Q4 2023 Laboratory Corporation of America Holdings Earnings Call

Operator: www.larryweaver.com Good day, and welcome to the Laboratory Corporation of America Holdings fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Okay.

Speaker Change: Good day and welcome to the Laboratory Corporation of America Holdings fourth quarter, and full year 2023 earnings conference call.

Speaker Change: At this time all participants are in a listen only mode.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.

Speaker Change: The speaker's presentation, there will be a question and answer session.

Speaker Change: Ask a question you will need to press star one one on your telephone you will then hear an automated message advising your hand dish raised so withdraw your question. Please press star one again, please be advised that today's conference is being recorded.

Operator: To withdraw your question, please press star 11 again. 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 of Investor Relations. Please go ahead.

Speaker Change: I'd now like to hand, the conference over to your Speaker today Christian Odonnell, Vice President Investor Relations. Please go ahead.

Kristin O'Donnell: Thank you, operator. Good morning, and welcome to LabCorp's fourth quarter 2023 conference. As detailed in today's press release, there will be a replay of this conference call available via telephone at, With me today are Adam Schechter, Executive Vice President. Blunt-Isenberg, Executive Vice President, this morning, in the investor relations section of our website at www.labcore.com, hosted both our press release and an investor relations presentation, additional information on our business, to conclude. Non-Gap Financial Measures. Comparable Gap Financial, both of which are discussed during today's Additionally, we are making for the. These forward-looking statements include, but are not limited to..., back to the end, for guidance and the related assumptions, and Alpha Portreau. Operating at Financial Results, Cash Flows, and or Financial Results in the COVID-19 Pandemic and Global Economic and Market

Christian Odonnell: Thank you operator, good morning, and welcome to last quarters fourth quarter 2023 conference call.

Christian Odonnell: 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.

Christian Odonnell: Executive Vice President and Chief Financial Officer.

Christian Odonnell: This morning.

Christian Odonnell: The relations section of our website at Www dot.

Christian Odonnell: Dot Com, we posted both our press release and an Investor relations presentation with additional information on our business operation, which include a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measure both of which are discussed during today's call.

Christian Odonnell: Additionally, we are making forward looking statements.

Christian Odonnell: Forward looking statements include but are not limited to statements with respect to the estimated 2024 guidance and related assumptions. The recently completed spin off of Portugal.

Christian Odonnell: The impact of various factors on the company's businesses operating and financial results cash flows.

Christian Odonnell: Our financial condition, including the Covid, 19, pandemic and global economic and market conditions future business strategies expected savings benefits of synergies from the launchpad initiatives.

Kristin O'Donnell: Future Business Strategies, Expected Savings, Benefits, and Synergies from the Launch Pad and App, and others. Transactions and Partnerships, and Opportunities for Future Growth Each of the forward-looking statements is subject to change based on various factors, many of which are beyond our control. More information is included in our most recent annual report on Form 10-K and subsequent quarterly reports, and then in the company's other filings. We have no obligation to provide any updates to these four... even if our. Now I'll turn the call over to you, Kristin. Good morning, everyone.

Christian Odonnell: Physician, another strategic transactions and partnership in <unk>.

Christian Odonnell: <unk> for future growth each of the forward looking statements are subject to change based upon various factors many of which are beyond our control more information is included in our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q and in the company's other filings with the SEC we have no.

Christian Odonnell: Location to provide any updates to these forward looking statements, even if our expectations change now I'll turn the call over to Alastair.

Alastair: Thank you, Chris and good morning, everyone.

Adam H. Schechter: It's a pleasure to be with you today to discuss our fourth quarter 2023 results and our guidance for 2024. Ledbrook delivered a strong finish to what was a transformational year for the company. Looking back, we executed well on a strategic priority. We successfully integrated the lab operations of Ascension, one of the largest health systems in the United States. We completed Spina Fortea, our former clinical development and commercialization services business.

Alastair: It's a pleasure to be with you today to discuss our fourth quarter 2023 results and our guidance for 2024.

Alastair: <unk> delivered a strong finish to what was a transformational year for the company.

Alastair: Looking back we executed well on our strategic priorities, we successfully integrated the lab operations have essentially one of the largest health systems in the United States.

Alastair: We completed the spin to portray a form of clinical development and commercialization services business.

Adam H. Schechter: We announced six new laboratory partnerships, reinforcing our position as a partner of choice for health systems and regional local laboratories. And we launched new innovative tasks in our focus specialty areas across the business. As we begin 2024, we have momentum in both diagnostic laboratories and biopharmaceutical laboratory services. We expect to drive continued growth by expanding our base business, finalizing and integrating acquisitions and partnerships, and by advancing our position in science, technology, and innovation. We will continue to focus on and lead in oncology, women's health, autoimmune disease, and neurology. Now, let's turn to the fourth quarter results. LabCorp performed well, driven by strong organic business revenue growth in both diagnostics and biopharma. In the fourth quarter, revenue totaled $3 billion. Adjusted earnings per share was $3.30, and free cash flow from continuing operations excluding SPIN-related items was $422 million.

Alastair: We announced six new laboratory partnerships reinforcing our position as the partner of choice for health systems and regional local laboratories.

Alastair: And we launched new innovative tests, and our focused specialty areas across the business.

Alastair: And we began 2024, we have momentum in both diagnostic laboratory and Biopharma Laboratory services.

Alastair: We expect to drive continued growth by expanding our base business finalizing in integrating acquisitions and partnerships.

By advancing our position in science technology and innovation we.

Alastair: We will continue to focus and lead in oncology women's health autoimmune disease and neurology.

Alastair: Now turning to fourth quarter results, let her performed well driven by strong base business revenue growth in both diagnostics and Biopharma.

Alastair: In the fourth quarter revenue totaled $3 billion.

Alastair: Adjusted earnings per share was $3 30.

Alastair: And free cash flow from continuing operations, excluding spin related items was $422 million.

Adam H. Schechter: Enterprise revenue increased 4% compared to fourth quarter 2022, with diagnostics showing 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 mixed impact from recently closed hospital partnerships. Looking forward to 2024, we expect strong enterprise revenue growth of 4.7% to 6.5%, and we expect margin improvement across both diagnostics and biopharma. And we expect adjusted EPS of $14.30 to $15.40 and an applied growth rate at the midpoint of 10%. We also expect free cash flow to grow in excess of earnings.

Alastair: Enterprise revenue increased 4% compared to fourth quarter of 2022 with diagnostics growing 3% led by base business growth of 8%.

Alastair: And biopharma growing 7% due to strong performance in central laboratories more than offsetting softness in early development research laboratories.

Alastair: Enterprise base business margin was flat compared with prior year, despite being constrained by the mix impact from recently closed hospital partnerships.

Alastair: Looking forward to 2024, we expect strong enterprise revenue growth.

Alastair: 7% to six 5%, we expect margin improvement across both diagnostics and Biopharma and we expect adjusted EPS of $14 30.

To $15 40.

Alastair: And implied growth rate at the midpoint of 10%.

Alastair: We also expect free cash flow to grow in excess of earnings.

Adam H. Schechter: In a moment, Glenn will provide more details on our results and our 2024 guidance. Now, turning to our enterprise strategy. In the fourth quarter, we continue to see positive momentum from our health systems and regional local lab partnership strategy. LabCorp continues to demonstrate that we are a 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.

Alastair: Glenn will provide more details on our results and our 2020 for guidance.

Alastair: Turning to our enterprise strategy in the fourth quarter, we continued to see positive momentum from our health systems and regional local lab partnership strategy there.

Continues to demonstrate that we are partner of choice with several new health systems and regional local laboratory relationships.

Alastair: This is primarily due to our leadership in science and technology, our dedication to patients and our commitment to quality and efficiency.

Alastair: We announced a strategic partnership with <unk> health in Western Massachusetts to acquire its outreach laboratory business and select operating assets.

Alastair: We completed the acquisition of select assets and legacy.

Alastair: <unk> now manages legacy inpatient hospital laboratories, serving patients that Oregon, and southwest Washington State.

Adam H. Schechter: And 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&A pipeline is robust, and we remain focused on integrating and expanding our health system and regional local laboratory partnerships. These partnerships typically have a pre-dividend in the first year with margins expanding over time during integration, and they returned their cost of capital within just a few years. In the fourth quarter, Overear Health by LabCorp announced it would offer a fertility and family building benefit. This 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 ATN profile, the first blood-based test that combines three well-researched blood markers to identify and assess biological changes associated with Alzheimer's disease.

Alastair: And we entered into an agreement to acquire ambulatory lab draws patients and our staff from projects medical groups in California.

Alastair: Looking ahead, our M&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 first year with margins expanding over time during integration.

Alastair: They return their cost of capital within just a few years.

Alastair: Turning now to our progress in science technology and innovation.

Alastair: In the fourth quarter, we got helped by Labcorp announced they will offer fertility and family building benefit this.

Alastair: This benefit is a first of its time that will allow employers and health plans to offer customizable solutions to employees and members to support their family building needs.

Alastair: Therefore announced the availability of an ACM profile.

Alastair: First blood based test that combined three well researched blood markers to identify and assess biological changes associated with Alzheimer's disease.

Adam H. Schechter: 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, in fact, announced a strategic collaboration to advance decentralized clinical trial capabilities for pharma, biotech, and medical device companies. The collaboration is expected to increase patient diversity and inclusion, decrease site burden, and accelerate enrollment and clinical study timelines. Finally, for our central laboratory customers, we introduced a new sample chopping 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 a central lab specimen sample journey for each assigned protocol and to customize how their data is structured.

Alastair: Last month, we announced the launch of the new FDA cleared blood test for risk assessment and clinical management of severe preeclampsia.

Alastair: Labcorp and Hawthorne effect announced a strategic collaboration to advanced decentralized clinical trial capabilities for pharma biotech and medical device sponsors.

