Labcorp (LH) Baird's 2024 Global Healthcare Conference summary

Recent strategic developments

• Announced a new hospital deal with Ballad Health, acquiring select outreach business and expanding reference lab services, with a strong pipeline for future hospital and regional lab deals.

• Inorganic growth guidance increased to 1.5%-2.5% due to accelerated hospital and regional lab deal activity, with additional deals such as BioReference and WestPac in the pipeline.

Business outlook and risk factors

• Diagnostic business remains stable across economic and political cycles, with test volume per accession above pre-COVID levels and expected to continue growing.

• Central lab business is stable, driven by phase II/III pharma trials, while early development is recovering from recent headwinds and expected to return to growth in Q4.

• PAMA legislation remains a key risk for 2025, with $80 million potential impact; guidance assumes PAMA occurs, but upside possible if delayed or replaced by SALSA.

Margin performance and operational initiatives

• Achieved 17.5% margin in Q2 despite onboarding new deals and external disruptions, supported by the LaunchPad cost reduction initiative targeting $100-$125 million annual savings.

• Test per accession growth continues to support margins, with even small increases having significant impact due to high test volumes.

• Hospital deals mix down margins but improve return on invested capital; overall incremental revenue leverage targeted at 25%-30%.