth in LaunchPad savings partially offset by higher personnel and stranded costs. We ended the quarter with a backlog of $8,200,000,000 and we expect approximately $2,500,000,000 of this backlog to convert into revenue over the next 12 months. Book to bill for the quarter was 1.26 with the trailing 12 months at 1.04. Now I'll discuss our 2024 full year guidance, which assumes foreign exchange rates effective as of December 31, 2023 for the full year. The enterprise guidance also includes the impact from currently anticipated capital allocation with free cash flow targeted for acquisitions, share repurchases and dividends. Speaker 300:17:14We expect enterprise revenue to grow 4.7% to 6.5% compared to 2023. This includes the favorable impact from foreign currency translation of 60 basis points. We expect diagnostics revenue to be up 3.2% to 4.8% compared to 2023. The impact from lower COVID testing of around $130,000,000 is expected to be offset by the annualization of acquisitions that were completed in 2023. We expect biopharma revenue to grow 5.5% to 7.5% compared to 2023. Speaker 300:17:48This guidance includes the positive impact foreign currency translation of 220 basis points. We expect Central Labs and early development to both grow within the segment guidance range. We expect margins in Diagnostics and Biopharma to be up in 2024 versus 2023 driven by top line growth and LaunchPad Savings. Our guidance range for adjusted EPS is $14.30 to $15.40 with implied growth rate at the midpoint of approximately 10%. While we do not guide to quarterly performance, it's worth noting that first quarter earnings will be below typical quarterly seasonality due to weather disruption in January that we expect will impact earnings by $0.10 to $0.15 in the quarter. Speaker 300:18:36Free cash flow is expected to be between $1,000,000,000 to $1,150,000,000 with an implied growth rate at the midpoint of approximately 21%. In summary, we expect to drive continued profitable growth and strong free cash flow generation that will be used for acquisitions that supplement our organic growth while also returning capital to shareholders through our share repurchase program and dividends. Operator, we'll now take questions. Operator00:19:04Thank you. At this time, we will conduct the question and answer session. Our first question comes from Jack Meehan with Nephron Research. Your line is open. Speaker 400:19:31Good morning, Jeff. Good morning. Hope you guys are doing well. I wanted to start with a question on capital So last year was obviously pretty active year for you guys integrating Ascension, doing the spin, feels like you have a little bit more bandwidth and The cash flow has been strong. I was wondering if you thought there could be any larger deals available either in the independent lab or health system space. Speaker 400:19:56Like I know it's tough to come up with something that's ascension size, but what does the funnel look like? Speaker 200:20:03Yes. Hi, Jack. So if you look at The pipeline for M and A that we have, it remains very strong. As we say, there's not deals the size of Ascension in health systems, but there's quite a few health systems that when you add them up obviously become meaningful. In fact, if you look at our longer term guidance, historically we've that we have 1% to 2% growth from inorganic means. Speaker 200:20:26We have now said we believe it's going to be 1.5% to 2.5%, Reflecting that we believe that there is significant opportunity before us. We also mentioned partnerships with regional local laboratories. I think that there could be some additional partnerships in that areas. But as I think about capital allocation in general, first off, that we're committed to our dividend. We then look to do as many of these hospital, local, regional laboratory deals as we can do because they're so Sensible to do. Speaker 200:20:56They return their cost of capital very quickly. They're accretive in the 1st year and we know how to do them really well. And then if there's something that is strategic to us in one of our strategic priorities, we would look to do those, albeit we're not looking at anything of massive size. But after that, we then look at our share buybacks, which we continue to believe is a good way to use our funds as well. Speaker 300:21:19Yes, Jack, the only thing I'd also add to your comment earlier is that our guidance assumes that again we're going to generate between $1,000,000 to $1,150,000,000 of new free cash flow this coming year and that will redeploy that for capital allocation of M and A buybacks and dividends, but the balance sheet is also strong. We ended the year at 2.5 times gross debt to trailing 12 months adjusted EBITDA and we have a targeted range of 2.5 times to 3 times. So to your point, if there were attractive opportunities out there on the M and A front, obviously share repurchases as well in addition to the free cash flow, we also have additional flexibility to pursue those opportunities. Speaker 400:21:59Great. Can you talk about what On the Diagnostic side, what realized unit price was in the quarter? What your expectation is for next year? And the reason I ask is, I get a lot of questions on the margins in the business and it feels like we're in this elevated inflationary environment. Just like what do you think Do you see opportunities to kind of use price more as a lever to offset that? Speaker 200:22:26Yes. So, Jack, let me first Talk about margins just in general. So if you look at 2023, the margins were basically flat versus prior year. If you look at some of the things that we had to overcome, they were pretty significant like COVID work that was significantly less this year than the prior year. But in addition to that, the hospital deals that we've done, in particular in the 4th quarter, had an impact on our margins because although they're