Alastair: The collaboration is expected to increase patient diversity and inclusion to decreased tax burden and to accelerate enrollment in clinical study time lines.

Alastair: Finally for our Central laboratory customers, we introduced a new sample chopping up application to provide enhanced near real time visibility of specimens within the central App.

Alastair: This phase is the first of many that will be launched for labcorp customers.

Alastair: The application allows users to view events in a central lab specimen sample journey for Hsni protocol and to customize how their data is structured.

Adam H. Schechter: Turning now to the year ahead, we're focused on advancing our growth drivers that were outlined at our September 2023 Investor Day. We plan to continue to be a partner of choice for health systems and regional local laboratories. We 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.

Alastair: Turning now to the year ahead.

Alastair: Our focus on advancing our growth drivers that outlined in our September 23 Investor day.

Alastair: We plan to continue to be a partner of choice for health systems and regional local laboratories.

Alastair: We will continue to develop license and ultimately scale specialty testing, including companion diagnostics.

Alastair: 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 in Geneva to perform liquid biopsy tests for clinical trials.

Adam H. Schechter: And we are well-positioned for long-term success in cell and gene therapy and consumer goods. We see tremendous opportunity for growth as we continue to focus on bringing new innovation, technology, and products to market. In 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 improve lives. With that, I'll throw the call over to Glenn.

Alastair: And we are well positioned for long term success in cell and gene therapy, and consumerism, we see tremendous opportunity for growth as we continue to focus on bringing new innovation technology and markets and products to market.

In closing 2023 was a strong and transformative year for Labcorp.

Alastair: We executed our strategy of exceptional scale and pace.

Alastair: Wanted to thank our more than 60000 employees for their hard work and dedication to customers around the world.

Alastair: This enabled us to enter 2024 with considerable momentum that we intend to capitalize on them 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 Brian.

Glenn: Thank you, Adam. I'm going to start my comments with a review of our fourth-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 billion, an increase of 3.5% compared to last year, primarily due to organic-based 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%. However, organically, in constant currency, the base business grew 5.2%. Operating loss for the quarter was $123 million due to an impairment charge of $334 million related to our early development research laboratories business as we experienced a soft biotech market.

Brian: Thank you Adam.

Brian: Going to start my comments with a review of our fourth quarter results followed by a discussion of our performance in each segment and conclude with our 2020 for 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.

Brian: Revenue for the quarter was $3 billion, an increase of three 5% compared to last year, primarily due to organic base business growth and the impact from acquisitions, partially offset by lower COVID-19 testing that.

Brian: The base business grew seven 4% compared to the base business last year, while Covid testing revenue was down 73%.

Brian: Organically in constant currency the base business grew five 2%.

Brian: Operating loss for the quarter was $123 million due to an impairment charge of $334 million related to our early development research laboratories business as we've experienced soft biotech markets. In addition, we had $125 million of special charges related to acquisitions Covid and the spend for Korea.

Glenn: In addition, we had $125 million of special charges related to acquisitions, COVID, and the Spinafore Trio. Excluding these items in amortization, adjusted operating income in the quarter was $395 million, or 13% of revenue compared to $413 million or 14.1% last year. The decrease in adjusted operating income and margin was due to lower COVID testing.

Brian: Excluding these items and amortization adjusted operating income in the quarter was $395 million or 13% of revenue compared to $413 million or 14, 1% last year the.

Brian: The decrease in adjusted operating income and margin was due to lower Covid testing.

Glenn: Base business margins were in line with last year, as the benefit of demand and launch pad savings was offset by higher personnel and stranded costs and the mixed impact of recently completed hospital partnerships. Our Launchpad and Stranded Cost Reduction Initiatives delivered around $125 million of savings this year, consistent with our long-term target of $100 to $125 million per year. The adjusted tax rate for the quarter was 19.5%, compared to 25.4% last year.

Brian: <unk> business margins were in line with last year as the benefit of demand and Launchpad savings were offset by higher personnel and stranded costs and the mixed impact of recently completed hospital partnerships.

Brian: Our launch pad and stranded cost reduction initiatives delivered around $125 million of savings. This year consistent with our long term target of $100 million to $125 million per year.

Brian: 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&D tax credits we expect.

Glenn: The lower adjusted tax rate was primarily due to the geographic mix of earnings and the benefit from the increased R&D tax credit. We expect our adjusted tax rate for 2024 to be approximately 23 percent. Fully diluted EPS for the quarter was a loss of $1.95 due to the early development impairment charge.

Our adjusted tax rate for 2024 to be approximately 23%.

Brian: Fully diluted.

EPS for the quarter was a loss of $1 95 due to the early development of impairment charge adjusted EPS were $3 30 in the quarter up 8% from last year.

Glenn: Adjusted EPS was $3.30 in the quarter, up 8% from last year. Operating cash flow from continuing operations was $580 million in the quarter compared to $607 million a year ago. The reduction in cash flow is due to lower COVID testing. Capital expenditures totaled $165 million in the quarter.

Brian: Operating cash flow from continuing operations was $580 million in the quarter compared to $607 million a year ago. The.

Brian: The reduction in cash flow was due to lower COVID-19 testing.

Brian: Capital expenditures totaled $165 million in the quarter for the full year capital expenditures were three 7% of revenue and we expect this to be approximately three 5% in 2024.

Glenn: For the full year, capital expenditures were 3.7% of revenue, and we expect this to be approximately 3.5% in 2024. Pre-cash flow from continuing operations for the quarter was $414 million. The company invested $155 million in acquisitions and paid out $61 million 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 approximately 1.1 million shares during the quarter. At the end of the year, we had $530 million of share repurchase authorization remaining. For the full year, free cash flow from continuing operations, excluding spin-related costs, was $888 million.

Brian: Free cash flow from continuing operations for the quarter was $414 million the company invested $155 million in acquisitions and paid out $61 million of dividends.

Brian: 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 approximately $1 1 million shares in the quarter.

Brian: At the end of the year, we had $530 million of share repurchase authorization remaining.

Brian: For the full year free cash flow from continuing operations, excluding spin related cost was $888 million. The company invested $672 million on acquisitions paid out $254 million in dividends and repurchased $1 billion of stock and paid down $300 million of maturing debt.

Glenn: The company invested $672 million in acquisitions, paid out $254 million in dividends, repurchased $1 billion of stock, and paid down $300 million of maturing debt. We 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 million in cash, with debt of $5.1 billion.

Brian: <unk>.

Brian: We 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.

Brian: At year end, we had $537 million in cash with debt of $5 1 billion. Our leverage was two five times gross debt to trailing 12 months adjusted EBITDA.

Glenn: Our leverage was two and a half times gross debt to trailing 12 months adjusted EBITDA. Now, we review our segment performance, beginning with Diagnostics Laboratory. Revenue for the quarter was $2.3 billion, an increase of 2.6% compared to last year, with organic growth of 0.8% and acquisitions contributing 1.8%. The 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 business increase that was mostly offset by lower COVID testing.

Speaker Change: Now I'll review, our segment performance beginning with diagnostics laboratories.

Speaker Change: Revenue for the quarter was $2 3 billion, an increase of two 6% compared to last year with organic growth of 8% and acquisitions contributing one 8%.

Speaker Change: The base business grew organically by five 7% compared to the base business last year, while Covid testing revenue was down 73%.

Speaker Change: Yes.

Speaker Change: Total volume increased two 4% compared to last year as organic volume grew 3%, which was constrained by lower Covid testing while acquisition volume contributed two 1%.

Speaker Change: Base business volume grew five 2% compared to the base business last year as organic volume increased three 1% while acquisitions contributed two 2%.

Speaker Change: Price mix increased 2% versus last year due to an organic base business increase that was mostly offset by lower COVID-19 testing.

Glenn: Base business organic price mix was up 2.6% compared to the base business last year. Diagnostics suggested operating income for the quarter was $354 million, or 15.1% of revenue compared to $387 million or 16.9% last year. The decrease in adjusted operating income was due to a reduction in COVID testing.

Speaker Change: Base business organic price mix was up two 6% compared to the base business last year.

Speaker Change: Diagnostics adjusted operating income for the quarter was $354 million or 15, 1% of revenue compared to $387 million or 16, 9% last year.

Speaker Change: The decrease in adjusted operating income was due to a reduction in Covid testing.

Glenn: 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 mixed impact from recently closed hospital partnerships, which we expect to improve over time. Now I'll review our segment performance of Biopharma Laboratory Services. Revenue for the quarter was $695 million, 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 million, or 15.7% of revenue, compared to $95 million or 14.7% last year.

Speaker Change: 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.

Speaker Change: The decrease in margin was due to the reduction in Covid testing and the mixed impact from recently closed hospital partnerships, which we expect to improve over time.

Speaker Change: Yeah.

Speaker Change: Now I'll review our segment performance, our Biopharma Laboratory services.

Speaker Change: Revenue for the quarter was $695 million, an increase of seven 1% compared to last year.

Due to an increase in organic revenue of 4% and foreign currency translation of three 1%.

Speaker Change: The seven 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.

Speaker Change: Biopharma adjusted operating income for the quarter was $109 million or 15, 7% of revenue.

Speaker Change: Compared to $95 million or 14, 7% last year.

Glenn: Adjusted operating income and margin increased due to organic growth and launch pad savings partially offset by higher personnel and stranded costs. We ended the quarter with a backlog of $8.2 billion, and we expect approximately $2.5 billion of this backlog to convert into revenue over the next 12 months. Booked a bill for the quarter at 1.26, with the trailing 12 months at 1.04.

Speaker Change: Adjusted operating income and margin increased due to organic growth and launchpad savings, partially offset by higher personnel and stranded costs.

Speaker Change: We ended the quarter with a backlog of $8 $2 billion and we expect approximately $2 5 billion of this backlog to convert into revenue over the next 12 months.

