Q4 2024 Laboratory Corp of America Holdings Earnings Call
Okay.
Good day and thank you for standing by welcome to lap horse fourth quarter 2024 conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session I need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one again.
Please be advised today's conference is being recorded I would now.
Actually on the comps.
Christian O'donald. Please go ahead.
Christian O'donald: Thank you operator, good morning, and welcome to Lab Corp, fourth quarter 2024 conference call.
Christian O'donald: Detailed in today's press release, there will be a replay of this conference call available with me today are Adam Schechter, Chairman and Chief Executive Officer, and Julia Wang Executive Vice President and Chief Financial Officer. This morning in the Investor Relations section of our website at Www Dot lab core Dot com, we posted both.
Christian O'donald: Our press release, and an Investor relations presentation with additional information on our business and operations, which include a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures both of which are discussed during today's call. Please see the use of adjusted measures section in our press release and Investor.
Christian O'donald: <unk> presentation for more information regarding our use of non-GAAP financial measures.
Christian O'donald: Additionally, we are making forward looking statements. These forward looking statements include but are not limited to statements with respect to the estimated 2025 guidance.
Christian O'donald: And the related assumptions the spin off of four Chiller Holdings, Inc. The projected impact of various factors on the company's business is operating and financial results cash flows and financial condition, including global economic and market conditions future business strategies expected savings benefits and synergies from.
Christian O'donald: Launchpad initiative and from acquisitions and from other strategic transactions and partnerships the completed holding company reorganization and opportunities 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.
Christian O'donald: 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 obligation to provide any updates to these forward looking statements even if our expectations change now I will turn the call over to Adam Schechter.
Adam Schechter: Thank you, Chris and good morning, everyone. We appreciate you joining us as we review our 2020 for performance and share our outlook for 2025.
Today I'm also joined by Julia Wang.
Adam Schechter: Julian joined Us as executive Vice President and CFO. This past December.
Speaker Change: As you know Julia succeeded Glenn Eisenberg following his retirement announcement.
Adam Schechter: Julian I have hit the ground running.
Adam Schechter: Julian has experience in both diagnostics and pharmaceuticals, combined with our strong financial expertise have already been very valuable to labcorp.
Adam Schechter: In 2020 for our market, leading diagnostics and Biopharma laboratory services businesses.
Adam Schechter: Meaningful advances in our strategy through organic growth transformative acquisitions.
Adam Schechter: Our continued commitment to science innovation and technology.
Adam Schechter: Looking back on 2024, we executed well on our strategic priorities.
Adam Schechter: Refurbish our role as a trusted partner to hospitals and health systems and to regional local laboratories by closing or signing 10 transactions.
Adam Schechter: We advanced our position in key high growth markets, including oncology women felt neurology and auto immune disease, and we introduced new important diagnostic test to meet significant unmet medical needs.
Adam Schechter: We expanded our leadership in genetic testing solutions through our acquisition of select assets.
Adam Schechter: Our clients now have access to <unk> cutting edge science of genetic testing solutions. The guide personalize treatment recommendations for oncology and rare disease patients.
Adam Schechter: We advanced the development of plasma to attack an assay that use this whole genome sequencing and our proprietary machine learning analysis to detect MRV.
Adam Schechter: Plasma detectors and 12 global trials across several tumor types, we expect to move into clinical use in 2025 in the U S. With an early experience program for academic medical centers, beginning with colorectal cancer.
Adam Schechter: We lost Labcorp global trial conduct a suite of Central Laboratory solutions aimed at increasing the speed of clinical trials at investigator sites.
Adam Schechter: Turning now to our fourth quarter financial results, we performed very well across diagnostic laboratories, and Biopharma Laboratory services, driven by strong underlying demand and advancements in science and technology solutions to better serve the needs of our customers.
Adam Schechter: Revenue in the quarter was $3 3 billion.
Adam Schechter: Increase of 10% compared to the fourth quarter of 2023.
Adam Schechter: Diagnostics and Biopharma revenue each grew by approximately 10% in the quarter.
Adam Schechter: Enterprise margins were down 40 basis points due to the expected impact of <unk>, which we referenced in our previous earnings call.
Adam Schechter: Adjusted EPS of $3 45.
Adam Schechter: Was up 5% year over year.
Adam Schechter: Free cash flow from continuing operations was $665 million.
Adam Schechter: As we look ahead to 2025, we expect enterprise revenue growth of six 7% to 8% and improving margins across both diagnostics and biopharma.
Adam Schechter: We also expect an adjusted EPS range of $15 60 to $16 48.
Adam Schechter: Which represents an implied midpoint growth rate of 10%.
Adam Schechter: Additionally, we expect free cash flow to grow in line with our earnings in just a moment Julian will provide more details on our results and our 2025 guidance.
Julian: Turning to highlights of our enterprise strategy in the quarter.
Julian: First we advanced our leadership position as a partner of choice for hospitals, and health systems and regional local laboratories.
Julian: In November we completed the acquisition of select assets and molecular testing location of lab works, enabling broader access to comprehensive testing and laboratory services in Alabama.
Julian: In December we completed the acquisition of select outreach laboratory services for ballad health in the Appalachian region.
In January <unk>.
Julian: Subsequent to quarter end, we announced the strategic collaboration with New Jersey based in Spirit health to manage the operations of the health systems Hospital laboratories and to serve as their primary lab for its Paris physician network.
Julian: As we look ahead to 2025, our pipeline remains strong and we look forward to supporting more health systems and to expanding access to <unk> World class diagnostic solutions.
Julian: We also made several advancements in science innovation and technology in the quarter.