accretive in the first here. Speaker 200:22:55They're dilutive in the 1st couple of months as we do the integration until we have the ability to reduce cost to a level that makes sense over time. So we saw some impact from that in the Q4 as well. I feel really good about our margin accretion as we go into 2024. And we've said that we expect the margins to increase, but we also expect an increase in each of the businesses, not just diagnostics, but also biopharma. Within biopharma, we expect them to be increased not just in central laboratories, but also in early development. Speaker 200:23:29We continue to look for ways to reduce costs through our LaunchPad initiative. We're committed to reducing costs by $100,000,000 to $125,000,000 this year and each year for the next several years. In addition to that, our volume growth is helping us significantly. In particular, as we see growth in biopharma, that's going to help us with our margins. Despite the fact that we still have COVID overhang in 2024 versus 'twenty three that we're continuing to improve the margins in our hospital deals, we're expecting to see the margins being accretive and growing this year, which to me is just a good sense of the underlying growth. Speaker 200:24:06With particular focus on price, I would say price is net neutral when you look at overall price. There is some benefit to mix and we continue to see mix helping us there. Speaker 300:24:21Yes, Jack, the thing too is as Adam said, when you think about the diagnostics business and the benefit frankly of seeing PAMA at least deferred out 1 year that we expect the margins within diagnostics to be up in 24 All in and that's even with the expectation that COVID testing is going to be down. Obviously, the underlying base business margin improvement would even be greater than that. And as Adam said, the nice thing is with the growth that we expect, it's demand driven. A lot of it is the volume side. Price mix is still going to be favorable at a lesser extent than obviously the volume, but with unit prices being relatively flat, We have the opportunity again to see favorable mix to help drive that improvement. Speaker 400:25:06Great. Thank you. Operator00:25:08One moment for our next question comes from Kevin Caliendo with UBS. Your line is open. Speaker 500:25:19Good morning, Kevin. Hi. Speaker 200:25:22Good morning. Thanks for taking my question, guys. Speaker 400:25:26On biopharma, just want to understand the expectations for margin there and how much of that There's improvement in early development. I know you have sort of an easy comp in 1Q versus sort of actual improvement in margin and mix. Can you just talk about the dynamics of that and sort of the cadence of that as we think about the course of the year? Speaker 200:25:47Yes, I'll talk a little bit and I'll ask Glenn to provide Some additional context. Our biopharma laboratory service business remains a leader in both segments. We're a leader in central laboratory. We're also a leader in oral development. Central Laboratory performed very well in the Q4 and we expect this is going to continue to perform well as we look at 5.5% to 7.5% growth in 2024 across the segment. Speaker 200:26:12But early development, we expect to continue to improve as we go through the year. And we also expect early development to grow about the same amount as the overall guidance that we're giving for biopharma. A lot of the early development growth we expect will be in the second half of the year as we continue to see improvement and ramp up. Our RFPs look good in both segments. The largest segment obviously by far is the central laboratories. Speaker 200:26:42The RFPs look good, our win rate looks good, big pharma is continuing to send us a lot of RFPs, I feel great. If you look at early development, the RFPs look good, the win rate looks good. What we faced are some cancellations that are well above normal levels We expect as we go through 2024 that that will normalize and get us back to the RFPs and the win rate being positive for us and therefore providing us with growth. Speaker 300:27:08Yes. Kevin, just would add that when you look at the cadence to your point, one, we expect biopharma margins to be up year over year. Given the softness that we experienced especially in the first half of twenty twenty three with the supply constraints that we experienced In the early development in particular, you would expect to see the stronger part of the margin improvement in the first half of the year versus the second, but margins that would still be up year over year even as we go through each quarter of the year. And as Adam commented that we expect margin improvement driven across both of our businesses. So we have early development in central lab both looking at revenue growth within that guidance range of 5.5% to 7.5%. Speaker 300:27:51So on good top line growth, Launchpad savings, we expect to see good margin improvement and to leverage that top line well. Speaker 200:28:01Great. If I can ask Speaker 400:28:02a quick follow-up to that. Just the outlook for NHP pricing and sort of your reliability of supply, How does what's happening in the marketplace there? We've heard pricing is coming under pressure a little bit. How does that How do you anticipate that helps or hurts on the margin front? Like how should we think about that impact? Speaker 200:28:21Yes. So Kevin, right now, Supply is not an issue. We have as much supply as we need. I feel very good about as we go through this year and into the future, we have multiple suppliers now. We've certainly seen some of the pricing come down in the market, which is a good thing for us because NHP cost is largely a pass through for us. Speaker 200:28:42We passed the benefit on to our clients. So you might see the revenue come down for us because the cost is coming down, But it shouldn't