Speaker Change: Book to Bill for the quarter was $1 two six with the trailing 12 months at 1.4.

Glenn: 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. We 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.

Speaker Change: Now I'll discuss our 2020 for full year guidance, which assumes foreign exchange rates effective as of December 31, 2023 for the full year.

Speaker Change: The enterprise guidance also includes the impact from currently anticipated capital allocation with free cash flow targeted for acquisitions share repurchases and dividends.

Speaker Change: We expect enterprise revenue to grow four 7% to six 5% compared to 2023. This includes the favorable impact from foreign currency translation of 60 basis points.

Glenn: We expect diagnostics revenue to be up 3.2 to 4.8% compared to 2023. The impact from lower COVID testing of around $130 million 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. This guidance includes the positive impact from foreign currency translation of 220 basis points.

Speaker Change: We expect diagnostics revenue to be up three two to four 8% compared to 2023.

Speaker Change: The impact from lower Covid testing of around $130 million is expected to be offset by the annualized nation of acquisitions that were completed in 2023.

Speaker Change: We expect Biopharma revenue to grow five 5% to seven 5% compared to 2023.

Speaker Change: This guidance includes the positive impact from foreign currency translation of 220 basis points we.

Glenn: 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 an 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 10 to 15 cents in the quarter.

Speaker Change: We expect central labs, and early development to both grow within this segment guidance range.

Speaker Change: We expect margins in diagnostics and biopharma to be up in 2024 versus 2023, driven by topline growth and launchpad savings.

Speaker Change: Our guidance range for adjusted EPS is $14 30 to $15 40.

Speaker Change: With an implied growth rate at the midpoint of approximately 10%.

Speaker Change: 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 10% to 15 in the quarter.

Operator: Free cash flow is expected to be between $1 and $1.15 billion, 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. The operator will now take questions. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star one on your telephone and wait for your name to be announced.

Speaker Change: Free cash flow is expected to be between one to 1.15 billion.

Speaker Change: With an implied growth rate at the mid point of approximately 21%.

Speaker Change: In summary, we expect to drive continued profitable growth and strong free cash flow generation that'll be used for acquisitions that supplement our organic growth. While also returning capital to shareholders through our share repurchase program and dividends.

Speaker Change: Operator, we will now take questions.

Speaker Change: Thank you at this time, we will conduct a question and answer session.

Speaker Change: A reminder to ask a question you will need to press star one on your telephone and wait for your name.

Operator: To withdraw your question, please press star 11 again. One moment for our first question. Our first question comes from Jack Meehan with Nefron Research. Your line is open. Good morning, Jack.

Speaker Change: So with Shaw. Your question. Please press Star one again, one moment for our first question.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: First question comes from Jack Meehan with Nephron Research your line is open.

Speaker Change: Turning to App.

Jack Meehan: Good morning. I hope you guys are doing well. I wanted to start with a question on capital allocations. So last year was obviously a pretty active year for you guys, integrating Ascension, doing the spin. It feels like you have a little bit more bandwidth, and the cash flow has been strong. I was wondering if there could be any larger deals available, either in the independent lab or health system space? Like, I know it's tough to come up with something that's Ascension-sized, but what does the funnel look like?

Jack Meehan: Good morning, Hope you guys are doing well.

Jack Meehan: I wanted to start with a question on capital allocation. So last year was obviously pretty active year for you guys integrating ascension during the spin feels like you have a little bit more bandwidth in the cash flow has been strong I was wondering if you thought there could be any larger deals.

Jack Meehan: Available either in the independent lab, our health systems space like I know, it's tough to come up with something Thats assumption size, but what does the funnel look like.

Adam H. Schechter: Yeah, hi, Jack. So, you know, if you look at the pipeline for MNA that we have, it remains very strong. As you say, there aren't deals the size of Ascension necessarily in health systems, but there are 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 said that we'd have 1 to 2 percent growth from inorganic means. We have now said that we believe it's going to be 1.5 to 2.5 percent, reflecting that we believe that there is a significant opportunity before us. Yeah, we also mentioned partnerships with regional and local laboratories, and I think that there could be some additional partnerships in that area. But as I think about capital allocation in general, I first thought that we're committed to our given... We then look to do as many of these hospital, local, and regional laboratory deals as we can do because they're so sensible to do. They return across the capital very quickly, they're accretive in the first year, and we know how to do them really well.

Speaker Change: Yes, Hi Tech.

Speaker Change: If you look at the pipeline for M&A and we have it remains very strong as you say theres not deals of the size of ascension necessarily in health systems, but there is quite a few of health systems that when you add them up obviously become meaningful in fact, if you look at our longer term guidance. Historically, we've said that we would have 1% to 2% growth from <unk>.

Speaker Change: Organic means we have now set we believe it's going to be one five to two 5%, reflecting that we believe there is significant opportunity before us.

Speaker Change: We also have maintained partnerships with regional local laboratories, and I think that there could be some additional partnerships in that areas, but as I think about capital allocation in general I 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 are so.

Speaker Change: Sensible.

Speaker Change: They return their cost of capital very quickly they're accretive in the first year and we know how to do them really well and then if there is something that is strategic to us and one of our strategic priorities. We would look to do those albeit we're not looking at anything.

Adam H. Schechter: 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. Yeah, 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 to 1.15 of new free cash flow this coming year and that we'll redeploy that for capital allocation to M&A buybacks and dividends. But the balance sheet is also strong.

Speaker Change: Massive size.

Speaker Change: 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 Change: Yeah, 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 one to one five of new free cash flow this coming year and that will redeploy that for capital allocation of M&A buybacks and dividends, but the balance sheet is also strong we ended the year at two five times gross debt.

Glenn: You know, we ended the year at 2.5 times gross debt trailing 12 months adjusted EBITDA, and we have a targeted range of 2.5 to 3 times. So to your point, if there were attractive opportunities out there on the M&A front, and obviously share repurchases as well, in addition to the free cash flow, we also have additional financial flexibility to pursue those opportunities.

Speaker Change: Trailing 12 months adjusted EBITDA that we have a targeted range of two and a half to three times. So to your point if they were attractive opportunities out there on the M&A front, obviously share repurchases as well in addition to the free cash flow. We also have additional financial flexibility to pursue those opportunities.

Adam H. Schechter: Can you talk about what, on the diagnostic side, the realized unit price was in the quarter, and what your expectation is for next year? And the reason I ask is, you know, 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? Yeah, so Jack, let me first talk about margins just in general.

Speaker Change: Great.

Speaker Change: You talk about what.

Speaker Change: Diagnostics side, what realized unit price was in the quarter. What your expectation is for next year and the reason I ask is.

Speaker Change: Again, a lot of questions on the margins in the business and it feels like we are in this.

Speaker Change: <unk> inflationary environment.

Speaker Change: Like what do you think.

Speaker Change: See opportunities to kind of use price more as a lever to offset that.

Speaker Change: Yes, So let me first.

Speaker Change: Talking about margins just in general So if you look at 2023.

Adam H. Schechter: So if you look at 2023, the margins were basically flat versus the prior year. But 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 fourth quarter, had an impact on our margins because although they were accretive in the first year, they were dilutive in the first couple of months as we did the integration until we had the ability to reduce costs to the level that makes sense over time.

Speaker Change: Margins were basically flat versus prior year. If you look at some of the things that we had to overcome there are pretty significant like COVID-19.

Speaker Change: Work that with significantly less this year than the prior year, but in addition to that the hospital deals that we've done in particular in our fourth quarter had an impact on our margins because although they are accretive in the first year dilutive in the first couple of months as we do the integration until we have the ability to reduce cost to a level that makes sense over time.

Adam H. Schechter: So we saw some impact from that in the fourth quarter 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 them to increase in each of the businesses, not just diagnostics, but also biopharma. Within biopharma, we expect them to increase not just in central laboratories, but also in early development. So we continue to look for ways to reduce costs through a launchpad initiative. We're committed to reducing costs by $100 to $125 million this year and each year for the next several years.

Speaker Change: So we saw some impact from that in the fourth quarter as well I feel really good about our margin accretion as we go into 2024, and we've said that we expect margins to increase but we also expect an increase in each of the businesses not just diagnostics, but also biopharma within biopharma.

Speaker Change: We expect them to be increased not just in central laboratories that are also in early development. So we continue to look for ways to reduce cost to a launchpad initiative, we're committed to reducing cost by $100 million to $125 million this year and each year for the next several years. In addition to that our volume growth is helping us significantly.

Adam H. Schechter: 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 23, and 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. With a particular focus on price, I would say price is net neutral when you look at overall price.

Speaker Change: 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-19 overhang in 2024 versus 23 that we're continuing to improve the margins in our hospital deals were expecting to see the margins.

Speaker Change: <unk> accretive in growing this year, which to me. It's just a good sense of the underlying growth with particular focus on price I would say prices net neutral when you look at overall price. There is some benefit to mix and we continue to see mix, helping us there.

Glenn: There is some benefit to mixing, and we continue to see mixing helping us there. Yeah, Jack, the thing too, as Adam said, when you think about the diagnostics business and the benefit, frankly, of seeing PAMA at least deferred out one year, 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 that with the growth that we expect, it's demand driven. A lot of it is on the volume side.

Speaker Change: Yes Jack.

Jack Meehan: It looks like to us as Adam said, when we when you think about the diagnostics business and the benefit frankly of seeing pan or at least deferred out one year that we expect the margins within diagnostics to be up in 24, all in and that's even with the expectation that COVID-19 testing is going to be down obviously, the underlying base business margin improvement would even be greater than that.

Jack Meehan: 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 youll see favorable mix to help.

