Labcorp Holdings Inc. (LH) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q2 2026 Labcorp Holdings Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dewey Steadman, Senior Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Labcorp's Second Quarter 2026 Financial Results Webcast. With me today are Adam Schechter, our Chairman and Chief Executive Officer; and Julia Wang, our Executive Vice President and Chief Financial Officer. This morning, in the Events section of the Labcorp Investor Relations website at ir.labcorp.com, we posted both our press release and a supplemental financial presentation with additional information on our business and operations. We will also post a replay of this webcast on the IR website for 1 year. On today's webcast, we will focus on our adjusted or non-GAAP results for the second quarter of 2026, our capital allocation strategy and our updated financial guidance for the full year 2026. Our GAAP results and a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures are available in today's earnings release and the supplemental financial presentation. Please see the Use of Adjusted Measures section in the supplemental presentation for more information regarding our use of non-GAAP financial measures. In today's remarks, the term organic growth excludes the impact from acquisitions, divestitures, and currency, as well as other strategic actions taken in the Early Development business. Our remarks will also include forward-looking statements, including, but not limited to, statements about our updated 2026 financial guidance and the assumptions underlying that guidance; the expected impact of various factors on our business, operating and financial results, cash flows and financial condition; global economic and market conditions; our future business strategies; the expected savings, benefits, and synergies from acquisitions, strategic actions, and partnerships; and our potential opportunities for future growth. Each of these forward-looking statements is subject to change based upon various factors, many of which are beyond our control. More information is included in our most recent annual report on Form 10-K and subsequent quarterly reports on Forms 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'll turn the call over to Labcorp's Chairman and CEO, Adam Schechter. Adam?

Thank you, Dewey, and good morning, everyone. We appreciate you joining us today to review our second quarter 2026 results. Labcorp delivered another very strong quarter driven by solid revenue growth, margin expansion, and progress across our strategic priorities. Our Diagnostics and Biopharma Laboratory Services businesses both performed well, advancing strategic initiatives and expanding technological capabilities that continue to drive growth. Key accomplishments include broadening our specialty test portfolio; expanding partnerships with leading health systems, biopharmaceutical clients, and regional and local laboratories; continuing to grow our consumer business; and increasing the use of advanced technologies across the company. Turning to our enterprise financials for the second quarter. Revenue grew 6% to $3.7 billion. Margins improved 70 basis points to 15.8%. Adjusted earnings per share grew 15% to $4.99, and free cash flow was $314 million. Moving to our segments. Diagnostics revenue increased 5.5% to $2.9 billion. Biopharma Laboratory Services revenue increased 6.5% to $836 million driven by strength in Central Laboratories, and our BLS book-to-bill was 1.14 in the quarter and 1.03 in the trailing 12 months. Julia will review our updated increased guidance in just a moment. Our results reflect the progress we've made across each of our strategic priorities, beginning with strengthening our leadership in specialty testing across oncology, neurology, autoimmune disease, and women's health. Collectively, in the first half of the year, these specialty areas delivered double-digit revenue growth and helped us to win new health system and provider customers. Laboratory testing plays a critical role in both drug development and in patient care, supporting earlier detection, diagnosis, therapy selection and ongoing disease monitoring, all of which support better health outcomes while enabling more informed clinical decision-making. In our Labcorp Oncology business, we expanded our portfolio across lung, colorectal, and prostate cancer, adding innovative screening, diagnostic and companion diagnostic testing solutions. We launched ColoSense nationwide, the first FDA-approved, RNA-based colorectal cancer screening test with an at-home collection. With Medicare and expanding commercial payer coverage, this test increases patient access to screening and enables earlier detection. And we entered into a clinical trial collaboration with Fox Chase Cancer Center to evaluate Labcorp's Plasma Detect Genome MRD in patients at risk of early-stage non-small cell lung cancer recurrence. We expanded nationwide access to Roche's FDA-approved companion diagnostic for people living with prostate cancer who will now be eligible for combination treatment with AstraZeneca's targeted therapy. And we added an advanced DPYD genotyping test to our portfolio that helps identify patients at risk for severe treatment-related toxicity from certain chemotherapies. Beyond our priority specialty areas, we continue to advance testing solutions across a broad range of important health conditions. We signed an agreement to broaden nationwide access to myOLARIS-KTdx, a first-of-its-kind noninvasive test that supports surveillance of graft injury, including rejection following a kidney transplant. For patients at risk of liver disease, Labcorp's blood-based test, NASHnext, secured Medicare coverage beginning in mid-August, expanding access for more patients and enabling earlier detection of MASH. Additionally, new peer-reviewed research demonstrated the potential of Labcorp's advanced noninvasive blood-based diagnostic tools, including MVX and NIS2+ to improve risk assessment and to provide early identification of patients at risk for liver disease progression. Moving now to the strategic priority of being a partner of choice for health systems and regional and local laboratories. These partnerships play an important role in providing health systems and providers greater access to our high-quality, cost-effective laboratory services, to our scientific