Good morning, everyone. I'm Aaron Wright, Healthcare Services Analyst at Morgan Stanley. For more important disclosures, please see the Morgan Stanley Research Disclosure website at morganstanley.com/researchdisclosures. If you do have any questions, please reach out to your Morgan Stanley sales representative. We're happy to have Labcorp Holdings Inc. with us today. We have CEO Adam H. Schechter, as well as Julia Wang, CFO. Thanks so much for coming. Yeah, it's great to see you. Pleasure to be here. I'll kick things off with some Q&A. I'll start off with the most recent quarter and the strength in the most recent quarter. You recently raised your revenue, EPS, and free cash flow guide. What are some of those key drivers that's getting to your 7.5% to 8.6% revenue growth range, the impetus for the raise, and how are things just generally playing out relative to your expectations this year? Yep. It's great to be here. As Aaron said, we had a really strong second quarter. I'd say the whole first half of the year was strong for us. We have a lot of momentum. We see the momentum in both our diagnostics business and our biopharma laboratory services business. If you look at diagnostics, for the full year, if you look at the midpoint of our guidance, it's about 8% revenue growth. Of that 8% growth, about half of it is from inorganic growth, and the other half of it is organic. The organic growth is stronger than what we've seen in the past, and we expect that to continue through this year. We have a lot of momentum with that growth. I think we can talk about that later if you'd like to. If you look at our biopharma laboratory services business, our book-to-bill is strong. We won a couple of large phase III trials that help our central laboratory business, and we expect that business to continue to grow throughout the rest of this year. We had margin improvement in the second quarter, despite the fact that we had a significant impact on our margin from the Invitae acquisition. The good news is that we'll lap the Invitae acquisition in the second quarter, so it will no longer be a headwind as we go through the rest of this year. That's why we expect our margins to improve in both businesses for the full year. Okay, that's great. You touched on some of the pieces kind of supporting the enterprise growth expectations, but I want to drill down into utilization. Can you give us some more color around core volume trends currently, how they're tracking relative to your expectations? The recent volume trends have been strong. Organic growth 3.4% in the second quarter. How sustainable is this stronger utilization environment? What are some of those key underlying factors driving this, and what's the soon for the year? Yeah, you know, it's an important question, and I would have answered the question differently two or three years ago than I answer today. Two or three years ago, we started to see an increase in volume, and we thought it was due to COVID, that people were not visiting their physician regularly during COVID, and when they started to go back to the physician, that they were getting more services, more tests. It's so far after COVID right now, I no longer believe that that's the reason for the increased volume. I believe that there are other things that are driving the increased volume. Number one, we certainly have an aging population. As people age, they tend to go to the doctor more often. They tend to get more tests. Number two, we are seeing new tests that are available that help understand patients' diseases better. For example, historically, if somebody had a cholesterol test, they would check for total cholesterol, LDL cholesterol, triglycerides, HDL. Now they have things like Apo A and Apo B, and there's additional tests that help to diagnose the disease even further than what physicians have had in the past. In addition to that, I do believe that we are winning market share in the marketplace. Some of that is from the hospital acquisitions that we do. They increase access to patients, but they also help us with market share. We've also seen that when we run a hospital laboratory, the geographies surrounding that hospital laboratory tend to get more market share than the geographies around hospitals that we're not necessarily running the laboratories. I think for all those reasons, we've seen an increase in volume. Historically, we would have said volume will increase 1% to 2%. We're certainly seeing better volume than that, and we expect that to continue with the guidance that we gave for the full year. We expect it to be 4% growth from inorganic and 4% from organic. When I think about that organic piece, how much would you say is from, if you had to guess, kind of true underlying halo effect of market share gains from some of these hospital deals? I would say historically, the market was growing 1% to 2%. I think it's growing faster than that right now, maybe 2% to 3%. I would say the rest could be from market share gain. Price mix has always, I guess, it's also held up well this year. Can you talk a little bit about the price mix dynamic, what you're seeing, what you saw throughout the year, and what your expectations are going forward? Mix has been that healthy contributor. Could you break down some of the pieces for us? Yeah, I'll ask Julia to jump in and help with that as well. It is consistent with what we've seen historically overall. Yes, hi. It's so good to be with you all today. So happy to comment a bit about price mix. As you are saying, it has been holding up. In the second quarter, it