Glenn: Price mix is still going to be favorable, to a lesser extent than obviously the volume. But with unit prices being relatively flat, we have the opportunity, again, to still see favorable mix to help drive that improvement. www.verbalink.com www.verbalink.com, Thank you. One moment for our next question. Our next question comes from Kevin Caliendo with UBS. Your line is open. Great. Hi. Good morning.

Jack Meehan: Drive that improvement.

Jack Meehan: Mhm.

Speaker Change: Great. Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Kevin Caliendo with UBS. Your line is open.

Kevin Caliendo: Good morning, Greg.

Kevin Caliendo: Hi, Good morning, Thanks for taking my question guys.

Kevin Caliendo: And Biopharm US just wanted to understand the expectations for margin there and how much of that is is improvement in early development. I know you have sort of an easy comp in <unk> 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.

Kevin Caliendo: Thanks for taking my question, guys. On biopharma, I just want to understand the expectations for margin there. And how much of that is improvement in early development; I know you have sort of an easy comparison in one cue 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? I'll talk a little bit, and then I'll ask Glenn to provide some additional context.

Kevin Caliendo: About the course of the year.

Speaker Change: Yes, I'll talk a little bit and I'll ask Brent to provide some additional context.

Brent: Our Biopharma Laboratory service business remains the leader in both segments were a leader in Central Laboratory, where also leader in early development Central Laboratory performed very well in the fourth quarter and we expect this is going to continue to perform well as we look at five five to seven 5% growth in 2024 across the segment.

Adam H. Schechter: You know, our biopharma laboratory service business remains a leader in both segments. We're a leader in central laboratories, and we're also a leader in early development. Central laboratories performed very well in the fourth quarter, and we expect they're going to continue to perform well as we look at five and a half to seven and a half percent growth in 2024 across the segment. But 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.

Brent: But early development, we expect to continue to improve as we go through the year and we also expect development to grow about the same amount as the.

Brent: 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 in ramp up.

Brent: Rfps look good in both segments. The largest segment obviously by far is the central laboratories. The 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 are good the win rate looks good.

Brent: Faced are some cancellations that are well above normal levels and we expect as we go through 2020 forward 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.

Adam H. Schechter: The RFPs look good. Our win rate looks good. Big Pharma is continuing to send us a lot of RFPs. I feel great.

Adam H. Schechter: If you look at early development, the RFPs look good. The win rate looks good. What we've faced are some cancellations that are well above normal levels. And 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. Yeah, 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 2023, 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.

Speaker Change: Yeah, Kevin just would add that when you look at the cadence to your point to one we expect buyer.

Speaker Change: Biopharma margins to be up year over year.

Speaker Change: Given the softness that we experienced especially in the first half of 2023 with the supply constraints that we experienced.

Speaker Change: 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 and central.

Speaker Change: Both looking at revenue growth within that guidance range of five 5% to seven 5%. So on good topline growth Launchpad savings, we expect to see good margin improvement and to leverage that.

Adam H. Schechter: And as Adam commented, we expect margin improvement driven across both of our businesses. So we have early development and central lab, both looking at revenue growth within that guidance range of five and a half to seven and a half percent. So on good top-line growth, launchpad savings, we expect to see good margin improvement and leverage that top line well. Great, if I can ask a 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, you know, pricing is coming under pressure a little bit, how does that, how does that, how does that, how Like, how should we think about that impact?

Speaker Change: <unk> well.

Speaker Change: Great. If I can ask a quick follow up to that just the outlook for pricing and sort of your reliability of supply.

Speaker Change: But what's happening in the marketplace. There we've heard pricing is coming under pressure a little bit how does that how.

Speaker Change: Do you anticipate that helps or hurts on the margin front like how should we think about that impact.

Speaker Change: Yes, so Kevin right now.

Speaker Change: Yes.

Speaker Change: Supply is not an industry, we have as much suppliers, we need I feel very good about.

Speaker Change: 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 a market, which is a good thing for us because and HP cost is largely a pass through for US we pass that benefit onto our clients. So you might see the revenue come down for us because the cost is coming.

Glenn: Yeah, so Kevin, you know, right now, the supply is not an issue. We have as much supply as we need. I feel very good about, you know, 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. We pass this benefit on to our clients.

Speaker Change: Down, but it shouldn't have any significant impact in fact, if you could help us a little bit when it comes to our margins.

Speaker Change: Great. Thank you so much guys.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Erin Wright with Morgan Stanley. Your line is open.

Adam H. Schechter: So you might see 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 margin. Great. Thank you so much, guys.

Erin Wright: Great. Thanks, Hi, good morning.

Erin Wright: How would you characterize the general volumes and utilization trends relative to pre Covid and just excluding Covid dynamics. You also mentioned some of the weather impact in the first quarter, how big of an impact is that and how should we think about volume.

Operator: One moment for our next question. Your next question comes from Erin Wright with Morgan Stanley. Your line is open. Great, thanks. Hi, good morning.

Erin Wright: Volume dynamics.

Erin Wright: So how would you characterize just general volume trends and utilization trends, you know, relative to pre-COVID and just excluding COVID dynamics? You also mentioned some of the weather impact in the first quarter. 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.

Erin Wright: We had throughout the year in 2020 thanks.

Speaker Change: Sure. So first of all I would say we came into 2024 with significant momentum.

Speaker Change: The diagnostic space business, which grew 8% in the fourth quarter Biopharma grew seven 1% in the fourth quarter. So I feel good about the guidance that we're providing for each of those businesses. So for diagnostics 632 to four 8% midpoint of 4% growth Biopharma at five 5% to seven five or midpoint of six 5%.

Adam H. Schechter: Sure. So, first of all, I would say, you know, we came into 2024 with significant momentum. The diagnostics-based business grew 8% in the fourth quarter, and biopharma grew 7.1% in the fourth quarter.

Speaker Change: So very strong revenue growth, we are comfortable also saying that there'll be margin improvement in each of those businesses.

Speaker Change: Despite the fact that there is going to be an impact in diagnostics from weather and we expect it to be 10% to 15 in the first quarter.

Adam H. Schechter: So, I feel good about the guidance that we're providing for each of those businesses. For diagnostics, it's 3.2% to 4.8%, with a midpoint of 4% growth. For biopharma, it's 5.5% to 7.5%, and a midpoint of 6.5% growth.

Speaker Change: And therefore, the first quarter will be the hardest quarter for us of 2024, but the numbers I just gave you and the ranges that I gave you the mid points already.

Speaker Change: We already know what go otherwise in January so we'd already contemplates what happened in January.

Yeah Erinn.

Speaker Change: Couple of comments too as well that.

Adam H. Schechter: So, very strong revenue growth. We are comfortable also saying that there will be margin improvement in each of those businesses. That's despite the fact that there is going to be an impact from weather, and we expect it to be 10 to 15 cents in the first quarter, and, you know, therefore, the first quarter will be the hardest quarter for us in 2024. But the numbers I just gave you and the ranges that I gave you, midpoints, already, We already know what the weather was in January, so it already contemplates what happened in January.

Speaker Change: 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.

Normal historical call. It two thirds volume one 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 were within the normal range, where historically, we would say kind of 1% to 2% from volume one on the price.

Speaker Change: Side, where within that 1% to 2%.

Speaker Change: Our growth right now.

Speaker Change: CAGR organically compared to 2019 kind of on the lower end, but well north of kind of 1%.

Glenn: Yeah, Aaron, the couple of comments to as well that, you know, 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, you know, our normal historical call it two thirds volume, one 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, we're within the normal range where historically, we would say, kind of one to 2% from volume one on the price side, we're within that one to 2% growth rate now cager organically compared to 2019 kind of on the lower end, but well north of kind of 1%. Growth.

Speaker Change: Growth. So we're at kind of a normal level right now a little bit higher.

Speaker Change: <unk> been historical and the weather impact that we saw in January.

Speaker Change: To give you a kind of the rounded numbers, probably impacted our revenue by around $25 million and we incrementally the dropdown on that would be at around 60% margins. So call. It around 15 ish of operating income or that 10% to 15 range that we gave in our prepared remarks.

From an earnings standpoint.

Speaker Change: Perfect. Thanks, and just your quick thoughts on sort of the regulatory environment as it stands now with our <unk> Pam I saw debt do you think Pam. It just continues to be pushed out at this point and what are your what are your thoughts there. Thanks.

Glenn: So, you know, we're at kind of a normal level right now, a little bit higher than historical. And the weather impact that we saw in January, to give you kind of the rounded numbers, probably impacted our revenue by around $25 million. And we incrementally, the drop down on that would be at around 60% margin. So call it around 15%-ish of operating income, or that 10 to 15 cent range that we gave in our prepared remarks from an earnings manager's standpoint. Perfect, thanks.

Speaker Change: Yes.

Pam: We continue to support salsa and we continue to be optimistic.

Pam: This also will get passed we have support from both sides of the aisle and.

Pam: <unk> our trade organization is working really hard to get that legislation passed.

Speaker Change: It doesn't get passed then we'll try to see if there's a way to get another delay in our guidance longer term guidance, we assume that there will be an impact from Panama. So therefore, we continue to say it's not this year. It will be next year. If it's not next year. It will be the following year and told US also legislations passed then.

Adam H. Schechter: And just your quick thoughts on sort of the regulatory environment as it stands now, whether it's LBT, PAMA, and SALSA. Do you think PAMA just continues to be pushed out at this point? What are your thoughts there? Thanks.

Speaker Change: Im not going to take a lot of comfort that it could be another year delay or so forth, we're going to really work hard to have that path with regard to <unk>, we do not support the fda's.

Speaker Change: Kind of what they are currently thinking about in terms of taking legislation that was created for the device industry and applying it to the diagnostic industry. We were very supportive of valid and that was legislation that would give FDA oversight of laboratory developed tests, we think that's the right path to go.

Adam H. Schechter: Yeah, Aaron, you know, 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's delay. In our guidance, longer-term guidance, we assume that there will be an impact from PAMA. So, therefore, we continue to say, if it's not this year, it'll be next year. If it's not next year, it'll be the following year.