Julian: As part of our focus on autoimmune disease, we launched our multiple sclerosis monitoring profile use to monitor neuro filament light chain, Sarah and <unk> values in multiple sclerosis patients.
Working with the CDC, we announced the commercial availability of an 85 Burke with molecular test.
Julian: And we announced the availability of the first companion diagnostic assay to identify gastric cancer patients eligible for targeted treatment for people with advanced cancer of the stomach.
Julian: In addition, we continue to help consumers manage their health and wellbeing through laptop or demand.
Julian: Several consumer initiated tests in the quarter, including how we are assisting for heart health vitamin.
Julian: Vitamin C and vitamin E.
Julian: We announced several enhancements to global trial connect incremental sample tracking with earlier visibility at the samples chain of custody and electronic requisition, a fully digital solution that improves workflows.
Speaker Change: <unk> City and document management.
Speaker Change: We also experienced continued adoption of Labcorp diagnostic assistant by health system clients and their physicians.
Speaker Change: Therefore diagnostic assistant brings together lab result data clinical guidelines and EHR data to inform clinical decisions at the point of care.
Speaker Change: New capabilities like smart trends combined information from our clients EHR with all of the patients lab results available through labcorp, regardless of ordering provider and it brings it into a single integrated view.
Speaker Change: Labcorp diagnostic assistant and global trial connect are just two examples of how we are harnessing our innovative testing capabilities are vast data assets and technology to support clinical trials and patient care.
Speaker Change: In closing 2024 was a strong year for Labcorp as we continued to execute against our enterprise strategy and we are well positioned for continued growth in 2025.
Speaker Change: I want to thank our 70000 employees for the hard work and dedication as we pursue our mission to improve health and improve lives. In fact, we're just named to Fortune magazine's world's most admired companies list for 2025, a testament to the efforts of our team and their dedication to our mission.
Speaker Change: Finally, I want to personally thank Glenn for his contributions to the company during his 10 year successful run as CFO.
Speaker Change: Glenn and I have worked side by side since I joined as CEO and I've truly enjoyed having him serve as a key member of our Executive Committee.
Speaker Change: Vendors are remarkable CFO and a remarkable executive.
Speaker Change: He remains as a special advisor to me through the end of April to ensure a smooth collaborative transition that possesses lab work to further accelerate our strategy in 2025.
Speaker Change: Please join me in wishing Glen and his family all of the best in his retirement.
Julia Wang: With that I'll turn the call over to Julia.
Julia Wang: Thank you Ed and Hello, everyone I want to start by sharing that Im really excited to be with you all today.
Julia Wang: My experience across broader healthcare, including diagnostics and drug development.
Julia Wang: Has been very helpful. As I started my new role.
Julia Wang: I have been tuning inspired by the strength of our business fundamentals are passionate employees and the tremendous impact that labcorp has on the pages that we start each and every day.
Julia Wang: Now I'm going to focus my comments on our financials.
Julia Wang: I'll close with a review of our fourth quarter results.
Speaker Change: All of the buyout. This question of outperformance in each segment and conclude with an update.
Full year guidance.
Speaker Change: I'll reference we have also included additional business information that can be found in the supplemental that our investor Relations website.
Speaker Change: Revenue for the quarter was $3 $3 billion.
Speaker Change: An increase of nine 8% compared to last year.
Speaker Change: Driven by organic growth of five 4% the impact from net acquisitions of 4% and foreign policy trucks, Nathan often say with one 3%.
Speaker Change: Operating income for the quarter was $217 million or six 5% of revenue.
Which is 12, 7% adjusted basis.
Speaker Change: During the quarter, we had $120 million of restructuring target of special items.
Speaker Change: Primarily related to acquisitions and Launchpad you May go ahead.
Speaker Change: Yeah. Thanks, Ken we'll have 16 announced expense for the transition service agreements related to the spinoff Altria.
Speaker Change: With a corresponding income recorded in other income.
Speaker Change: Excluding these items and amortization of $17 million.
Speaker Change: Adjusted operating income in the quarter with $423 million.
Speaker Change: At 12, 7% of revenue.
Speaker Change: <unk> $395 million or 13% of revenue last year.
Speaker Change: Thank you Christina adjusted operating income was primarily due to organic demand and launchpad savings.
Speaker Change: So they offset by higher personnel costs.
Speaker Change: The 40 basis point decline in adjusted operating margin was still to maintain.
Speaker Change: Our last question nature.
Speaker Change: For the full year in line with our long term target of 100 to 125 million per year.
Speaker Change: The adjusted tax rate for the quarter was 22, 4% compared to 19, 5% last year.
Speaker Change: The higher adjusted tax rate was primarily due to the geographic mix of earnings.
Speaker Change: We expect our adjusted tax rate for 2025 to be approximately 23%.
Speaker Change: Net earnings from continuing operations for the quarter, well kind of in the $44 million.
Speaker Change: Our $1.70 per diluted share.
Speaker Change: Adjusted EPS was $3 45 in the quarter.
Speaker Change: Up 5% from last year.
Operating cash flow from continuing operations was $777 million in the quarter.
Compared to $518 million a year ago.
Speaker Change: The increase in cash flow was primarily due to higher cash earnings.
Speaker Change: Capital expenditures totaled $112 million in the quarter.
Speaker Change: For the full year capital expenditures was three 8% of revenue in line with prior year and we expect this to be consistent in 2025.
Speaker Change: Free cash flow from continuing operations for the quarter was $665 million.
Speaker Change: During the quarter the company invested $88 million the acquisition pay.
Speaker Change: <unk> of $16 million and give me that.
Speaker Change: And we repurchased $75 million of stock.
Speaker Change: For the full year free cash flow from continuing operations was $1 1 billion.
Speaker Change: The company invested $839 million.