was approximately a growth of 1% contribution to our revenue growth. That's actually what we are also expecting for full year 2025. If I were to further break down the difference between price and mix, I would say that on a unit price basis, it's been relatively flat. Therefore, the benefit is really coming from mix. There are two drivers behind that. One of them is the increase in test per session. The other one is the growth in our lab management agreements. Over the longer term, we do expect to continue to benefit from price mix durability for a couple of considerations. First of all, our increase in our partnerships with the health systems and the hospitals is whereby we tend to experience a higher price mix, relatively speaking. In addition to that, we continue to observe a slight yet consistent increase in test per session, mostly driven by the factors that Adam already commented about, whether it's the Asian population, it's the heightened focus on wellness and health, as well as our test menu, given how extensive and broad it is. Last but not least, our focus on the specialty testing, as well as the advancement in those categories, has been a tailwind as well, because what we have found is that focus not only is driving an accelerated growth in those particular categories, it's also improving our broader testing volume, just because as a provider of essentially such a comprehensive offering, we are well positioned to capture essentially almost all the testing needs of the patients. As we think about the broader kind of pricing environment, some of the key contracts that you look at, is there anything up for renewal this year that you would call out or upcoming? How would you characterize some of the relationships? We're talking to a lot of payers, both yesterday and today here at the conference. How would you characterize those relationships with payers right now? Yeah, I mean, our relationships with payers are strong. Every year, maybe 20% of our contracts come up. They're typically three to five-year contracts. We have very good relationships, and there's none of the contracts that I'm concerned about at the moment. We are a very small part of overall healthcare spend. Diagnostics is just 2% to 3% of healthcare spend, but we're involved in almost 90% to 95% of decisions that are made in healthcare. In addition to that, the deals that we've done with hospitals actually are great for the healthcare system. They're good for the hospital. They're actually good for the payers because price typically comes down when we do the deal versus the hospital running the laboratories themselves. We've been able to show payers how much they're able to save just through the hospital deals that we're doing with them. I would say it's a very strong relationship, and they realize the importance of diagnostics and that we're just a very small part of the overall spend. Okay. Let's switch gears to Invitae. Can you speak to the rationale behind the deal, how it's progressing in terms of integration and overlap with existing offerings, or integration with existing offerings, and contribution in the second half, and going forward, how we should think about Invitae? I would say the Invitae deal has exceeded my expectations. We were interested in the work that they do in hereditary cancer many years ago, but the market cap was about $10 billion. We would do our financial analysis, and we couldn't find a way to justify an acquisition based upon what the deal would cost. As the price came down, we would continue to run the analysis, and we ultimately were able to acquire the company for less than one turn of revenue. We were able to make the numbers work and see a path towards profitability within the first year. Strategically, there's no doubt that it fits great with our strategy, with our portfolio, with the type of work that they do. If you look at the integration, it's gone extremely well. We're now up upon a year. The company will be slightly accretive for the full year this year. We're on track for that. The revenue growth, about 10%, we're on track for that. By the end of second quarter, we had fully overlapped the year since we acquired the company. Now it's going to be a tailwind versus a headwind. I would say on all avenues, it's done exactly what we expected it to do. Bigger picture, just on esoteric testing too. Growth rates, margin profiles, you could speak to that across the esoteric testing business and the focus on some of those high growth areas, women's health, oncology, neurology, autoimmune disease, I think is what you called out. How are those progressing relative to your expectations? Are there any areas of innovation to call out? Yeah, so there's no doubt that we're making significant progress in each of those areas. For example, in women's health, our preeclampsia test, in neurology, the things that we've done for Alzheimer's disease, and oncology, some of the liquid tumor things that we're working on, solid tumor things that we're working on, liquid biopsies. We're certainly making progress in each of those areas. I would say there's three things to consider. First is we want to have access to the range of tests that any provider would need, including specialist providers. It's not just about the individual tests. For example, a liquid biopsy. If you actually start to help oncology patients through a liquid biopsy, then you'll get all the other tests that an oncology patient would need, their WBCs, RBCs, ALTs, all the other tests. We can be one place for the provider to go to get the test and then