Speaker Change: 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 Change: Okay, great. Thank you.

Speaker Change: Okay, one moment our next question.

Speaker Change: Okay.

Our next question comes from Stephanie Davis with Barclays. Your line is open.

Adam H. Schechter: Until the SALSA legislation is passed, then, you know, I'm not going to take a lot of comfort that it could be another year of delay or so forth. We're going to really work hard to have that passed. With regard to LDTs, 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. We were very supportive of the ballot, and that was legislation that would give FDA oversight of laboratory-developed tests.

Good morning, Stephanie.

Kevin Congrats Macquarie. Thanks for taking my question.

I was hoping you could walk us through what's driving from your.

Stephanie Davis: Market growth.

Stephanie Davis: So above market.

Stephanie Davis: Yes.

Stephanie Davis: Historically at Ww or above market growth and expansion deal dialed it back a little bit.

Stephanie Davis: Jen profile, so I guess I'm, a little surprised that this epilogue profitability bifurcation. Thank you Gary your largest peer.

Adam H. Schechter: We think that's the right path to go down. We'll continue to work with the trade organizations 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. Okay, great.

Gary: Yes, so what I would say.

Gary: Number one we have momentum in the diagnostics business and the momentum is coming from our base core business.

Operator: Thank you. One moment for our next question. Our next question comes from Stephanie Davis with Barclays. Your line is open. Good morning, Stephanie.

Gary: We see it in both routine and esoteric testing we have four therapeutic categories that we focus on that have higher growth in other specialty areas and we're going to continue to focus on those areas oncology women's health autoimmune disease.

Stephanie Davis: Hey guys, good morning. Congratulations 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've historically attributed some of your above-market growth to the extension deal, but I also thought about the lower margin profile. So I guess I'm a little surprised at this level of profitability bifurcation versus your largest peer. Yeah, so what I would say, Stephanie, is number one, 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.

Gary: And in neurology and I believe that those are going to help us continue to grow because those parts of the market share grow disproportionately as we continue to go into the future at the same time. There is no doubt that the acceleration of the hospital and local laboratory partnerships has enabled us to grow faster than what we've grown in the past.

Gary: And the good news is we have a strong pipeline of those as we go into the future. That's why we raised the longer term guidance for inorganic growth to one five to two 5%. Historically, we would have said 1% to 2%. So I think all of those things combined give us momentum when it comes to the diagnostic volume.

Gary: And changing gears, a little bit to the follow up could you dig a bit more into the announcement.

Adam H. Schechter: We have four therapeutic categories that we focus on that have higher growth in other specialty areas, and we're going to continue to focus on those areas, oncology, women's health, autoimmune disease, and neurology, and 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 hospital and local laboratory partnerships has enabled us to grow faster than we have in the past, and the good news is we have a strong pipeline of those patients as we go into the future. That's why we've raised the longer-term guidance for inorganic growth to one-and-a-half to two-and-a-half percent. Historically, we would have said one to two percent, so I think all those things combined give us momentum when it comes to diagnostic volume. And with that, I am looking forward to it.

Gary: How much of that was driven by inbound from your existing employer clients decision to expand and get to market and what does this mean in terms of investment risk employer facing sales or platform tech investments and the like.

Gary: Yes. So if you look at what we've done with <unk>, We think it's a terrific way for us to have a digital capability and a very important core therapeutic areas that we're focused on.

Gary: <unk> fell and it really is with.

Gary: <unk> offered a first of its kind of fertility family building benefit that we will be bringing to customers. The service offers Karen navigation and concierge services that helps individuals throughout their family building journey and we can offer it directly to patients if they like we can offer to employers we have a very strong employer group.

Gary: 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're so focused on it. This is just another avenue for us to help.

Adam H. Schechter: 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 inbound calls from your existing employer clients versus the decision to expand into the market? And what does this mean in terms of investment lists in employer-facing sales or platform tech? Hawaii.

Arena: Thats helpful Arena.

Arena: Awesome. Thank you Max.

Arena: One moment our next question.

Arena: Yeah.

Arena: Yes.

Arena: Our next question comes from Patrick Donnelly with Citi. Your line is open.

Patrick Bernard Donnelly: Good morning.

Adam H. Schechter: Yeah, so if you look at what we've done with Dovio, 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 of fertility family building benefit that we will be bringing to customers. The service offers care navigation and concierge services that help individuals throughout their family building journey.

Patrick Bernard Donnelly: Hey, good morning, Thanks for taking the question.

Patrick Bernard Donnelly: Maybe on the on the Biopharma bookings side, the book to Bill picked up a little bit from last quarter. I know last quarter. You guys are flagging, maybe some elevated cancellations and on the emerging biotech side can you just kind of let us know what the environment looks like now how you're feeling about that that backdrop again, just given a little bit of volatility.

Patrick Bernard Donnelly: There and we've seen some biotech ipos trickle out how are you feeling about the backdrop and how should we how should we think about bookings this year yes.

Adam H. Schechter: And we can offer it directly to patients if they like; we can offer it to employers, too. We have a very strong employer group, Laboratory Employer Services. And this is just one of many offerings that we're gonna 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. Awesome. Thank you so much.

Yes, absolutely I'll start broadly about our Biopharma business, and then I'll talk about the individual segments as well. So broadly we've had a good quarter 126, which we said in the third quarter, we expect that the fourth quarter to be improved and obviously it was improved if you look at our trailing 12 months, it's about $1 four.

Patrick Bernard Donnelly: And we believe that that you want to be around one five to one one and $1. One is typically what we are targeting I feel confident we'll be able to get there as we go through this year, we dropped off a really strong quarter in the fourth quarter of 2022, if I break apart the businesses and we start with a much larger business, which is the.

Operator: One moment, our next question. Our next question comes from Patrick Donnelly with Citi. Your line is open. Hey, good morning.

Patrick Bernard Donnelly: Thanks for taking the question. Maybe on the biopharma booking side, you know, the book to bill picked up a little bit from last quarter. I know last quarter you guys were flagging, you know, maybe some elevated cancellations and on the emerging biotech side. Can you just kind of let us know what the environment looks like now? You know, how you're feeling about that backdrop?

Patrick Bernard Donnelly: <unk> Central Laboratory fitness 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 the business because it's focused more on larger pharma. Although there are some cancellations. There always are it's not nearly as large as what we're seeing early.

Patrick Bernard Donnelly: <unk> and early development I feel comfortable as we go through 2024, bookers rfps coming into us are still very strong our win rate remains good I feel good about where our win rate is what's happened is there's been a lot of cancellations I think there's two reasons for that one is I think with NH deep pricing the way it was some very small.

Adam H. Schechter: Again, just given a little bit of volatility there; we've seen some biotech IPOs trickle out. How are you feeling about the backdrop, and how should we think about bookings this year?

Adam H. Schechter: Yeah, absolutely. I'll start broadly with our biopharma business, and then I'll talk about the individual segments as well. So, broadly, you know, we had a good quarter of 1.26, which we said in the third quarter we expected the fourth quarter to be better, and obviously, it was better. If you look at our 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. We had a really strong quarter in the fourth quarter 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 also very strong. Our win rate is very strong. We're not seeing as many cancellations as we're seeing in the other part of the business because it's focused more on larger pharma, although there are some cancellations there. There are always them.

Patrick Bernard Donnelly: All biotech company expect gotten line just decided to say were just not going to do it now and then I also think that there are other pressures with smaller biotech companies that theyre 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.

Patrick Bernard Donnelly: Come from large middle sized pharma versus early pharma or biotech and I think as we kind of make that transition to get more and more larger pharma and early development will be able to even have a stronger book to bill moving forward, but net net I feel confident in both of the businesses. The ranges that we provided and where we are today with the book to bills.

Speaker Change: Yes, Patrick just one other thing to think through as well again, we had a strong fourth quarter, which obviously is very encouraging but it was still driven more on the central lab side. So while the orders in 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.

Two for next year.

Speaker Change: When you look at the.

Speaker Change: The biopharma expect to be kind of a second half.

Speaker Change: Half weighted year on the revenue growth. So both businesses again within that five 5% to seven 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.

Adam H. Schechter: 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 in are still very strong, and our win rate remains good.

Speaker Change: Okay. That's helpful. And then just a couple quick ones on the P&L for 'twenty for Glen you talked a little bit about the diagnostics margins can you talk about what 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're thinking about the debt load addressing that at all during.

Adam H. Schechter: I feel good about where our win rate is. What's happened there is that there have been a lot of cancellations, and I think there are 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. And then I also think that there are other pressures on smaller biotech companies that they're going through financially. As I look ahead to 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 middle-sized 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 build moving forward. But 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 build. Yeah, Patrick. There is just one other thing to think through as well.

Speaker Change: 24, thank you.

Sure again, I expect to see margins in both businesses that are up but specifically in diagnostics.

Speaker Change: Do expect margins to be up in total diagnostics, albeit slightly up because of the impact.

Speaker Change: To your point of Covid is still being a headwind and the underlying base business margins are doing well, but overall, we would say that we're going to be down around $130 million due to COVID-19 from a margin standpoint.

Speaker Change: Call. It 20 to 30 basis points of kind of a headwind.

Speaker Change: That we're going to get that again, we'll be more than offset by the growth of the business and our Launchpad initiative would.

Speaker Change: When you look at the interest expense.

Speaker Change: Effectively take.

Speaker Change: Take the run rate, where we ended the fourth quarter and kind of annualize that and then we do have around $1 billion of debt. That's due late in 2024. So we're on $600 million in September and another $400 million in December. So we will look to refinance at the absolute debt levels that we have at that 5 billion $5 1 billion.