Speaker Change: Yes.
Speaker Change: Pay down $243 million from dividend.
Speaker Change: And then we purchased $215 million.
Speaker Change: Bob.
Speaker Change: We continue to have a robust pipeline of potential acquisition opportunities that meet our financial criteria and will supplement our organic growth.
Speaker Change: In addition, we continue to believe that our share repurchase program is an important part of our capital allocation strategy.
Speaker Change: The company currently has approximately $1 3 billion of share repurchase authorization.
Speaker Change: At the year end 'twenty 'twenty, four we had $1 $5 million in cash while total debt was $6 3 billion.
Speaker Change: This higher benefit due to the following of maturing debt.
Speaker Change: The company paid down $1 billion of debt that matured on February the fourth 20 <unk> pause.
Speaker Change: That was as of year end as Paul pointed to two times net debt to trailing 12 months adjusted EBITDA.
Speaker Change: Now I will review our segment performance beginning with diagnostics Nomura. Please.
Speaker Change: Revenue for the quarter was $12 6 billion.
Speaker Change: An increase of 10, 2% compared to last year.
Speaker Change: With organic growth of five 1%.
Speaker Change: Amortization of five 2%.
The base business was up 11, 4% compared to the best business last year.
Speaker Change: Children, primarily by organic growth of six 2%.
Speaker Change: Total volume being placed six 8% compared to last year.
Speaker Change: Business volume grew seven 5% compared to the best business last year.
Speaker Change: Organic volume increased.
Speaker Change: Four 7% while at the stations contributed two 9%.
Speaker Change: Price mix increased three 4% versus last year due to organic business growth and that position.
Speaker Change: Partially offset by lower tax payments.
Speaker Change: This business of organic price mix was up one 5% compared to the best business last year due to net.
Speaker Change: As we benefited from increased test.
Speaker Change: And lab management agreement.
Speaker Change: Diagnostics adjusted operating income for the quarter was $316 million.
Speaker Change: Oh, sorry tier four 9% of revenues.
Speaker Change: Compared to $354 million.
Speaker Change: 15, 1% of revenue last year.
Speaker Change: Adjusted operating margin was down 120 basis points due to again maintain and the favorable impact of base in Nevada.
Speaker Change: Excluding this item adjusted operating margin would have been up approximately 50 basis points.
Speaker Change: As the benefit of organic demand and large pad savings was partially offset by higher personnel costs.
Speaker Change: As we look to 2025.
Speaker Change: <unk> will perform in line with our expectations.
Speaker Change: That is we expect <unk> revenue growth to be approximately 10% annually and it will be slightly accretive for full year 'twenty 'twenty five.
Speaker Change: No there will be a settlement performance of Biopharma Laboratory services.
Speaker Change: Revenue for the quarter was $767 million.
Speaker Change: An increase of 10, 4% compared to last year, including organic revenue of eight 9% and the foreign currency translation of one 5%.
Speaker Change: Central Labs continued its strong performance with revenue growth of 10%.
Speaker Change: Thank you Bob Smith also demonstrated strong year over year revenue growth in the quarter up 12%.
Speaker Change: I think at the apparel, yet with a soft comparison.
Speaker Change: Biopharma adjusted operating income for the quarter was $171 million or so.
Speaker Change: 17% of revenue.
Speaker Change: Compared with two one times and a $9 million or 15, 7% of revenue last year.
Speaker Change: Adjusted operating income and margin increased due to organic demand and large pad savings, partially offset by higher personnel costs.
Speaker Change: We ended the quarter with a backlog of $8 billion.
Speaker Change: We expect approximately $2 five this backlog to convert into revenue over the next 12 months.
Speaker Change: Book to Bill for the quarter with one point to one seven.
Speaker Change: The trailing 12 month book to Bill of 1.00.
Speaker Change: Now I will discuss our 2025 full year guidance.
Speaker Change: Which assumes foreign exchange rates effective as of December 31st 2024 for the full year.
Speaker Change: The enterprise guidance also includes the impact from currently on pace to pay for the capital allocation utilizing free cash flow for acquisitions share repurchases and dividends.
Speaker Change: We expect enterprise revenue to grow six 7% to 8% compared to 2024.
Speaker Change: This includes a headwind from foreign currency translation of approximately 50 basis points.
Speaker Change: We expect that diagnostics revenue to be up six 5% to seven 7% compared to 2024.
Speaker Change: This guidance assumes roughly half of the revenue growth comes from organic growth and half comes from the annualized nation of acquisition.
Speaker Change: <unk> 2024.
Speaker Change: We expect that biopharma revenue to grow 3% to 5% compared to 2024.
This guidance includes a headwind from foreign currency translation of 140 basis points.
Speaker Change: We expect that both central labs, and early development to grow at a mid single digit constant currency growth rate for the year.
Speaker Change: We expect enterprise markets to be up with modules the improving in both diagnostics and final. Following a 2025, what does 2024, driven by topline growth and large pad savings.
Speaker Change: Our guidance range for adjusted EPS is $15 six.
It was $16 and faulty.
Speaker Change: With an implied growth rate at the midpoint of 10%.
Speaker Change: Our free cash flow guidance range is $1 1 billion.
Speaker Change: 100 <unk>.
Speaker Change: And due to normal seasonality, we expect it to be weighted towards the second half of the year.
In summary, we are encouraged by the underlying strength of our business.
Speaker Change: As we move into 2025, we expect to drive continued profitable growth and strong free cash flow generation that will be used for acquisitions that support our strategy and supplement our organic growth.
Speaker Change: While also returning capital to shareholders through our share repurchase program and dividend.
Speaker Change: Lastly, I want to thank Glenn as he has been a tremendous resource during this transition.