have any significant impact. In fact, it could help us a little bit when it comes to our margins. Speaker 400:28:58Great. Thank you so much, guys. Operator00:29:01One moment for our next question. Our next question comes from Erin Wright with Morgan Stanley. Your line is open. Speaker 600:29:11Good morning, Erin. Great. Thanks. Hi, good morning. So how would you characterize just general volume trends and utilization trends relative to pre COVID? Speaker 600:29:21And just excluding COVID dynamics, you also mentioned some of impact in the Q1, how big of an impact is that? And how should we think about just volume dynamics as we head throughout the year in 2024? Thanks. Speaker 200:29:35So first of all, I would say, we came into 2024 with significant momentum. The diagnostic Base business grew 8% in the 4th quarter. Biopharma grew 7.1% in the 4th quarter. So I feel good about the guidance that we're providing for each of those businesses. So for diagnostics, it's 3.2% to 4.8%, midpoint of 4% growth biopharmics 5.5% 7.5%, a midpoint of 6.5% growth. Speaker 200:30:02So very strong revenue growth. We are comfortable also saying that there will be margin improvement each of those businesses. That's despite the fact that there is going to be an impact in diagnostics from weather. And we expect it to be $0.10 to $0.15 in the first quarter. And therefore, the Q1 will be the hardest quarter for us of 2024. Speaker 200:30:25But the numbers I just gave you and the ranges that I gave you midpoints already we already know what it was in January. It already contemplates what happened in January. Speaker 300:30:36Yes, Aaron, the couple of comments too as well that Demand utilization is positive and frankly we're kind of at the higher end right now when you look at it year over year. When with the guide of Call it again midpoint of around 4% for diagnostics kind of organically next year. Our normal historical 2 thirds volume, 1 third price mix is probably a good indication which still speaks to the fact that volume levels are up nicely. When you compare them to pre pandemic levels, We're within the normal range where historically we would say kind of 1% to 2% from volume 1 on the price side, we're within that 1% to 2% Growth rate now, CAGR organically compared to 2019 kind of on the lower end, but Well north of kind of 1% growth. So we're at kind of a normal level right now, a little bit higher expected than historical. Speaker 300:31:36And the weather impact that we saw in January, to give you kind of the rounded numbers, probably impacted our revenue by around $25,000,000 and we incrementally the drop down on that would be at around 60% margin. So call it around $0.15 ish of operating income or that $0.10 to $0.15 range that we gave in our prepared remarks from an earnings per share standpoint. Speaker 600:32:01Perfect. Thanks. And just your quick thoughts on sort of the regulatory environment as it stands now, whether it's LDTs, PAMA, SALSA, you think PAMA just continues to be pushed out at this point? What are your thoughts there? Thanks. Speaker 200:32:15Yes. So Aaron, we continue to support Salsa and we continue to be optimistic that Salsa will get passed. We have support from both sides of the aisle and ACLA, our trade organization is working really hard to get that legislation passed. If it doesn't get passed, then we'll try to see if there's a way to get another year delay. In our guidance, longer term guidance, we assume that there will be an impact from PAMA. Speaker 200:32:42So therefore, we continue to say, it's not this year, will be next year. If it's not next year, it will be the following year. Until the SALSA legislation is passed, then I'm not going to take lot of comfort that it could be another year delay or so forth. We're going to really work hard to have that passed. With regard to LVTs, We do not support the FDA's kind of what they're currently thinking about in terms of taking legislation that was created for the device industry and applying it to the diagnostic industry. Speaker 200:33:13We were very supportive of Ballad And that was legislation that would give FDA oversight of laboratory developed tests. We think that's the right path to go. We'll continue to work with the trade organization to see if we can make progress there. But we think legislation that is fit for purpose for the diagnostic industry is the right path forward. Speaker 600:33:36Great. Thank you. Operator00:33:38One moment for our next question. Our next question comes from Stephanie Davis with Barclays. Your line is open. Speaker 200:33:48Good morning, Stephanie. Speaker 600:33:49Hey, guys. Congrats on the quarter. Thanks for taking my question. I was hoping you could walk us through what's driving some of your diagnostics market growth being so above market, especially on the EPS side. Because I historically attribute some of your above market growth to the extension deal, but I also thought about the lower margin profile. Speaker 600:34:12So I guess I'm a little surprised at this level of profitability bifurcation versus your largest peer? Speaker 200:34:20Yes. So what I would say, Stephanie is, Number 1, we have momentum in the diagnostics business. And the momentum is coming from our base core business. We see it in both routine and esoteric testing. We have 4 therapeutic categories that we focus on that have higher growth in other specialty areas, and we're going to continue to focus in those areas oncology, women's health, autoimmune disease and neurology. Speaker 200:34:49And I believe that those are going to help us continue to grow because those parts of the market should grow disproportionately as we continue to go into the future. At the same time, there's no doubt that the acceleration of the hospital and local laboratory partnerships has enabled us to go faster than what we've grown in the past. And