Glenn: Again, we had a strong fourth quarter, which is obviously very encouraging, but it was still driven more on the central lab 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 biopharma, expect it to be kind of a second half-weighted year on revenue growth. So both businesses, again, within that 5.5% to 7.5% growth. But because of those cancellations, we do expect to see early development growth rates be much stronger in the second half than the first. Whereas, 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.

Speaker Change: We expect to maintain.

Speaker Change: So, we'll just refinance it 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'd be a decent ballpark to be in and again the debt load from where we stand we'll look for refinancing.

Speaker Change: 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 two and a half to three times.

Speaker Change: 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 billion plus of free cash flow that we'll generate this year plus we're sitting on a little bit of excess cash.

Patrick Bernard Donnelly: And then just a couple quick ones on the P&L for 24. Glenn, you talked a little bit about the diagnostics margin. Can you talk about what the COVID headwind is?

Glenn: 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're thinking about the debt load, addressing that at all during 24. Thank you.

Speaker Change: Okay, great. Thanks, a lot Glenn.

Speaker Change: One moment for our next question.

Our next question comes from Brian <unk> with Jefferies. Your line is open.

Glenn: Sure. Again, we 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, you know, we would say that we're going to be down around $130 million due to COVID from a margin standpoint, call it 20 to 30 basis points of the 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 or where we ended the fourth quarter and kind of annualize that, and then we do have around a billion dollars of debt that's due late in 2024.

Hey, good morning, guys. Good morning, So I guess my question, Glenn as I think about that.

Brian: P&L lines Youre going to cost of sales and G&A and factor in labor and obviously launch pad.

Brian: Seeing that at all.

Brian: Outpace northern outpaced revenue growth in Q4, how are we thinking about that.

Speaker Change: I hear you about margin improvement. This year, 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 <unk>.

Speaker Change: And those P&L lines.

Speaker Change: Yes, so Brian we normally view well one obviously it continues to be a tight labor market, but a market that has improved from.

Speaker Change: From an attrition standpoint, we continue to see improvement, but as a company we are still higher than we were pre pandemic.

Speaker Change: And that varies across the segments, because actually our biopharma is back to where 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 three to four but.

Glenn: So we're at $600 million in September, and another $400 million in December. So we'll look to refinance the absolute debt levels that we have at that $5.1 billion we expect to maintain. So we'll just refinance at obviously slightly higher rates than what we'll 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'd be a decent ballpark to be in.

Speaker Change: Within that range, we've always commented that our Launchpad initiative was really in place to help offset that inflationary pressure.

Speaker Change: For us, 3% give or take a increase in our labor call. It merit in particular would be a little bit over $100 million and again, we target that 100 to 125 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.

Brian Tanquilut: And 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 two and a half to three 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 billion plus free cash flow that we'll generate this year, plus we're sitting on a little bit of excess cash. Okay, great. Thanks a lot.

Speaker Change: <unk> costs.

Speaker Change: I think let me just housekeeping, maybe I just missed this but share buybacks, how much or how.

Speaker Change: How much share buyback activities baked into the guidance.

Speaker Change: So what we do guide to is that the free cash flow generation that we have will be used for share repo M&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 they may vary based upon the acquisition opportunities that we see.

Operator: One moment for our next question. Our next question comes from Brian Tanquilut with Jefferies. Your line is open. Hey, good morning, guys. Good morning.

Pito Chickering: So I guess my question, Glenn, as I think about, you know, the P&L lines, the cost of sales and G&A and factor in labor and obviously launchpad, how, you know, seeing that both of those lines outpaced revenue growth in Q4, how are we thinking about the, you know, I hear you about margin improvement this year? So just curious, how do you think about the labor environment and how that factors into driving margin improvement in terms of actual dollars and growth in those P&L lines? Yeah, so no, Brian, we normally view things well. One obviously continues to be a tight labor market, but one that's improved.

Speaker Change: See so.

Speaker Change: But it'll be blended across and again, we commented as well that we have some additional balance sheet strength.

Speaker Change: If we wanted to use that for additional M&A or buybacks, but but the guidance that we gave in the earnings guidance. If you will is reflected with with all three of those capital allocation opportunities.

Speaker Change: Alright got it thank you.

Speaker Change: One moment our next question.

Speaker Change: Okay.

Speaker Change: Our next question comes from Peter Chickering with Deutsche Bank. Your line is open.

Peter Chickering: Peter Yes, good morning, guys.

Peter Chickering: Thanks for taking my questions back on the 'twenty guidance that diagnostic business can you quantify the margin improvements next year any details on the split between.

Glenn: 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 it was, 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%.

Peter Chickering: SG&A and gross margin and how much is coming from acquisitions and improving versus just pure organic improvements.

Speaker Change: Yes, So let me give some context and I'll ask <unk> to add on so if we look at.

Speaker Change: <unk> diagnostic business I'd say the first thing is if you look at fourth quarter, you saw a very strong revenue growth about 8%.

Speaker Change: 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 get that although they are accretive in the first year in the first several months Theyre typically typically.

Glenn: And you can say three to four, but within that range, we've always commented that our launchpad initiative was really in place to help offset that inflationary pressure. For us, a 3%, give or take, increase in our labor, you'll call it merit, would be a little bit over 100 million. And again, we target that 100 to 125 per 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. Just housekeeping, I just missed this, but share buybacks, how much are, and how much share buyback activity is based on the guide?

Speaker Change: Dilutive and 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 Pam has been delayed.

Speaker Change: So that would have been a real headwind that we're not facing this year, we pushed that off into 2025. If 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 set essentially we've continued to give us some margin improvement over the next several years each of the hospital deals get a bit better.

Speaker Change: If you go year over year, So we will get some improvement from the.

Brian Tanquilut: So, what we do guide to is that the free cash flow generation that we have will be used for share repo, M&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, you know, 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&A or buybacks, but the guidance that we gave and the earnings guidance, if you will, is reflected in all three of those capital allocation opportunities. All right. I got it.

Speaker Change: The hospital, we also continuing to improve we're also going to be looking to reduce costs across the enterprise for a significant amount because of the size isn't diagnostics of 100 to under $25 million and when you look at all those things together with a we're expecting inflation to be about 3%, which is more than a typical <unk>.

Speaker Change: But it's been in prior years. So if you kind of put off and Thats for our inflation of our people cost and so forth should be around 335% you put all those together and Thats why were confident that even though we have a headwind from COVID-19 that fairly significant over about a $130 million will still be able to get some margin improvement in diagnostics.

Speaker Change: This.

Speaker Change: Yes no.

Speaker Change: That's right.

Speaker Change: Peto that when you look this year as COVID-19 becomes less of an impact still impacted it's kind of being offset by the.

Brian Tanquilut: Thank you. One moment for our next question. Our next question comes from Pito Chickering with Deutsche Bank. Your line is open. Good morning, Peter.

Speaker Change: The acquisitions that we did late in the year it really its 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&A for us that would include hospital labs management.

Pito Chickering: Hey, good morning, guys. I'll get you to take my questions. Back on the 24 guidance for the diagnostic business, can you sort of quantify the market for next year and any details on the split between it? SG&A and Gross Margin, and how much is coming from acquisitions and improving versus just peers. Yeah, so let me 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 that in the fourth quarter, you saw very strong revenue growth of about 8%. If you look at the margin versus the prior year, it was down slightly, about 30 pages.

Speaker Change: Tend to be more weighted to frankly, the acquisition component essentially as we've talked about we called out one because of its sheer size, but also was disproportionately tied to the in hospital labs, so less of an impact a little bit of a headwind.

Speaker Change: 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 Change: Okay, Great and then back on the.

Adam H. Schechter: 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, which although are accretive in the first year, in the first several months, they're typically dilutive. And 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, PEM has been delayed, so that would have been a real headwind that we're not facing this year.

Speaker Change: For fourth quarter on the early stage cancellations.

Speaker Change: Why.

That's fine because that's a single customer or is that first of all the customers in terms of I think that should normalize.

Speaker Change: Thanks, so much.

Speaker Change: Yes sure.

Speaker Change: Specific to the fourth quarter, although there was an increase in the fourth quarter. We saw throughout last year and we think there are several reasons one.

Adam H. Schechter: We pushed that off into 2025. If you look at our volume increases, that's going to help us. Volume is going to be strong.

Speaker Change: When it was an HP supply issue people, we're getting in line to run their ADHD trials.

Speaker Change: Well in advance of what we typically would by the time. It was their term they would look and say you know what.

Speaker Change: We're not going to do that trial.

Adam H. Schechter: If you look at the hospital deals, we said extension would continue to give us some margin improvement over the next several years. Each of the hospital deals gets a bit better as we go year over year, so we'll get some improvement from the hospital deals continuing to improve. We're also going to be looking to reduce costs across the enterprise, but a significant amount because of the size is in diagnostics, which is $100 to $125 million. And when you look at all those things together, we're expecting inflation to be about 3%, which is more than a typical rate than it's been in previous years. So if you kind of put it all together, and that's for our inflation of our people's costs and so forth, it should be around 3%, 3.5%.

Speaker Change: We prioritized our pipeline, we decided to NSP costs were higher than we had budgeted for.

Speaker Change: They've decided not to move forward at that time. The second thing is the funding in smaller biotech has been more difficult for their choosing your trials very carefully the compounds that they move forward.

Speaker Change: But as we go forward, we're seeing the Rfps look good as well as our win rates look good so.

Speaker Change: Cancellations, we believe are going to normalize we're also starting to see a shift in our biggest business a bit more towards mid size to larger pharma as some of the smaller 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 Change: Alright, great. Thanks, so much.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open.

Adam H. Schechter: You put all those together, and that's where we're confident that even though we have a headwind from COVID that's fairly significant, about $130 million, we'll still be able to get some margin improvement in the diagnostics. Yeah, no, I kind of think that's right, you know, pedo. When you look at 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, and 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&A for us that would include hospital lab management tends 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 it was also disproportionately tied to the in-hospital lab. So less of an impact, a little bit of a headwind, but less of an impact.