Speaker Change: I have been really impressed by the passion of the quantity of our team and I look forward to advancing the market. The median position of the company yeah extremely impactful industry.
Speaker Change: Operator, we will now take questions.
Speaker Change: Thank you ladies and gentlemen, if you have a question or comment at this time. Please press star one on your telephone. If your question has been answered or you wish to move yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from Michael Cherny with Leerink Partners. Your line is open.
Speaker Change: Michael.
Speaker Change: Hey, good morning, Thanks, so much for the question and Julia welcome.
Speaker Change: To the call.
Speaker Change: Maybe if I can just ask a simple one straightforward you talked about margins.
Speaker Change: Stepping up over the year year over year, obviously, we still have in DTA ramping over the course of the year can you give us a sense of what.
Speaker Change: Underlying margins are interested are embedded into guidance and how you're thinking about.
Speaker Change: Pushing coal.
Speaker Change: What would lead you to either the upside or downside.
Speaker Change: Guidance range EPS guidance range.
Speaker Change: Sure Michael I'll start and I'll start by focusing on diagnostics right. If you look at diagnostics business. It was very strong.
Speaker Change: The revenue grew 10, 2% and it was really driven by strong organic growth of 5% and acquisitions of 5%. If you look at the margins. The margins were about 39% of revenue. When you look at <unk> as a percent of revenue that's compared to 15, 1% last year. The margin was down due to three <unk>.
Speaker Change: It was down to <unk> whether in base.
Speaker Change: The impact of a <unk> was more than double each of the other two as.
Speaker Change: As we look at this year. The reason we felt confident about margin expansion in both business is not just diagnostics, but also in biopharma.
Speaker Change: Biopharma is because number one we expect <unk> to be slightly accretive it will be dilutive to margins in the first half of the year, but then when we overlap the acquisition it'll be slightly accretive for.
Speaker Change: For the full year, meaning it will be accretive in the second half. The second thing is we built in <unk> due.
Speaker Change: Due to weather in the first quarter and that's built into the guidance that we've provided.
Speaker Change: But if there is no additional other weather things that could help us potentially with margin and.
Speaker Change: Then they.
Speaker Change: Last thing is the number of base. So we have some real.
Speaker Change: <unk> will help us with the margins as we come into 2025, making us feel confident.
Speaker Change: Got it and then just one other question I guess in the cases of guidance ending the year on.
Speaker Change: Strong mix of both organic volumes.
Speaker Change: Price mix on the diagnostic side.
Speaker Change: What do you see as the environment going forward was there anything kind of I'll call it onetime in nature, but.
Speaker Change: Elevated versus what you would've expected on a run rate and how that factors into how you're thinking about the 25 growth in diagnostics.
Speaker Change: Yes. So if you look at the 2025 growth that we've put for diagnostics. The ranges six 5% to seven 7% at the midpoint of seven 1% growth now if you look at 2024 in the fourth quarter, the 10% growth volume was up six 8% and price mix was up three 4%.
Speaker Change: And of our volume growth organic was up 4% and acquisitions were about two 8% at the end of the day. The volume continues to be higher than what we've seen historically historically youll see volume growing at 1% to 2% you would add a little bit on to that because I do think we're gaining some market share so overtime I would expect that the volume.
Speaker Change: Come back more in line with what we've seen historically.
Okay.
Mike: Hi, Mike.
Speaker Change: Yes.
Speaker Change: Yeah. The only thing I would add is when you look at the growth of our diagnostic business in 2025.
Speaker Change: Guidance is that assuming half of the growth about three 5% will be coming from our organic business and the other half will be coming from acquisitions that we've already completed in 2024, so its a fairly balanced profile in terms of the sources of growth for 2020.
Speaker Change: Great. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Speaker Change: Our next question comes from Jack Meehan with Nephron Research. Your line is open good.
Speaker Change: Good morning, Jack.
Speaker Change: Good morning.
Adam just wanted to start.
Speaker Change: The Big story of the last year has been M&A in the lab industry.
Your cash flow here is pretty strong leverage is just over two times.
Speaker Change: Can you give us an update on how your pipeline of deals.
Speaker Change: How active you expect to be even as you integrate <unk>.
Speaker Change: You can get consummated last year.
Jeff: Yes sure Jeff.
Speaker Change: First of all I'm, saying, if you look at this year, we had 10 acquisitions and.
Speaker Change: It was very strong from acquisition to your particularly with the hospital regional local laboratories, but we also had the acquisition of <unk>, which was kind of one of those opportunistic.
Speaker Change: Acquisitions that became available to us as I look at the pipeline is strong and it's impossible to know the exact number because sometimes they take three months, sometimes it takes two years, but overall as I look at the potential before us I feel very good about the acquisition pipeline, but more broadly speaking the way to think about our capital allocation.
As we first and foremost our committed to dividends. We then look for as many of these hospitals local regional laboratory deals as we can do assuming that they meet our financial criteria of being accretive in the first year return their cost of capital two to three years and if there are good partners that we can integrate the business well and then we will look into the specialty areas to see.
Speaker Change: If there's anything strategic there or if there's anything strategic in the <unk>.
Speaker Change: Pharma area, then we have the authority to do additional buybacks and we have the wherewithal to add buybacks, where we think are appropriate. So I think we have a very balanced mix I think we have a good pipeline of deals and when you look at our longer term guidance, we've actually increased the amount of revenue that we expect to come from.
Speaker Change: Historically I would have said, 1% to 2% of revenue now it's one five to two 5% and I feel good about that.
Great Hi, Chad the only other color you want to add is our 2025 guidance does include the impact from commentary on KCP. The capital allocation you sanctioning utilizing our free cash flow generation for acquisitions share repurchases and the dividend.