the good news is we have a strong pipeline of those as we go into the future. That's why we've raised the longer term guidance for inorganic growth 1.5% to 2.5%. Historically, we would have said 1% to 2%. Speaker 200:35:20So I think all those things combined give us momentum when it comes to the diagnostic volume. Speaker 600:35:27Understand. Looking forward to it. And changing gears a little bit for the follow-up, could you dig a bit more into the Ovia announcement? How much of that was driven by inbounds from your existing employer clients versus the decision to expand into the market? And what does this mean in terms of investment list in employer facing sales or platform tech investments and the like? Speaker 200:35:52Yes. So if you look at what we've done with Ovia, we think it's a terrific way for us to have a digital capability in a very important Core therapeutic area that we're focused on women's health. And it really is what they've offered a first of its kind fertility family building benefit that we will be bringing to customers. The service offers care navigation and concierge services that helps individuals throughout their family building journey. And we can offer directly to patients if they like, we can offer it to employers. Speaker 200:36:22We have a very strong employer group, laboratory employer services. And this is just one of many offerings that we're going to be bringing to the marketplace. But because women's health is so important And because we are so focused on it, this is just another avenue for us to help in the women's health arena. Speaker 600:36:43Awesome. Thank you so much. Operator00:36:46One moment. Our next question comes from Patrick Donnelly with Citi. Your line is open. Speaker 500:36:57Good morning, Patrick. Hey, good morning. Thanks for taking the question. Maybe on the biopharma booking side, the book to bill picked up a little bit from last quarter. I know last quarter you guys were flagging Maybe some elevated cancellations on the emerging biotech side. Speaker 500:37:13Can you just kind of let us know what the environment looks like now? How you're feeling about that backdrop? Again, just given a little bit of volatility there and we've seen some biotech IPOs trickle out, how are you feeling about the backdrop and how should we think about bookings this year? Speaker 200:37:30Yes, absolutely. I'll start broadly about our biopharma business and then I'll talk about the individual segments as well. So broadly, we had a good quarter of 1.26, which we said in the Q3, we expected the Q4 to be improved and obviously it was improved. The deals that are trailing 12 months, it's about 1.04 And we believe that that's you want to be around 1.05 to 1.1 and 1.1 is typically what we're targeting. I feel confident we'll be able to get there as we go through this year. Speaker 200:38:01We dropped off a really strong quarter in the Q4 of 2022. If I break apart the businesses and we start with a much larger business, which is the central laboratory business, our RFPs are very strong. Our book to bill is very strong. Our win rate is very strong. We're not seeing as many cancellations as we're seeing in the other part of business because it's focused more on larger pharma. Speaker 200:38:25Although there are some cancellations there, there always are. It's not nearly as large as what we're seeing in early development. In early development, I feel comfortable as we go through 2024 because our RFPs coming into us are still very strong. Our win rate remains good. I feel good about where our win rate is. Speaker 200:38:44What's happened here is there's been a lot of cancellations. I think there's two reasons for that. One is, I think with NHP pricing the way it was, some very small biotech companies that got in line just decided to say we're just not going to do it now. And then I also think that there are other pressures with smaller biotech companies that they're going through financially. As I look at This year, I feel good about both businesses and in early development, we're actually even seeing a larger amount of our business come from large and Middlesized pharma versus early pharma or early biotech and I think as we kind of make that transition to get more and more larger pharma in early development, we'll be able to even have a stronger book to bill moving forward. Speaker 200:39:26But net net, I feel confident in both of the businesses, the ranges that we've provided and where we are today with the book to bills. Speaker 300:39:33Yes. Patrick, just one other thing to think through as well. Again, we had a strong Q4, which obviously is very encouraging, but it was still driven more on the central app side. So while the orders and the RFPs and our win rates for even early development are doing well, it's those cancellations that have impacted it. So as you think about the cadence too for next year, when you look at The biopharma expect to be kind of a second half weighted year on the revenue growth. Speaker 300:40:03So both businesses again within that 5.5% to 7.5% growth. But because of those cancellations, we do expect to see early development growth rate will be much stronger in the second half than the first where on the central lab Given the continued strength of its backlog, we expect that normal cadence of improvement each quarter as we go. Okay. That's helpful. And then just a Speaker 200:40:24couple of quick ones on Speaker 500:40:25the P and L for 24. Glenn, you talked a little bit about the Diagnostics margins. Can you talk about the COVID headwind is. I'm just trying to figure out maybe the core expansion versus the COVID headwind, if you have that. And then just quickly, the interest expense expectations for the year and how you think about the debt load addressing that at all during 2024? Speaker 500:40:42Thank you. Speaker 300:40:44Sure. Again, expect