Elizabeth Anderson: Good morning, Hi, guys.

Elizabeth Anderson: Hi, good morning, Thanks for the question.

Elizabeth Anderson: So I just wanted to follow up on that last question. So this shifts towards mid to larger pharma.

Elizabeth Anderson: Early development is that really solely a function of this cancellation dynamic that youre seeing over the shorter term because they go from maybe one of your prior comments. It seems like that was also may be more of a strategic shift moving up market. There. So any additional color there would be helpful. And then secondarily on the cost improvements and BLS.

Elizabeth Anderson: I understand what Youre, saying about this continued revenue improvement there are there any other sort of cost improvement as we move further away from the spin or should we sort of think about those cost opportunities as largely you've already done that and this is really just like an organic opportunity. Thank you.

Glenn: So it's really top-line growth, cost controls, you know, launchpad business process improvement initiatives are really what's going to help drive margins across both of our businesses. Okay, great. And then back on the fourth quarter, on the early stage cancellations, you know, is there a reason for why you saw that spike? Was that just a single customer, or is that sort of a swath of customers? And why do you think that should normalize in 2024? Thanks so much.

Speaker Change: Yeah sure so yeah.

Speaker Change: I came about to open up a business I've been saying for quite some time that we would like to see a shift towards more of a mix.

Speaker Change: Module size and they 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 but also a part of it is that cancellations are occurring more often in the smaller biotech companies. So we.

Speaker Change: We're purposely moving in that direction there is.

Speaker Change: 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 midsize to larger pharma.

Adam H. Schechter: Yep, sure, and it wasn't specific to the fourth quarter, although there was an increase in the fourth quarter. We saw it throughout last year, and we think there were several reasons. One, 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. By the time it was their turn, they would look and say, you know what? We're not going to do that trial.

Speaker Change: Elizabeth.

Speaker Change: 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.

Speaker Change: That effect, our biopharma business that we're continuing to take out and obviously thats getting wrapped into our overall Launchpad initiative as we talk to the $100 million to $125 million of savings each year.

Adam H. Schechter: Either they reprioritized the pipeline, decided the NHP costs were higher than what they had budgeted for, or they decided just not to move forward at that time. The second thing is that funding for smaller biotech has been more difficult, so they're choosing their trials very carefully in the compounds that they move forward with. But as we go forward, we're seeing, you know, the RFPs look good, as well as our win rates look good, so, you know, the cancellations, we believe, are going to normalize. We're also starting to see a shift in our business a bit more towards mid-size to larger pharma, as some of the small biotechs have had those cancellations. They typically have fewer cancellations than the smaller ones, so that's why we think, you know, we're going to see improvement as we go through this year. All right, great. Thanks so much.

Speaker Change: We did take out a meaningful amount of cost that were stranded.

Speaker Change: You talked about having a $25 million run rate of cost savings in the fourth quarter, which we achieve so we'll get the benefit of that going forward, but there's still opportunities to.

Speaker Change: To consolidate we still have.

A little bit of 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 that we're going to start to see good growth in that business as well, but it's not only obviously topline growth, but still opportunities to take some costs out.

Speaker Change: Got it and maybe just one quick follow up anything you can comment on the expected 2020 for tax rate.

Speaker Change: Yes.

We've kind of guided that we think a 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.

Pito Chickering: One moment for our next question. Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open. Bye, guys. Hi, good morning.

Elizabeth Anderson: Thanks for the question. 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? Because I thought, for 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.

Speaker Change: Of R&D, so a higher percentage of R&D benefit than we did when we had clinical so overall, while we have historically have trended and seen our tax rate declined year to year over the last few years. The profile of the company gives us confidence that the 23% right now is a sustainable rate plus or minus going for.

Speaker Change: Sure.

Speaker Change: Great. Thank you very much.

Adam H. Schechter: And then secondarily, on the cost improvements in BLS, I understand what you're saying about this, the continued revenue improvement there. But 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? Thank you. Yep, sure. So, as I came back to the early development business, I've been saying for quite some time that we would like to see a shift towards a more mid-to-larger size. And I want to be clear, it's not significant.

Speaker Change: One moment for our next question.

Speaker Change: Next question comes from Eric Coldwell with Baird. Your line is open.

Speaker Change: Eric.

Eric Coldwell: Good morning, guys of course, you know.

Eric Coldwell: All of my.

Eric Coldwell: Ah self proclaimed good questions have just been asked in the last couple of minutes here, but I'm going to I'm going to dive into that last one on R&D tax credit.

Eric Coldwell: Can you tell us what specifically might have happened in the fourth quarter to drive what appears to be some additional upside and.

Eric Coldwell: Thoughts on legal or regulatory changes in addition to.

Adam H. Schechter: It's still more in the smaller biotech sector than it is in 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. But also, part of the problem is that cancellations are occurring more often in 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.

Eric Coldwell: Glen's comments here about the geographic mix and the.

Higher proportion of revenue associated with businesses that now would get an R&D tax credit I'm just.

Eric Coldwell: Curious on how much of the sustainable impact this might be for favorable long term tax rate.

Eric Coldwell: Yeah. So Eric when you think about the focus of the company one of the key areas of target is in oncology and obviously with the PGA Exxon to seek other areas that we've acquired as well are more R&D driven than historically lab Corp was so each year, we continue to make more investments more opportunities.

Glenn: But over time, I would like to see that mix move more towards mid-size to larger pharmacies. Yeah, Elizabeth, also on the cost side for BLS, it's not only 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 about the 100 to 125 million dollars in savings each year. We did take out a meaningful amount of costs that were stranded. We had talked about having a $25 million run rate of cost savings in the fourth quarter, which we achieved.

Eric Coldwell: And with that increased investment come the tax deductibility of that obviously theres still some pending tax laws that are out there right now.

Speaker Change: Alright, and advertise that benefit over a number of years from a cash standpoint were kind of pre funding. It. So hopefully we'll get that will change and we'll get more.

Speaker Change: 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.

Glenn: So we'll get the benefit of that going forward, but there are still opportunities to consolidate. You know, we still have a little bit of 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 that 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. Got it.

Speaker Change: Really not going to have any meaningful impact so from a sustainability standpoint, we think that 23% plus or minus rate.

Speaker Change: Is a reasonable rate to.

Speaker Change: 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.

Glen maybe education on on my behalf, but.

Glenn: And maybe just one quick follow up. Anything you can comment on the expected 2024 tax rate? Yeah, so we've kind of guided that we think a 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&D, so a higher percentage of R&D benefits than we did when we had clinical. So overall, while we've historically 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, you know, going forward. Great, thank you very much.

Glen: Are you seeing R&D tax credits on the CRM side as well the BLS segment or is it.

Glen: Mostly or entirely associated with your.

Glen: Internal investments in.

Glen: Advanced diagnostics, and LD tease things of that sort.

Glen: Yeah, I mean, it's across the board we have investments that.

Glen: Span.

Glen: The entire company I think the increase that we've been seeing that theres 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 it and who is working on it again, we would say is across the enterprise, but more weighted to die.

Eric Caldwell: One moment for our next question. Our next question comes from Eric Caldwell with Baird. Your line is open.

Glen: Ignostic.

Glen: Great.

I could if I could get one more in here.

Glenn: Good morning, Eric. Good morning, guys. Of course, you know, 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 the R&D tax credit. Can you tell us what specifically might have happened in the fourth quarter to drive what appears to be some additional upside and thoughts on, you know, legal or regulatory changes in addition to Glenn's comments here about the geographic mix and the higher proportion of revenue associated with businesses I'm just curious about, you know, how much of a sustainable impact this might have on favorable long-term taxes.

Glen: The stranded cost commentary could you just remind us.

Glen: What your what Youre sharing in terms of what those total costs were how they phase out and.

Glen: What happens at the end of 2024 winds portrayed.

Glen: And thinks they're going to be completing their biggest TSA transitions, particularly on the it side I'm. Just what is what is the impact to lab core over the next handful of quarters and into 'twenty five as you.

Glen: Phase II stranded costs, but they start to come out and then what happens at the end of the TSA.

Glenn: Yes, so, Eric, when you think about the focus of the company, one of the key areas of focus is oncology, and obviously, PGX, OmniSeq, other areas that we've acquired as well are more R&D-driven than historically LabCorp was. So each year we continue to make more investments, more opportunities, and with that increased investment come, you know, the tax deductibility of that. Obviously, there are still some pending tax laws that are out there right now where, you know, we haven't been able to advertise that benefit for a number of years, you know, from a cash standpoint.

Speaker Change: Thank you very much.

Speaker Change: Sure Eric So from a stranded costs. We commented that we had around 45 million of stranded costs and that our initial target was to take out that $25 million at a run rate this year, which again, we've achieved so theres more to come so in the fourth quarter call. It around a $6 million headwind that we had due to stranded costs that are.

Speaker Change: Impact margins.

Speaker Change: As we go forward with the TSA support so what we're doing to support for trio.

Speaker Change: In other areas.

Speaker Change: That's effectively a pass through it right, where we're providing the service they're paying us for that service once they are fully sustainable on their own and the TSA is would go away are cost go away because frankly, most of the cost or contract labor related on the it side. So when the job is done those costs are gone overall, but we.

Glenn: We're kind of pre-funding it, so hopefully we'll get, you know, that will change, and we'll get more. You know, 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. It's 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. And Glenn, maybe I can educate you on my behalf, but are you seeing R&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? I mean, it's across the board.

Speaker Change: Continue to tackle the other stranded cost as.

Speaker Change: As well so when you look at it the goal was.

Speaker Change: To have all the TSA is completed within two years I can tell you for Korea, and Labcorp or both very motivated to see and incentivize to see that transition.