Speaker Change: One is as you already common paid we feed and last year with a leverage ratio of about two 2% in terms of a took a little time in terms of our net debt to trailing 12 months EBITDA, which clearly demonstrates that we have validation of balance sheet flexibility to place.
Speaker Change: Steal share repurchase all M&A opportunities should attractive opportunities still you want to fill all of the year.
Speaker Change: Great.
Julia Wang: And then Julia.
Julia Wang: One for you just it'd be great to hear your initial impressions since joining lab core and on this topic of M&A.
Julia Wang: Type was the headliner last year, just how you feel like the integration is going with that.
Julia Wang: Yes of course check.
Speaker Change: Adam commented earlier I joined the lab called in December of last year. So this is mark number three for me.
Speaker Change: Let me just to say that I am so happy to be here in terms of my early observations first of all I'm really excited about our growth profile. When you look at our long term guidance you are looking at the topline growth of mid to high single digit.
Speaker Change: I have to say that this growth rate is meaningfully higher than what I would have thought the last time I worked in the industry prior to collate.
Speaker Change: And then if you take basketball topline growth coupled with margin expansion along with the expectation to drive adjusted EPS growth in the free cash flow generation in the range of high single digit to low double digit.
Speaker Change: To me this is truly companion.
Speaker Change: I believe that we have a tremendous platform and opportunity to potentially create outsized returns for our shareholder.
Speaker Change: I also like our people and our culture, what we do is quantity science innovation and technology and our people are truly passionate dedicated and focused.
Speaker Change: From a personal perspective is that the light coming back to this part of the country, which was essentially where I started with what's coming to the U S. Yes about two studies steels University.
Speaker Change: So in many ways life has come full circle for me. So I'm really excited to be here working across both in China and the epic terminate toll continue towards the west our leadership position, yes industry that is extremely impactful to the patients that we serve.
Speaker Change: And Jack with regard to date and repay integration, it's going very well I actually had a chance to spend time with the team in California in January and the science the people the technology the patient experience that they have is really remarkable I was excited about the deal when we first announced it I'm actually even more excited about it as I sit here.
Speaker Change: Today, we remain on track financially, we expect the revenue to grow by more than 10% and we also expect it to be slightly accretive as we look at full year 2025 second half of the year being accretive first half still dilutive. So as I look at that business. If I look at the integration, it's going as well as I.
Speaker Change: Would have expected.
Speaker Change: Awesome. Thank you guys.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Lisa Gill with Jpmorgan. Your line is open.
Speaker Change: Good morning, Lisa.
Lisa Gill: Morning, Adam and Juliet.
Lisa Gill: Really wanted to follow up on your thoughts around the organic growth rate for diagnostics. Adam when we are together in January you talked about esoteric testing being three times the typical growth rate.
Lisa Gill: We say and then you also talk to them you highlighted again today that you expect kind of a normal utilization to go back to 1% to 2%. So how do I think about the makeup of the three 5% that Julia talked about as far as organic how much of that is coming from esoteric is your underlying assumption that we go back to 1% to 2% hits.
Lisa Gill: Historical utilization in that number and then as we think about esoteric and your relationship with managed care and anything changing there as far as shifting more volume to you et cetera is when you think about 25.
Speaker Change: Yes. Thank you for the question Lisa.
Speaker Change: When I talk about esoteric business, a kind of subset.
Speaker Change: A subset of it a little bit to look at oncology women's health neurology and autoimmune disease. It's in those four areas that I see.
Speaker Change: The growth at three times, the historical rate of diagnostics. So it's not the entire set of esoteric tests.
Speaker Change: That kind of subset, which is still a big portion of esoteric testing and we continue to see those growth with growth rates faster than others and then when you think about the underlying market historically at 1% to 2% a big part of it is still there. So the market is so big and if you look at the CAGR from 2019.
Speaker Change: The volume has been at a 1%, 2% range and I think thats just like the historical rate with that said I do believe that we are gaining some market share and I think with these hospital deals with the geography surrounding the hospitals I think it is enabling us to grow faster than the market and therefore I would expect us to continue to do that even if.
Speaker Change: The market growth goes back to historical levels in terms of esoteric testing, we continue to work with our managed care payers I think because we have such a broad pipeline. We have 6500 different tests available term. It actually gives us a good mix that we can talk to them about when we speak about reimbursement so I think having.
Speaker Change: The breadth of the test profile that we have helps us.
Speaker Change: And just one follow up on the guidance.
Speaker Change: <unk> directed cash that they're supposed to be something obviously coming into play your trade organization currently has a lawsuit.
Speaker Change: Most meaningful and could there be meaningful fixed it.
Speaker Change: To win that the lawsuit may.
Speaker Change: Yes, so with regard to lab developed tests, the vast majority of what's being required to do we actually were already doing because we submit our test to New York State for approval and Thats a lot of where the costs were so we were incurring that there might be some other costs in terms of systems to track safety and other.
Speaker Change: Things, but those are kind of within the ranges that we provided nothing that I would call out specifically.
Speaker Change: Still think its the wrong thing for the industry I think it could.
Speaker Change: Slowdown the ability to get new important test to market for people that need them I think it could cause some healthcare disparities, where if you live around an academic medical center you might have access to an LDC before the rest of the population for those reasons I don't think its the right answer I think the trade organization needs to work to find a better way.
Speaker Change: With the administration to move forward at the same time, it's not a significant financial impact to us.
Speaker Change: Okay, great. Thanks for the comments.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Erin Wright with Morgan Stanley. Your line is open.
Speaker Change: Good morning, Gary.
Speaker Change: Morning.