to see margins in both businesses that are up, but specifically in diagnostics, we do expect margins to be up in total diagnostics, albeit slightly up because of the impact to your point of COVID still being a headwind and the underlying base business margins doing well. But Overall, we would say that we're going to be down around $130,000,000 due to COVID from a margin standpoint, call it 20 basis points to 30 basis points of kind of headwind that we're going to get that again will be more than offset by the growth of the business and our LaunchPad initiative. When you look at the interest expense, you can effectively take the run rate where we ended the Q4 and kind of annualize that. And then we do have around $1,000,000,000 of debt that's due late in 2024. Speaker 300:41:36So we're in $600,000,000 in September, another $400,000,000 in December. So we'll look to refinance it. The absolute debt levels that we have at that $5,000,000,000 $5,100,000,000 we expect to maintain. So we'll just refinance at obviously slightly higher rates than what will be maturing. So If you wanted to add 10% to the annualized number on top of that to reflect the refinancings at the end of the year, that would be a decent ballpark to be in. Speaker 300:42:06And again, the debt load from where we stand, we'll look for refinancing. We commented a little bit earlier that The leverage that we have as a company is still within our targeted range of kind of the 2.5 to 3 times, But we're at the lower end. So obviously, we could potentially use additional leverage, additional debt as we see potential other opportunities to deploy capital above the $1,000,000,000 plus of free cash flow that we'll generate this year, plus we're sitting on a little bit of excess cash. Speaker 500:42:39Okay, great. Thanks a lot, Glenn. Operator00:42:43One moment for our next question. Our next question comes from Brian Tanquilut with Jefferies. Your line is open. Speaker 700:42:53Hey, good morning guys. Good morning. So I guess my question, Glenn, as I think about the P and L lines, the cost of sales and G and A and factor in labor and obviously Launchpad, Seeing that it outpaced both those large outpaced revenue growth in Q4, how are we thinking about the I hear you about margin improvement this year. So Just curious how you think about the labor environment and how that factors into driving margin improvement in terms of like actual dollars and the growth in those P and M lines? Speaker 300:43:26Yes. So Brian, we normally view well, one obviously continues to be a tight labor market, but a market that's improved From a nutrition standpoint, we continue to see improvement. But as a company, we're still higher than we were pre pandemic. And that varies across the segments because actually our biopharma is back to where we've been and we still see some additional pressure within the diagnostic side, but again improving. Our general premise is that the labor market inflation for labor is around 3%, you can say 3% to 4%, but within that range, We've always commented that our Launchpad initiative was really in place to help offset that inflationary pressure. Speaker 300:44:06For us, 3%, give or take increase in our labor, call it merit in particular would be a little bit over $100,000,000 And again, we target that $100,000,000 to $125,000,000 a year. So Again, we think things are leveling off, if you will, and that part of the margin improvement will be the LaunchPad initiative to help offset those inflationary costs. Speaker 700:44:28Understand. And then maybe just housekeeping, I just missed this, but share buybacks, how much are how much share buyback activity is baked into the guidance? Speaker 300:44:38So what we do guide to is that the free cash flow generation that we have will be used for share repo, M and A and dividends. So it'll be across the board would be our expectation. We don't comment about how much is in each of the components, if you will, because it may vary based upon the acquisition opportunities that we see. So but it'll be blended across. And again, we commented as well that We have some additional balance sheet strength if we wanted to use that for additional M and A or buybacks. Speaker 300:45:10But the guidance that we gave And the earnings guidance, if you will, is reflected with all three of those capital allocation opportunities. Speaker 400:45:21All right. Got it. Thank you. Operator00:45:24One moment for our next question. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. Speaker 500:45:36Good morning, Pito. Yes. Good morning, guys. Thanks for taking Speaker 400:45:39my questions. Back on the 'twenty four guidance, the diagnostic business, can you just help quantify the margin improvements next year? Any details on the split between SG and A and gross margin. And how much is coming from acquisitions improving versus just pure organic improvement? Speaker 200:45:56Yes. So let me I'll give some context and I'll ask Ben to add on. So if you look at the Diagnostic business, I'd say the first thing is if you look at 4th quarter, saw very strong revenue growth about 8%. If you look at margin versus prior year, it was down slightly about 30 basis points. What drove that primarily was that there were some minor things like increased health care costs and so forth, but it was driven primarily by The hospital deals that we did that although they're accretive in the 1st year, in the 1st several months, they're typically dilutive. Speaker 200:46:30And we did several of those deals at the end of last year. As we come into this year, we're confident in the margin accretion for several reasons. One is obviously PAMA has been delayed. So that would have been a real headwind that we're not facing this year. We pushed that off into 2025. Speaker 200:46:47If you look at our volume increases, that's going to help