get it over time in just one report. I think that will be a competitive advantage for us. It's important that we be in each of those therapeutic areas, have the leading-edge tests, whether we develop them ourselves, whether we license them, whether we acquire them, we're a bit agnostic to. We just want to make sure they're available on our menu so that the specialists can order all those tests. At the same time, we've certainly seen that esoteric business is growing faster than overall diagnostic routine testing. Historically, diagnostic routine testing would grow a couple% per year. The esoteric testing in the four areas we talked about will grow about three times that rate, so somewhere around 9%. We'll certainly see that play out. I expect that's going to continue over time. As we think about longevity, for instance, it is a big theme for us at Morgan Stanley. When we think about some of the consumer or direct-to-consumer kind of testing initiatives, what does the growth profile look like? What are the key offerings now? Is it moving the needle yet, or is it the forefront of such? I would look at that through separate different ways. If you look at consumer testing, during COVID, we observed that people were looking for an answer as fast as they can get it. They weren't necessarily as concerned about the accuracy of the answer, and they were willing to pay whatever it took to get the answer. That's not how consumers typically behave. Typically, they're okay to wait a day or two to get their diabetes test results. They want to make sure it's absolutely accurate, and they would like it to be covered by their insurance versus paying out of pocket. We've seen for many tests, consumers go back to the historical way in which they worked. At the same time, when it comes to screening, a lot of consumers would like to do that, and they can do it wherever is convenient for them. When it comes to symptomatic disease, they still want to get an answer quickly, and they're more apt to do that at home. There are certain diseases that they prefer to test for privately, syphilis being an example, that they might not want to go to the doctor. We have our on-demand offering, which continues to grow. It's growing significantly, but it's not yet reached a point that I would pull it out because it's not a critical mass at this time. Separate and distinct from that, we have now an offering of a significant number of biomarkers for people that want to do some type of functional health and understand many different aspects of their health. We also have an offering for physicians that practice functional health so that they can order tests from us. I'd say that's a pretty significant amount of business, but it's through the standard methods that we have all of our other business go through. If a doctor's providing functional health, they can order through their electronic medical records or order directly with us whatever tests they feel are appropriate for those patients. We are seeing an increase in functional medicine, but we've been seeing that for quite some time, frankly. Okay. I want to switch gears to the regulatory landscape. What are your latest insights? Next, vaccination, I have to ask on PMM. We've been talking about it for, I don't know, 10 years. Yeah, now it's six years. It feels longer. We've heard from the new CBO scoring. It may suggest that delaying PMM may not save money in 2026. Maybe, you know, talk a bit about PMM, PMM reform, what your expectations are, and what's the next data point we expect? Yeah, so if you look at PMM, we've been discussing that for many years now. We still believe the way in which it's been administered and calculated is incorrect. We would expect that there will be some legislation that will be announced soon that will try to fix the issue through a legislative process. That is the best answer. It has bipartisan support. It has for some time. Whether or not legislation gets approved is hard to say. Working with our trade organization, ACLA, we still believe that is the best path forward for a long-term fix. Separate and distinct from that, if it does not get passed in legislation, we would look to see if there's a way to have it delayed again, which has been delayed for many years now. As you mentioned, we've not seen the new CBO score. I don't know, frankly, the methodology changes or what that is. It's very difficult to try to give odds on what the chances are of it being delayed again. If the score is neutral, maybe a slight cost add or actually a cost avoidance, I think there's a high likelihood it could be delayed if the legislation's not passed. If it would cost a significant amount, I think it would be harder, but not impossible. At the same time, we're going to continue to have discussions through the trade organization on other ways to make sure that the methodology is going to be better implemented than before. I think the big issue is they'd be looking for data from 2019. Trying to find a hospital that can provide data on tests by payer from 2019 is nearly impossible. I don't think I can get it for 2024 very easily. I still think it's going to be very difficult for them to collect the data. With all that said, I've said this for the last six years. I'll say it again this year. I build the impact from PMM into our base case plan. That would be about a $100 million impact next year on both the top line going directly through to the bottom line. We will use Launchpad to offset as much as we can of our wage inflation, and we'll be going after additional cost savings in