Speaker Change: Could you.
Speaker Change: I guess the backdrop right now across Biopharma, what are your expectations in terms of the underlying market into 2025, and if you could provide an update on <unk> and HP business as well just the supply given some of the news on that front more recently and just how we think about also from a margin perspective for that business in the <unk>.
Speaker Change: Orderly progression anything to think about into 2025.
Speaker Change: Yes, Thank you Aaron.
Speaker Change: I'll tell you it's nice to see the growth that we had anticipated in both the biopharma segments. So if you look at Biopharma, we had 10% revenue growth for our central labs and as expected. We did see growth in early development drug development actually grew 12% year over year as I look at the guidance.
Speaker Change: It's that we're providing for 2025, we're giving a range of 3% to 5% with a midpoint of 4% realizing that there is a significant impact in that from foreign exchange levels.
As I look at that business remains healthy we are a leader in both of those segments. When I start with central labs have been about 85% of the forecast comes from the backlog. So I feel good about the forecast that we have and I feel good about the backlog that we have as I look at early development I look at three things I look at the number of <unk>.
Speaker Change: <unk> in dollars as well as numbers I look at our win rate and then I look at the cancellations.
You look at the Rfps that remained strong both in dollars and numbers. If you look our win rate remains consistent and if you look at cancellations, although it's not back to exactly normal levels. It was at the high end of normal now so it has come down much better than where it had been historically, so I feel good coming into the year with both of those businesses.
Speaker Change: As I think about margins, we expect margins to expand in.
Speaker Change: The Biopharma laboratory services business as well as in diagnostics and I think the expansion comes from increased volume as well as increased utilization, particularly in early development as far as in Hps, we have the supply that we need for the forecast that we've provided I feel good about our supplies.
Greg: Maybe Greg.
Speaker Change: Maybe I could add any more color as it relates to the margin for the segment.
Speaker Change: Segment in 2025, what does 2024, so first of all we did share in the opening remark that we are at <unk> comments, the impact of the topline, which will translate to about 140 basis basically pull up on that type of impact.
Speaker Change: The BLS revenue growth versus prior year. Therefore, when you look at the margin expansion talk through in 'twenty five.
Speaker Change: The pace of that growth will not be as much as you saw in putting for the other factor is the sources of our growth from a revenue standpoint from the two business lines, We think B O S. It's not going to be how many maintained towards central lab as HDD and plenty of hunting for Lee.
Speaker Change: Other point that is worth noting as Q1 <unk> play is the largest margin quarter of the year. So you might want to take that into consideration as you think about the company keeping without within the year.
Speaker Change: Okay. That's helpful and just a quick one on regulatory you mentioned <unk>, but.
Speaker Change: What about Pam I thought that in just the broader regulatory environment, where we stand today with the new administration.
Speaker Change: Yeah, and so with Panama, we continue to work with our trade organization to find ways to get better legislation in place that we think works.
Speaker Change: Applicable to what they were trying to achieve in a better way to actually move it forward. We've been trying now for many years now to be Frank and if that doesn't happen, we'll try for a delay as has happened in the last several years.
Speaker Change: And then at the same time, we continue to just push it out a year or so in my base case I assume Pam is coming in 2026, we build a plan that looks good assuming Panama does happen and if it doesn't happen it looks even better but at this point in time, we continue to work to try to find a better legislative option.
Speaker Change: Okay. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Elizabeth Anderson with Evercore ISI. Your line is open.
Speaker Change: Good morning.
Speaker Change: Okay.
Speaker Change: Elizabeth you there.
Speaker Change: Yeah.
Speaker Change: Thank you Susan this is joanne.
Speaker Change: Amy.
Speaker Change: [laughter].
Speaker Change: Okay.
Speaker Change: If we can't we can't hear you.
Speaker Change: Hi, Hi, this is Joanna <unk>.
Speaker Change: Okay go ahead Joanna.
Speaker Change: Oh, sorry, Yeah, maybe you go back to the one time items I think you said you have jensen for weather impact.
Speaker Change: Guy.
Speaker Change: So maybe with the total weather impact for 'twenty, four and Isabel Bluejay and payroll day going to be a tailwind or headwind for fiscal 'twenty five.
Speaker Change: Yes, if you look at 2025.
Speaker Change: In January we had about <unk> 10 impact from weather.
Speaker Change: And we built that into the guidance that we've already provided to you as we also look at 2025.
Speaker Change: Payroll will actually be a tailwind for us and let's see what happens with the rest of the quarter with weather before we comment on any further but at this point, we both intend.
Speaker Change: Hi, Joanna the only thing I would add I definitely with me with Adam. So clearly if you look at 2025 full year calendar is largely not a factor. However, Q1, it will be slightly unfavorable because we expect to have one less revenue day company.
Speaker Change: Offset by wireless pill, a day, so you might want to take that into consideration as you walk through the quarters within the year.
Speaker Change: That makes sense. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Yes.
Andrew: Our next question comes from Andrew <unk> with William Blair. Your line is open.
Speaker Change: Good morning, Hi, Good morning, Good morning, Adam Hi, Julia looking forward to working with you and Glen if you're listening congrats and best of luck in retirement.
Speaker Change: Maybe just two on the macro front I'll ask upfront sort of first year can you maybe sort of talk about underlying inflation assumptions and how those might impact margins. This year any sort of spending categories that should get either better or worse than the 2025, and then secondly, a lot of noise on the tariff front right. Now are you sort of thinking about any impacts to your supply.
Speaker Change: So I need for this year.
Speaker Change: Thank you Andrew.
Speaker Change: So two thoughts first of all underlying inflation.