Speaker Change: Happy to as soon as possible. The good news is that both are focused on it we're making good progress for tree is making very good progress.

Speaker Change: We would expect to hopefully see those tsa's expire.

Earlier than what we had planned or at least what we had planned for but again the cost will go with that.

Speaker Change: That's very helpful. Thank you again.

Speaker Change: One moment our next question.

Speaker Change: Yeah.

Speaker Change: Our next question comes from Lisa Gill with Jpmorgan. Your line is open.

Glenn: 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, you know, our oncology spans the enterprise. So everything that we work on and where we work on it, and who's working on it, again, we would say is across the enterprise, but more weighted to diagnostics.

Lisa Gill: Hi, good morning, Thanks for taking my question.

Lisa Gill: Just wanted to start with the guidance range, Glenn can you help us understand the and it's a pretty wide range.

Lisa Gill: And the low end of the range and what gets you to the upper end of the range would be my first question and then secondly, just want to understand managed care contracting and pricing for 2024, you talked about volume and pricing mix, but.

Glenn: And if I could, 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 phased out, and what happens at the end of 2024 when Fortreya, you know, thinks they're going to be completing their biggest TSA transitions, particularly on the IT side? What is the impact on 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 tariff? Thank you very much. No, sure, Eric.

Lisa Gill: Just curious as to do you have many contracts that are up for a new oil is there anything that's different when we think about contracting with managed care entities.

Speaker Change: Yes, so I'll take the second one first which is we feel confident in our contracts that we had.

Speaker Change: But a few in place last year, but this year. There is 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 into next.

Glenn: So from the stranded costs, we commented that we had around 45 million in stranded costs and that our initial target was to take out that 25 million at a run rate this year, which again, we've achieved. So there's more to come. So in the fourth quarter, call it around a $6 million headwind that we had due to stranded costs that obviously impact margins. As we go forward with the TFA support, what we're doing to support Fortria, IT, and other areas, you know, that's effectively a pass-through, right? We're providing the service; they're paying us for that service.

Speaker Change: But with regard to the ranges and certain things that could go to the upper end environment. I mean, obviously, the Bob I'll start with the revenue range, obviously, the diagnostic volume looks great and we're expecting that to continue.

Speaker Change: Weather is a bit.

Speaker Change: Whats, taking us back to that mid point, so whether it's 10 to 15 impact.

Speaker Change: Volume continues to be very very strong.

Speaker Change: 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 they've been in years in the past with Covid. So I feel good about the range and in fact, the EPS range, we've narrowed it versus what that range would have been last year.

Glenn: Once they're fully sustainable on their own and the TSAs go away, our costs go away because, frankly, most of the costs are contract labor related on the IT side. So when the job's 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, you know, to have all the TSAs completed within two years. I can tell you Fortria and LabCorp are both very motivated to see and incentivized to see that transition happen 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 had planned for. But again, the cost will go with that. It's very helpful; thank you again.

Speaker Change: But for that because there is less volatility and then I'd say in the Biopharma services business I would say that.

The strength, we have the momentum is great.

Speaker Change: The thing that we're watching carefully are women cancellations in particular in the early developments start to come back to more normal.

Speaker Change: Yes, Lisa.

Speaker Change: Adam's comment that when you look at the profile of Labcorp now that we have 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 of.

Speaker Change: Our guidance is our best expectation that we have realizing obviously higher demand would promote more on the upper end or softer demand.

Lisa Gill: One moment for our next question. Our next question comes from Lisa Gill with J.P. Morgan. Your line is open. Good morning, Lisa.

Speaker Change: Down below but needless to say as we go through the year, we will continue to tighten the ranges with less time left in the year.

Adam H. Schechter: Good morning. Thanks for taking my question. I first wanted to start with the guidance range. Glenn, can you help us understand, you know, it's a pretty wide range? What's in the low end of the range, and what gets you to the upper end of the range? That would be my first question.

Speaker Change: Thank you so much.

As a reminder to ask a question you will need to press star one on your telephone keypad and wait for your name to be announced.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Derik de Bruin with Bank of America. Your line is open.

Adam H. Schechter: And then secondly, I just want to understand managed care contracting and pricing for 2024. You talked about volume and pricing mix, but I'm just curious as to whether 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 Change: Good morning here.

Speaker Change: Good morning. This is John came on for Derek.

John: I think a lot of the key questions I had have been answered but.

John: I wanted to ask about the esoteric Bruce is routine testing you laid out where you reaffirmed your focus on the four therapeutic areas.

Adam H. Schechter: Yeah, so I'll take the second one first, which is, you know, we feel confident in our contracts that we put a few in place last year, but this year, there's no major expiration. So we feel good about where we are, and there's not much risk in the guidance range as we go through this year. But with regard to the ranges and certain things that go to the upper end and the bottom end, I mean, obviously, and I'll start with the revenue range, obviously, the diagnostic volume looks great, and we're expecting that to continue. The weather is a bit of, you know, what's taking us a little bit back to that midpoint. So the weather has a 10 to 15% impact, but the volume continues to be very, very strong.

John: And it seems like the esoteric had a pretty good growth in the fourth quarter, but going forward can we continue to expect that.

John: High single digit low double digit growth in <unk> and then the rest of it would be made up in routine.

John: Yes. So if you look at the esoteric testing volume we continue to have a significant focus on our four therapeutic areas that we talked about and we did in fact see in the fourth quarter and the full year that esoteric testing volume grew slightly faster than the routine, but a strong America.

John: Both of them grew.

John: As strongly and we expect them to continue to both grow strongly but we would expect esoteric could grow at a slightly higher rate in both volume and the volume obviously has a higher dollars, so maybe a little bit faster than the dollars.

Adam H. Schechter: The rate at which we integrate the hospital deals will help us, and we have, you know, a very good track record of doing that. But the good news is there's not as much volatility this year as there has been in years past with COVID. So I feel good about the range, and in fact, the EPS range, we've narrowed it versus what that range would have been last year, 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 the momentum is great. The thing that we're watching carefully is when the cancellations, in particular in early development, start to come back to more normal. Yeah, and Lisa, I think Adam's comment that when you look at the profile of LabCorp now that we've spun out the clinical development business, it has taken out some of the volatility and variability, if you will.

John: Gotcha and then.

John: In terms of pricing.

John: You mentioned that Youre expecting must be 'twenty flat pricing in 2024, there no major contract renewals coming up and.

John: Pam has obviously been pushed out.

John: But if I look at if I look at the margins between Biopharma and diagnostics.

John: Biopharma had a pretty strong margin compared to the diagnostics in the fourth quarter, and you mentioned that theres going to be a slight.

John: Expansion in diagnostics.

John:

John: Going to be the dynamic between the two.

John: For the full year 2024, it can we it's the fourth quarter, a good jumping off point or the Biopharma margins.

Speaker Change: Yes, no I wouldnt use any one quarter for the margins, we expect margins to actually improve across the business across both diagnostics and Biopharma diagnostics in the fourth quarter was impacted to some degree by the hospital integrations that we're doing that there were several new ones and although there.

Adam H. Schechter: So the guidance ranges really across the businesses and the enterprise are actually a little bit tighter than what we normally do. So obviously, we're just starting out the year, the midpoint, obviously, our guidance is our best expectation that we have, realizing that obviously higher demand would promote more on the upper end or softer demand down below. But let's just say as we go through the year, we'll continue to tighten the ranges with less time left in the year. Sounds great. Thank you so much. As a reminder, to ask a question, you will need to press star 1 1 on your telephone keypad and wait for your name to be announced.

Creative in our first year they were dilutive in the first couple of months and we expect that to improve as we go into next year as we go into next year. There is still a COVID-19 overhanging the diagnostic business, probably about $130 million or so, but even with that we expect to get some.

Operator: One moment for our next question. Our next question comes from Derek DeBruin with Bank of America. Your line is open. Morning, Derek. Hey, good morning. This is John Kim on behalf of Derek.

Speaker Change: Margin improvement in that business and overcome that.

Speaker Change: I appreciate it thank you.

Derek DeBruin: 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've laid out, or whether you reaffirmed your focus on the four therapeutic areas. And it seems like the esoteric had pretty good growth in the fourth quarter, but going forward, can we continue to expect that high single-digit, low double-digit growth in the esoterics, and then the rest of it would be made up in routine? Yeah, so if you look at the esoteric testing volume, we continue to have a significant focus on the four therapeutic areas that we talked about, and we did, in fact, see in the fourth quarter and the full year that esoteric testing volume grew slightly faster than conventional testing. But it's important to note 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, obviously, higher dollars, so maybe a little bit faster in dollars. Gotcha.

Speaker Change: Okay. 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 <unk> for their focus and dedication.

Speaker Change: 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.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

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John Kim: 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 payment has obviously been pushed out. But if I look at the margins between biopharma and diagnostics... biopharma had a pretty strong margin compared to diagnostics in the fourth quarter. And you mentioned that there's going to be a slight shift between Expansion and Diagnostics. What's going to be the dynamic between the two for the full year 2024? Can we, is the fourth quarter a good jumping off point for the biopharma market? Yeah, no; I wouldn't use any one quarter for the margins.

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We expect the margins to actually improve across the business, across both diagnostics and biopharma. Diagnostics in the fourth quarter was impacted to some degree by the hospital integrations that we're doing, because there were several new ones, and although they were creative in the first year, they were dilutive in the first couple months.

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We expect that to improve as we go into next year. As we go into next year, there's still a COVID overhang in the diagnostic business, probably about $130 million or so. But even with that, we expect to get some slight margin improvement in that business and overcome that.

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I appreciate it. Thank you. Okay, so in closing, I know we're at the end of the hour, but I 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, we all are trying to do the best we can to improve health and improve lives. And we look forward to sharing more with you as we go through the year. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thanks.

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