us. The volume is going to be strong. If you look at the hospital deals that we said Ascension would continue to to give us some margin improvement over the next several years. Each of the hospital deals get a bit better as we go year over year. So we'll get some improvement from the hospital deals continuing to improve. Speaker 200:47:08We're also going to be looking to reduce costs across the enterprise, but a significant amount because of the size is in diagnostics of $100,000,000 to $125,000,000 And when you look at all those things together with a We're expecting inflation to be about 3%, which is more in a typical rate than it's been in prior years. So if you kind of put off and that's for our inflation of our people costs and so forth should be around 3%, 3.5%. You put all those together and that's why we're confident that even though we have a headwind COVID that's fairly significant of kind of $130,000,000 we'll still be able to get some margin improvement in the Diagnostics business. Speaker 300:47:48Yes. No, I think that's right. Pito that when you look this year as COVID becomes less of an impact, still an impact, It's kind of being offset by the acquisitions that we did late in the year. Really it's the hospital partnerships and to your point, The margin is constrained a little bit when we do the in hospital lab management agreements, but a typical M and A for us that would include hospital labs management tend to be more weighted to frankly the acquisition component. Ascension as we've talked about, we called out one because of its sheer size, but also was disproportionately tied to the in hospital labs. Speaker 300:48:25So less of an impact, a little bit of a headwind, but less of an impact. So it's really Top line growth, cost controls, Launchpad Business Process Improvement Initiatives is really what's going to help drive the margins across both of our businesses. Speaker 400:48:43Okay, great. And then back on the for Q4 on the early stage cancellation, is there any color sort of why You saw that spike, was that a single customer or is that sort of swap the customer? Is it sure why you think that should normalize 2024? Thanks so much. Speaker 200:48:59Sure. And it wasn't specific to Q4, although there was an increase in the Q4. We saw it throughout last year. We think there were several reasons. 1, when there was an NHP supply issue, people were getting in line to run their NHP trials well in advance of what they typically would. Speaker 200:49:18By the time it was their turn, they would look and say, you know what, we're not going to do that trial either they reprioritized the pipeline, They decided the NHP costs were higher than what they had budgeted for. They decided just not to move forward at that time. The second thing is the funding in smaller biotech has been more difficult. So they're choosing their trials very carefully in the compounds that they move forward. But as we go forward, we're seeing the RFPs look good as well as our win rates look good. Speaker 200:49:47So the cancellations we believe are going to normalize. We're also starting to see a shift in our business a bit more towards midsize to larger pharma as some of the small biotechs have had those cancellations. They have less cancellations typically than the smaller ones. So that's why we think we're going to see improvement as we go through this year. Speaker 400:50:09All right, great. Thanks so much. Operator00:50:12One moment for our next question. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open. Speaker 800:50:24Hi, guys. Hi, good morning. Thanks for the question. So I just wanted to follow-up on that last question. So the shift towards mid to larger Pharma in early development, is that really solely a function of this cancellation dynamic that you're seeing over the shorter term? Speaker 800:50:39Because I thought maybe one of your prior comments, it seems like that was also maybe more of a strategic shift moving up market there. So any additional color there would be helpful. And then secondarily on the cost improvements in BLS, I understand what you're saying about the continued revenue improvement there. Are there any other sort of cost improvements as we move further away from the spin? Or should we sort of think about those cost opportunities as largely you've already done them and this is really just like an organic opportunity? Speaker 800:51:08Thank you. Speaker 200:51:09Yes, sure. So as I came up with the development business, I've been saying for quite some time that we would like to see a shift towards more mid to larger size. And I want to be clear, it's not significant. It's still more in a smaller biotech than it is to the mid to larger size. It's been something that we've been working on for multiple years now and we're seeing some progress. Speaker 200:51:31But also a part of it is that cancellations are occurring more often in the smaller biotech companies. So we were purposely moving in that direction. There is A reason that we're able to move a little bit faster, but we still have work to do there. But over time, I would like to see that mix move more towards mid size to larger pharma. Speaker 300:51:51Yes. Elizabeth, also on the cost side for BLS, it's not only the growth, but there are cost opportunities kind of in the post spin environment. We still have stranded costs that affect our biopharma business that we're continuing to take out and Obviously, that's getting wrapped in our overall LaunchPad initiative as we talk to the $100,000,000 to $125,000,000 of savings each year. We did take out a meaningful amount of costs that were stranded. We had talked about having a $25,000,000 run rate of cost savings in the Q4, which we achieved. Speaker 300:52:25We'll get the benefit of that going forward. But there's still opportunities to consolidate. We still have A little