Speaker Change: Big part of our inflation as cost of people and we've assume three to three 5% inflation as we look at our labor it's actually.
Speaker Change: <unk> gotten better in 2024 than it was prior particularly a turnover rate. So I feel like we're in a pretty good place with three to three 5% in terms of Paris, It's hard to know exactly what would happen and the timing of what would happen, but we've taken a look at a lot of different scenarios and we think that it would be very manageable for us.
Speaker Change: Hi, <unk> nice to meet you participated on what Adam has already shared as you know we have this large <unk> nature to that.
Speaker Change: We drive about a heavy weighted to 125 million of savings and then we'll really processing technology improvement that really fell through to the bottom line. So that actually helps us to really absorb for the most part the yen policy and labor cost.
Speaker Change: Great. Thanks, so much.
Speaker Change: One moment for our next question.
Operator: Our next question comes from Peter Chickering with Deutsche Bank. Your line is open.
Speaker Change: Good morning, Peter.
Peter Chickering: Hi, Good morning, guys. So a quick final question on <unk> I think you said that would grow mid single digits I guess, what's the components there between.
Speaker Change: Pricing and volume.
Peter Chickering: 25.
Peter Chickering: Yes, Thank you Peter so.
Speaker Change: We didn't give specific guidance for <unk>, we just said that biopharma.
Speaker Change: Services is expected to grow range, three 5%, 4% both segments will grow within that.
Speaker Change: It does tend to grow slightly faster than what central laboratory business grows.
Speaker Change: Price is basically pretty flat I mean, there's a little bit of pressure, but nothing.
Speaker Change: More significant than what we would expect so it comes from volume.
Speaker Change: Okay got it so so pricing flat for EDI and.
Speaker Change: The growth coming from from the volume side.
Speaker Change: Looking at the free cash flow conversion for 25 can you walk us through the delta between the EPS growth of 25 versus your free cash flow growth.
Speaker Change: It looks to be served so working capital or some pressure on our free cash flow growth versus your earnings growth. Thanks.
Speaker Change: Yes, maybe I can get started on that question. So help us understand the <unk> 25, let me start with leak larvae ourselves about how we landed in 2020 for particularly in Q4. So as you may be aware already in terms of the free cash flow generation, we pay pay today Academy the majority.
Speaker Change: <unk> of our free cash flow in the second half of the year with the fourth quarter being the strongest and Thats exactly what we saw in the fourth quarter of last year.
Speaker Change: Typically the Q4 free cash flow from continuing operations was $665 million, which was up over 60% wasn't as the year before and the increase was primarily driven by higher cash earnings lower capex expenditures as well as favorable working capital due to timing.
Speaker Change: No when you transition to 2025.
Speaker Change: You might have already seen.
Speaker Change: Coming out of the strong cash flow in 2024 of $1 $1 billion of.
Speaker Change: Guidance for 2025 for the free cash flow is between $1 1 billion to $1.25 billion with a midpoint of one point to $175 million and Thats why I said that is really driven by the higher cash earnings and to a certain degree some levy Buddy pass it relates.
Speaker Change: Working capital.
Speaker Change: But what I would say is from a cash conversion perspective, we are targeting around need to apa's, two higher which was what you have seen historically, which is also what we failed to gains of buybacks for 2025 and overall I would say, we're really pleased with the strong cash flow that we have been generating which has been.
Speaker Change: Serving and will continue to serve as a key funding source for our capital deployment strategy and execution.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Patrick Donnelly with Citi. Your line is open.
Speaker Change: Good morning, Patrick.
Patrick Donnelly: Hey, good morning, guys. Thanks for taking the questions.
Speaker Change: Maybe I'll just kind of a package of coupled together here when you think about that.
Speaker Change: Lab business the core diagnostics business here can you just talk about the pricing side, what those conversations of bandwidth with payers the expectations for 25 on that front and then in a similar vein just the utilization obviously its been elevated.
Speaker Change: It feels like it's going to continue how much conservatism that you guys could it be utilization side. How are you seeing that play out as we work our way through 25. Thank you.
Speaker Change: Thank you Patrick so as I look at 2024, and we ended the year in the quarter very strong and it gives us momentum as we come into 2025, and if you look at the guidance that we provided for $2025 for diagnostics.
Speaker Change: Our midpoint of 7% so once again, showing very strong underlying demand, which we believe three 5% will come organically as the other three 5% will come from deals that we already completed in 2020 for our discussions with the payers go very well we continue.
Speaker Change: To show them the value that we add they see the benefit of us acquiring some of the hospital business because that actually helps them as well as helps the patient helps the hospital and helps labcorp. So those deals are very helpful. I think the entire health care system and I think the payers to see that they also see that we are very.
Speaker Change: High quality lab, we now have so many specialty test in almost every one of our specialty areas that theyre focused on and they see that we are lower cost provider. So we get very high quality and because of our scale, we're able to give it at a lower cost which works in our favor and those discussions so I feel good about the environment I feel good about where we are.
Speaker Change: In 2025, and as we move forward.
Speaker Change: Great I appreciate it.
Speaker Change: One moment for our next question.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: The next question comes from Kevin Caliendo with UBS. Your line is open.
Kevin Caliendo: Hi, Kevin Good morning.
Speaker Change: Good morning, Thanks for taking my question.
Speaker Change: In the quarter and the fourth quarter, you mentioned ex weather ex days.
Speaker Change: That can be paid.
Speaker Change: Core margins in diagnostics would have grown 50 basis points.
Speaker Change: Is there any dynamic that's different when you think about 2025, such that core margins would continue to grow and I guess.
Speaker Change: You mentioned labor turnover is better versus launch pad.