order to offset some of PMM. Obviously, we couldn't offset a $100 million impact, but we would shoot to offset as much of that as possible. People have pushed me to give a number. We don't have an exact number, but I would shoot for something like $25 to $30 million of it. Okay. $25 million to $30 million you would be able to offset? That's what our goal would be to offset. Okay, good. That was my next question. I'll take it this way. Okay. On the one big beautiful bill and cuts from a federal funding perspective, how do you think this plays out for Labcorp Holdings Inc. from a volume perspective as we could see increased uninsured population? How would you compare this to other iterations of reform? Also, can you parse out Medicaid versus ACA in terms of if, we'll see what happens from an ACA subsidy perspective, but what do you anticipate, I guess, the implications are for Labcorp Holdings Inc.? I'll give some comments. I'll ask Julia to jump in with some of the specific analysis that we did. I would say in general, with the bill, there's tailwinds and there's headwinds. I think the tailwinds, unfortunately, I think hospitals will be under increased pressure than they are today, which they're already under a lot of pressure. That pressure tends to enable them to have quicker discussions with us about running their laboratories or acquiring their outreach business. We've certainly seen our pipeline for hospital deals be strong. We've announced quite a few deals this year. There's more to come, and I expect that that will continue. I think if things play out the way they may play out in the bill, that will actually cause the pipeline for hospital deals to increase. The headwinds would be if we have more patients without access to healthcare. That tends to be difficult for payment and so forth. Those are the two pushes and pulls. Overall, not a significant impact to us, but I'll let Julia talk a little bit about the magnitude that we see. Yeah, sure. If you break down on the impact, to start with the potential expiration of the tax credits as it relates to the ACA enrollment, we have sized that to be about 30 basis points in volume for 2026. The key assumption that we are making in deriving at that impact is the following. First of all, we understand that for 2025 open enrollment, as it relates to the ACA marketplace plans, we had about 24.3 million insured lives. I believe CBO released information suggesting that about 17% of that insured population might potentially be impacted by this expiration of the credit. As I mentioned earlier, there are some other moving parts too, because even if the credit gets expired, some insured lives might transition to some other alternatives, whether it's through the spouse or new employment, things like that. All in all, when you do the put and take, it's getting us to a ballpark number of 30 basis points of a volume impact in 2026, which obviously is relatively manageable. The other things, as it relates to the major changes associated with Medicaid reform, most of them are not going to kick in in 2028. We will continue to see how that evolves over time. The last aspect I would mention is when you think about the one big beautiful bill, from an effective tax rate perspective, we do not expect anything meaningful for our company. For this year, as well as going forward, we continue to expect our effective tax rate to be approximately 23%. I don't think it would be tenable for a large number of Americans to lose insurance altogether. I think whether at the federal level or at the state level, I think something would happen. We all remember before, when there were 40 million Americans without insurance, it became such a political issue, whether Democrats or Republicans were running, that I don't think anybody wants to get to that point again. I think that they would find ways to ensure that there's some type of insurance for those people that would lose insurance. I think bigger picture too, whether it's PMM or changes from a funding perspective across insurance or otherwise, do you think that it's still the same picture in terms of, and this is kind of what you're getting at with the hospitals, but at the end of the day, economics should prevail, volume should go to the low-cost provider? I would think so. At the end of the day, we provide high quality at a low cost, and we are now providing a lot of innovation with that as well. If you look at different economic environments over time, if you look at different political situations over time, the diagnostic market has always continued to perform well. I think it's because we are so important to making healthcare decisions, and we're such a small overall amount of the total spend. Okay, let's switch to biopharma a little bit. Can you give us an update on what you're seeing in terms of cancellations, RFP flow, the biotech funding environment, and how has the environment been under the new administration? We just had the head of the FDA here yesterday talking about animal testing, talking about different components of what he's focused on. I guess, how would you kind of characterize the underlying environment now? Yeah, I'll start broadly, and then I'll narrow down and answer some of the questions that you raised. Broadly, if you look at our biopharma businesses, there are two segments. There's our central laboratory, and there's our early development. The central laboratory business is the biggest business by far. Early development is frankly less than 6% of our revenue and even less than that in operating income. It's a