bit excess capacity within our early development side of the business. So we're managing that cost and the capacity leaving ample room though because of the expectation we're going to start to see good growth in that business as well. But it's not only obviously top line growth, but still opportunities to take some costs out. Speaker 800:52:51Got it. And maybe just one quick follow-up. Anything you can comment on the expected 2024 tax rate? Speaker 300:52:59Yes. So we've kind of guided that we think of 23% adjusted tax rate is reasonable for the company. And What's interesting, if you think about LabCorp today post spin, we actually have a higher percentage of our earnings now that are generated in lower tax rate jurisdictions than we did when we had the clinical business. In addition, we have a higher percentage of R and D, so a higher percentage of R and D benefit than we did when we had clinical. So overall, while we've historically have trended and seen our tax rate decline year to year over the last few years, The profile of the company gives us confidence that the 23% rate now is a sustainable rate plus or minus going forward. Speaker 800:53:42Great. Thank you very much. Operator00:53:45One moment for our next question. Next question comes from Eric Coldwell with Baird. Your line is open. Speaker 200:53:55Good morning, Eric. Speaker 900:53:57Good morning, guys. Of course, All of my self proclaimed good questions have just been asked in the last couple of minutes here, but I'm going to dive into that last one on R and D tax Credit. Can you tell us what specifically might have happened in the Q4 to drive what appears to be some additional upside And thoughts on legal or regulatory changes in addition to Glenn's comments here about the geographic mix and the higher proportion of revenue associated with businesses that now would get an R and D tax credit. I'm just Curious on how much of a sustainable impact this might be for favorable long term tax rate? Speaker 300:54:42Yes. So Eric, when you think about the focus of the company, one of the key areas of target is in oncology and obviously with PGX, OmniSeq, other areas that we've acquired as well are more R and D driven than historically LabCorp was. So Each year we continue to make more investments, more opportunities and with that increased investment come the tax deductibility of that. Obviously, there's still some pending tax laws that are out there right now. We're trying to amortize that benefit over a number of years from a cash standpoint. Speaker 300:55:16We're kind of prefunding it. So hopefully we'll get that will change and we'll get more. There's obviously the impact of potentially global minimum taxes That really don't affect us that much given as we look at where again geographically we generate our earnings, really not going to have any meaningful impact. So From a sustainability standpoint, we think that 23% plus or minus rate is a reasonable rate to go forward. But obviously the more we grow, the more we grow internationally gives us an opportunity to structurally change that maybe a little bit more favorably as well. Speaker 900:55:51And Glenn, maybe education on my behalf, but are you seeing R and D tax credits on the CRO side as well, the BLS segment or is it mostly or entirely associated with your internal investments in advanced diagnostics and LDTs, things of that sort? Speaker 300:56:12Yes. I mean, it's across the board. We have investments that span The entire company, I think the increase that we've been seeing that has been driving the more favorable amount has been driven more on the diagnostic side, but frankly, our oncology spans the enterprise. So everything that we work on and where we work on and who's working on it. Again, we would say is across the enterprise, but more weighted to diagnostics. Speaker 900:56:39Great. And if I could get one more in here. The stranded cost commentary, could you just remind us What you're sharing in terms of what those total costs were, how they phase out and What happens at the end of 2024 when Fortrea thinks they're going to be completing their biggest TSA transitions, particularly on the IT side. I'm just what is the impact to LabCorp over the next handful of quarters and into 2025 as you face these stranded costs, but they start to come out and then what happens at the end of the TSAs? Thank you very much. Speaker 300:57:21No, sure, Eric. So from the stranded costs, we commented that we had around $45,000,000 of stranded costs and that our initial target was to take out that $25,000,000 at a run rate this year, which Again, we've achieved. So there's more to come. So in the Q4, call it around a $6,000,000 headwind that we had due to stranded costs that obviously impact margins. As we go forward with the TSA support, So what we're doing to support Fortria IT and other areas, that's effectively a pass through, right? Speaker 300:57:53We're providing the service they're paying us for that service. Once they're fully sustainable on their own and the TSAs would go away, Our costs go away because frankly most of the costs are contract labor related on the IT side. So when the job is done those costs are gone overall. But we continue to tackle the other stranded costs as well. So when you look at it, the goal was to have all the TSAs completed within 2 years. Speaker 300:58:23I can tell you for Tria and LabCorp are both very motivated to see and incentivized to see That transition happened as soon as possible. The good news is that both are focused on it. We're making good progress. Fortria is making very good progress. And we would expect to hopefully see those TSAs expire earlier than what we had planned or at least what we that plan for, but again the cost will go with that. Speaker 900:58:50That's very helpful. Thank you again. Operator00:58:53One moment for our next