Speaker Change: I'm just wondering like when you think about the business ex the one timers weather and everything else would you still expect core margins to expand by roughly what you saw third quarter fourth quarter, the 50 basis points or so.
Speaker Change: So Kevin so as I think about 2025, we expect to see margin expansion and we expect to see it.
Speaker Change: In both businesses in our diagnostic business, but also in the Biopharma laboratory businesses.
Speaker Change: Some of the things that you mentioned in particular in VK works in our favor and it's actually a tailwind it will be dilutive to the margins in the first half of the year, but it will be slightly accretive for the full year, saying that the second half of the year there'll be accretive for <unk>.
Speaker Change: And VK. So overall I feel very good and confident that we've got some tailwind on the margin improvement that will help us as we expect in 2025.
Adam Schechter: Hi, Adam.
Adam Schechter: Maybe one more color as you look at our 2024 and the Q4 in particular.
Adam Schechter: So I'm a diagnostic margin plus that path once you neutralize the impact of strategic acquisitions are being maintained as well as some unusual operational items like weather and base. The language Claude I Love business base business was actually the need to hire 10 pace, which was in line with our past performance.
Adam Schechter: And as we move into 2025, we expect to continue to build upon that foundation and continue to expand the margin, particularly as we also overlap that dilution to margin from here maybe in 2024.
Adam Schechter: Got it okay.
Adam Schechter: That's that's helpful and just one follow up you've made some comments about <unk> and weather and the timing of it but just when we think about cadence.
Adam Schechter: Is there any other color you can give us around cadence for the year as we think about.
Adam Schechter: EPS growth or however, you would want to.
Adam Schechter: Clarify that as we think about <unk> versus <unk> versus <unk> versus <unk>, because theres obviously some.
Adam Schechter: One timers this year that might throw out a normal seasonality.
Adam Schechter: Yes, so we're not going to give quarterly guidance, but as I did say in the first quarter. We have a 10 cent impact through the month of January due to weather.
Adam Schechter: We'll see if there's anything else that happens or whether we haven't built in anything above the 10.
But we're not going to give quarter by quarter guidance at the moment.
Adam Schechter: And the other guy here right in the first quarter that will be a day impact, but I think that's included in our supplemental information on the website as well.
Adam Schechter: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from David Whiston Berg with Piper Sandler Your line is open.
Speaker Change: Good morning Derik.
Speaker Change: Hey, good morning, everyone. So just I'll just have one question here on the <unk> acquisition integration plus some of the growth here. So it did have.
Speaker Change: Mardi assay that you talked about bringing multiple first in Biopharma and then eventually commercialization can you talk about reimbursement or expectations on timelines and reimbursement I know <unk> had reimbursement, but it also had some IP fights I'm not really sure where that actually wind up shaking out. So if you can give us an update there and then.
Speaker Change: Just in terms of the back half of the year.
Speaker Change: Accretion on <unk>, how much of this is growth dependent versus maybe.
Speaker Change: Centered cost synergies that you've already identified really already have them in place. Thank you I'll just ask one upfront because that was a little longer yeah. So two points one is.
Speaker Change: And then both come together.
Speaker Change: Look at the accretion four and VK I mean, we are taking cost out, but we're doing it a very thoughtful manner and we are doing best of best So we have assets. They have MRV assets. We were looking at the ones that were scientifically most advanced from a timeline, we're furthest along and we're taking the best.
Speaker Change: The best So we continue to have a significant number of assets as we look at.
Speaker Change: Liquid biopsy, including MRI.
Speaker Change: With regard to the timing of accretion dilution.
Speaker Change: I'd say.
Speaker Change: Part of it is just it's a year later, so we've overlapped the year and then the second part of it is that we've taken out significant costs, where it makes sense.
Speaker Change: Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Our next question comes from Tycho Peterson with Jefferies. Your line is open.
Tycho Peterson: Hey, thanks.
Speaker Change: Wanted to ask on.
Speaker Change: Geography on the partnership there I know there have been I think some developments there was a hearing at the end of last month on the injunction and just how are you thinking about.
Resources, you need to put behind that ahead of the launch later this year and then anything thoughts on USPS TF and the Braidwood case, and whether that may impact timing of the launch.
Speaker Change: Yes.
Speaker Change: Its best to actually talk to them about the specifics of any type of cases and where they are with.
Speaker Change: Litigations and those types of things with regard to us we'll be prepared to launch and when it's appropriate we'll be ready.
Speaker Change: Okay.
Speaker Change: And then follow up is just I know you had the question earlier on Panama.
Speaker Change: Going back to your comments at JP Morgan on source, you had commented that it makes sense and it's logical but there might be kind of pieces you can pull out of it if you're connected at all crews can you maybe just.
Speaker Change: Talk a little bit more about what you are implying there and what parts you might pull out of.
Speaker Change: Yeah. So we're trying to again I didn't want to say, we're pulling apart goes or legislation. Our trade group is working to figure out what's the best path forward to try to get approval of legislation that addresses the needs and with any legislation you talk with Democrats Republicans.
Speaker Change: Congress and the Senate, you're trying to find things that are appropriate for all involved so I feel like we've got a path forward that we continue to work on.
Speaker Change: We've had Democrats and Republicans very supportive that the current patent or the way. It had been implemented does it make sense now we just have to find the most logical way to move forward, where it does make sense.
Speaker Change: Okay. Thank you.
Adam Schechter: Ladies and gentlemen, this does conclude the question and answer portion of todays call I'd like to turn the call back to Adam for any closing remarks.
Speaker Change: Alright, Thank you everybody for joining us today.
Speaker Change: Appreciate your time and we look forward to updating you on our first quarter of 2025 in April.
Speaker Change: Thank you ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Right.
Okay.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: Okay.
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