small piece. If you look at central laboratory, about 70% of our business is in large pharma, and the vast majority of that business is phase III trials because those are going to be the largest trials. The last thing that pharma wants to cut are ongoing or new phase III trials for important products in the pipeline. That's typically the last thing that would be cut. We've seen the central laboratory business continue to perform well. Our book-to-bill looks strong. Our offering is strong. We are the leader in that business. I see that business continuing to perform well as we look out into the future. Our early development business performed well in the second quarter. We expect that it will continue for the full year to grow this year versus last year. That business is a little bit different because about 70% of that business is in small biotech, and only about 30% is in larger biotech and pharma. That's where we've seen more volatility when interest rates go up, when funding goes down, and that's where we have to watch for cancellations very closely. When I look at that business, I look at three things. I look at what are the number and dollar amount of the RFPs, requests, or proposals coming to us. Right now, those look good and steady. I then look at what percent of those proposals we win. That's kind of my surrogate for market share. Our market share looks good, and we're winning at a very consistent rate. I then look at, do the trials start and start on time? That's the area that we're continuing to watch the closest. Right now, I would say there's a slight delay in when we see the trials starting. The cancellations are definitely less this year than they were last year. Last year, they were above the normal range. This year, they're within normal, but at the high end of normal. That's a business that we're going to continue to watch closely. At this point, I don't see signs of an issue, but that one tends to be a little bit more volatile than the central laboratory business. Frankly, I'm glad that it's a very small part of our revenue and OI. Maybe this is going back a little bit to the Covance phase and the decision to split up the business. What was the rationale in retaining the early development business, and how do you see all the different pieces playing together? I think I always ask you this question in terms of how you're taking development and then getting the companion diagnostics and then ultimately taking it to market. How many of those opportunities are you seeing at this point? When we decided to spin out the clinical development business, we actually looked at all possibilities. We looked at spinning out all of the biopharma laboratory services business. It made no sense to spin out the central laboratory business because it's core of what we do. In fact, we had a central laboratory business even before the acquisition of Covance. Same machine, same equipment, same types of people, same reagents. If you walked into a central laboratory versus a diagnostic laboratory, you'd be hard-pressed to see a difference. The biggest difference is the customer diversification, pharma versus providers, the global nature of the business, and the fact that the regulators are different that come in from a global basis to central laboratories for global trials versus mostly the U.S. regulators for our U.S. laboratories. It really made sense to keep the central laboratory business. We decided it did not make sense to keep the clinical business. It was a feet on the street business, not a lot of bricks and mortar. It was global people all around the world. We were not the leader or a leader in that business. Also, to acquire another company based on the multiples at the time just didn't make sense to actually make it a leading business. That's why we decided to spin that business out. We had three alternatives for early development. One, we could spin it out with the clinical business. That made no sense because the two businesses are so different, especially without a central laboratory in the middle. We then said, do we spin it out on its own? Based upon the size, the scale, and the margins of that business, the amount of infrastructure that you'd have to build to have your own IT departments and HR departments and CFO and CEO, it just didn't make sense to spin out as its own business. The question is, do you keep it or try to merge it with something else? We decided to keep it because it's more closely related to central laboratories than not. At that point, we were doing a lot of cell and gene therapy work in early development. I think that's yet to happen, but that's where I see a lot of the benefit of having early development, where cell and gene therapy work that we're doing there ultimately would make its way into our central laboratories, and then ultimately we could bring those products to market. We also have seen an increased number of personalized medicine trials. By that, I mean where there's companion diagnostics or tests that are used to determine who should be treated. When we win those trials in early development, we tend to get those in the central laboratory work. I think the big difference is the customer base is so different that it doesn't always transfer to the customers from early development to central laboratory business. Okay, that's helpful. I want to switch to margins and profitability. Can you talk a little bit about the Launchpad savings initiatives and also how we should anticipate margins to progress throughout this year and what long-term margins ultimately look like? I'll