question. Our next question comes from Lisa Gill with JPMorgan. Your line is open. Speaker 200:59:04Good morning, Lisa. Speaker 100:59:05Good morning. Thanks for taking my question. I first wanted to start with the guidance range. Glenn, can you help us understand, it's pretty wide range. What's in the low end of the range and what gets you to the upper end of the range would be my first question. Speaker 100:59:19And then secondly, Just want to understand managed care contracting and pricing for 2024. You talked about volume and pricing mix, but just curious as to do you have Many contracts that are up for renewal, is there anything that's different when we think about contracting with managed care entities? Speaker 200:59:36Yes. So I'll take that second one first, which is we feel confident in our contracts that we had put a few in place last year, but this year there's no major exploration. So we feel good about where we are and there's not much risk in the guidance range as we go through this year and to next. But with regard to the ranges and certain things that go to the upper end of the bottom end, I mean, obviously, I'll start with the revenue range. Obviously, the diagnostic volume looks great and we're expecting that to continue. Speaker 201:00:10The weather is a bit of what's taking us a little bit back to that midpoint. So the weather is $0.10 to $0.15 impact, but the Volume continues to be very, very strong. The rate in which we integrate the hospital deals will help us And we have very good track record of doing that. But the good news is there's not as much volatility this year as there's been in years in the past with COVID. I feel good about the range. Speaker 201:00:37And in fact, the EPS range we've narrowed it versus what that range would have been last year or the year before that because There is less volatility. And then I'd say in the biopharma services business, I would say the strength we have and momentum is great. The thing that we're watching carefully are when the cancellations in particular in the early development start to come back to more normal. Speaker 301:01:03Yes. And Lisa, I think on Adam's comment that when you look at the profile of LabCorp now that we've spun the clinical development business, it has taken out some of The volatility and variability, if you will. So the guidance ranges really across the businesses and the enterprise are actually a little bit tighter than what we normally do. Obviously, we're just starting out the year, the midpoint obviously our guidance is our best expectation that we have realizing obviously Higher demand would promote more on the upper end or softer demand down below. But needless to say, as we go through the year, we'll continue to tighten the ranges with less time left in the year. Speaker 801:01:41That's great. Thank you so much. Operator01:01:57Our next question comes from Derik De Bruin with Bank of America. Your line is open. Speaker 1001:02:02Good morning, Derik. Hey, good morning. This is John Kim on for Derek. I think a lot of the key questions I had have been answered, but I wanted to ask about the esoteric versus routine testing you laid out or you reaffirmed your focus on the 4 therapeutic areas. And it seems like the esoteric had a pretty good growth in the Q4. Speaker 1001:02:27But going forward, can we continue to expect that high single digit, low double digit growth in esoteric and then the rest of it would be made up in routine? Speaker 201:02:37Yes. So if you look at the esoteric Testing volume, we continue to have a significant focus on the 4 therapeutic areas that we talked about. And we did in fact see in the Q4 and the full year that esoteric testing volume grew slightly faster than the routine, but it's strong. I know that both of them grew strongly and we expect them to continue to both grow strongly, But we would expect Esoteric to grow at a slightly higher rate in both volume and the volume obviously is at higher dollars, so maybe a little bit faster in the dollars. Speaker 1001:03:13Got you. And then in terms of pricing, You mentioned that you're expecting mostly flat pricing in 2024. There are no major contract renewals coming up and PAMA has obviously been pushed out. But if I look at the margins between biopharma and diagnostics, Biopharma had a pretty strong margin compared to the diagnostics in the 4th quarter. And you mentioned that there's going to be a slight expansion in diagnostics, what's going to be the dynamic between the two for the full year 2024. Speaker 1001:03:55Can we is the 4th quarter a good jumping off point for the biopharma margins? Speaker 201:04:02Yes. No, I wouldn't use any one quarter for the margins. We expect the margins to actually improve across the business, across both Diagnostics and Biopharma. Diagnostics in the 4th quarter was impacted to some degree by the hospital integrations that we're doing that there were several new ones and although they're accretive in the 1st year, they were dilutive in the 1st couple of months. We expect that to improve as we go into next year. Speaker 201:04:28As we go to next year, there's still a COVID overhang in the diagnostics business, probably about $130,000,000 or so. But even with that, we expect to get some slight margin improvement in that business and overcome that. Speaker 1001:04:44Appreciate it. Thank you. Speaker 201:04:46Okay. So in closing, I know we're at the end of the hour. I just want to thank everybody for joining us today. I want to thank our team here at LabCorp for their focus and dedication and everything that they do to serve the patients that we all are trying to do the best we can to improve health and to improve lives and we look forward to sharing more with you as we go through the year. Thank you. Operator01:05:08Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.Read morePowered by