start now. Esther, if she wants to jump in. If you look at our margins and Launchpad, we continue to make a lot of progress in Launchpad. We've committed to $100 to $125 million of cost reduction per year, and we have hit that commitment and continue to make progress towards it this year. We will hit it, and we've committed to it for next year as well. That helps to offset the increase that we see in wage inflation. The question is, how do we use AI and robotics and other technologies to reduce costs even further, which is what we're going to try to do to offset part of PMM going into next year? With that said, we did see a margin increase of 20 basis points in the second quarter across diagnostics, despite the fact that we had still a negative impact from Invitae. For this year, we expect the margins to increase for both businesses. You can talk about the progression. Yeah, I think that's right. We are pleased with the progress we've made with margin. In the second quarter as an enterprise, we grew our margin by 20 basis points. That is after absorbing a headwind of Invitae of 30 basis points. Heading into the second half, particularly now that we have annualized Invitae, as well as our efforts to continue to drive operating efficiencies across the enterprise, we expect a step up in the margin expansion in the second half to a degree that will translate into a full-year margin expansion for 2025. Actually, that margin expansion is also a key driver for our guidance for EPS growth this year. At the midpoint, we do expect our EPS to grow approximately at 12% versus a year ago, which of course is going to help with our free cash flow generation as well, given our relatively high cash conversion from adjusted earnings into cash. On capital deployment, can you talk a little bit about the deal pipeline? I think you still say it's still robust, but how would you characterize it relative to even last year or the year before, the past three years in terms of the deal pipeline? Yeah, so when we think about deals and more broadly about capital deployment, we first are looking at these hospital, local, regional laboratory deals. The reason why is they're accretive in the first year. They return their cost to capital very quickly, two to three years. We know how to do them, and we develop good partnerships through them. That pipeline has been strong. After COVID, I think a lot of hospitals realized that they weren't investing the capital that they needed to keep their laboratories up to date. They really were much more open to thinking about us running their laboratories. In addition to that, they realized that we can do it very well. They saw us, for example, with Ascension, move 100 hospitals over very quickly, very successfully, without interrupting patient care. I think that gave them comfort that they could do it with us. In addition to that, by acquiring their outreach business, it gives them an infusion of cash, which they can use to invest in surgical suite or something else that would be more beneficial to them. We saw an acceleration after COVID that has continued. I would say the urgency has slowed down a little bit recently with the hospitals being a bit more successful than they were, you know, in terms of generating margin. With that said, we've actually seen it accelerate again, and the pipeline start to build in the last several months. I think as hospitals are looking at next year and they're starting to prepare what could happen with tariffs and other things that they're facing, they are looking again to us to potentially be a good partner and/or acquire their outreach business. That pipeline right now, I'd say, is as strong as I've seen it. I'd say the urgency is probably a little bit higher than it was at the beginning of the year, but not where it was right after COVID. Okay. Any incremental color on your latest announced acquisition of Community Health Systems and the nature of that deal? It's a great deal for them and for us. It's across many different states, so it will be one that will go across several of our regions. We have a very good team that we've put together to work with them on it, so we're looking forward to that. It will be a good partnership. There's no doubt about it. How do you find the right balance between some of these hospital deals, then bolt-on lab deals, partnerships, as well as acquiring innovation? Yeah, so the first thing is we look to deploy our capital. We're committed to our dividend, and we remain committed to the dividend. We then look for as many of these hospital, local, regional laboratory deals that we can do as long as they meet our financial criteria, accretive first year, cost of capital return in two to three years, and good partners. We have the capacity to do as many of those as we've been doing and even more as we go into the future. We look at other acquisitions such as key tests that we'd like to acquire. Typically, they're very small amounts of capital outlay. They return their outlay very quickly. We're not interested at this moment to look for a third leg of a stool or something outside of our core. We believe that the core of our central laboratory business and our diagnostics business, our biopharma business, is strong enough to give us a great profile as we move forward. At this point, we're looking at those types of deals. We're not looking at any, you know, large acquisitions outside of our cores that we're doing now. Okay, great. Thank you so much for the time. I really appreciate it. Yep, good to see you. Thanks, everybody. Thank you.