expertise and to our broad testing portfolio, including specialty diagnostics. In the quarter, we completed the acquisition of select outreach laboratory services from Parkview Health in Indiana and Ohio and the acquisition of Tribal Diagnostics, a clinical laboratory serving communities in Oklahoma and Texas. And once again, we were recently awarded a Department of Defense contract to provide laboratory testing for service members and their families across military hospitals worldwide. We continue to have a very robust pipeline of deals and to support our long-term growth strategy, and we look forward to sharing more of those moving forward. Turning to the consumer health space. Our consumer business continued to deliver strong double-digit growth, driven by increasing demand for consumer-initiated testing, innovative offerings and compelling digital experiences. And with the recent announcement of our Marker by Labcorp Genetic Health Panel through Labcorp OnDemand, consumers will be able to get biomarker and genetic testing and insights from a single trusted source. We also launched Canada's first at-home self-collection test to measure women's fertility-related hormones and men's testosterone levels. Additionally, our recently launched AI-powered app, MyLabcorp, has already begun to be downloaded by millions of consumers. The app allows patients to schedule appointments to view their test results and to gain deeper insights into their health using AI. These differentiated innovations, combined with our leading science, are creating personalized experiences that consumers can trust. We continue to make strong progress on the strategic priority of shaping our future through technology and innovation to improve the customer experience, to enhance productivity and to transform our business. In the quarter, we broadened our collaboration with Epic, which will make Labcorp's 6,500-plus diagnostic tests available on Epic's Aura platform. This collaboration will make it easier for health care providers using Epic Aura to access Labcorp's test, including genetics, oncology and other advanced diagnostics. We also enhanced the experience at Labcorp's patient service centers through expanded appointment availability, streamlined scheduling and proactive rescheduling reminders and assistance. These are just a few examples of how we're advancing our strategic priorities and serving our customers. Our results this quarter and our progress against our strategy were made possible by our teams who carry out our mission each and every day. Their impact was recognized by Time, where we were honored to be named again as one of the world's most impactful companies. We were also included on the Wall Street Journal's Best Companies for the Future list, recognizing our commitment to innovation with long-term value creation and positive impact. With that, I'll turn the call over to Julia to discuss our financial results in more detail.

Thank you, Adam. Our second quarter results reflect strong momentum and continued execution of our strategy. Enterprise revenue grew 5.8% versus the prior year. Enterprise adjusted operating margin expanded 70 basis points to 15.8%, primarily driven by organic revenue growth. Adjusted earnings per share grew 14.9%, and we generated $314 million in free cash flow. We also remain active on capital deployment. We invested $226 million in acquisitions, repurchased $354 million of shares and paid $59 million in dividends. Following the retirement of $500 million in senior notes in the second quarter, we had $142 million in cash and $5.9 billion in total debt at the end of the quarter. In July, our Board of Directors approved an increase of $1 billion in the company's share repurchase authorization, bringing the total authorization outstanding to $1.4 billion. Moving to more details on the quarter. Enterprise revenue was $3.7 billion, up 5.8% from the second quarter of 2025. Organic revenue growth was 4.2%. Net acquisitions contributed 1.2% growth. Foreign currency translation contributed 0.4%. Adjusted operating income was $589 million or 15.8% of revenue compared to $532 million or 15.1% of revenue last year. The adjusted tax rate was 23%, in line with last year. We continue to expect our full year adjusted tax rate to be approximately 23%. Adjusted EPS was $4.99, up 14.9% from last year. Free cash flow was $314 million, compared to $543 million last year. The difference was primarily due to working capital timing and planned increases in capital expenditures. We continue to expect free cash flow in the range of $1.24 billion to $1.36 billion for full year 2026. Turning to our segments. Diagnostics segment delivered another strong quarter. Revenue was $2.9 billion, up 5.5% compared to the prior year. Volume growth contributed 3% and price mix contributed 2.5%. We delivered organic revenue growth of 3.6%, consisting of 1.8% volume growth and 1.8% favorable price mix, which was largely driven by higher tests per accession. Revenue from acquisitions contributed 1.9%, consisting of 1.3% volume growth and 0.6% favorable price mix. Diagnostics segment adjusted operating income was $523 million or 18% of segment revenue compared to $483 million or 17.6% of revenue last year. Adjusted operating margin expanded 50 basis points due to organic growth and operating efficiencies. BLS segment revenue was $836 million, up 6.5% compared to last year. Organic constant currency revenue growth was 6.2%, as a 1.8% benefit from foreign currency translation was partially offset by a 1.4% impact from our Early Development strategic actions. Within the BLS segment, on an organic constant currency basis, Central Lab Services delivered strong revenue growth of 7.6% and Early Development grew 2.7%. BLS segment adjusted operating income was $142 million or 17% of revenue, compared to $123 million or 15.7% of revenue last year. Adjusted operating margin expanded 130 basis points, driven by organic growth and operating efficiencies from the strategic actions we have taken in Early Development. All strategic actions have been announced and are largely complete. Our BLS segment ended the quarter with a backlog of $8.7 billion. We expect approximately $2.7 billion to convert into revenue over the next 12 months. Quarterly book-to-bill was strong at 1.14, bringing trailing 12-month book-to-bill to 1.03. Turning to our full year 2026 guidance. We are raising the midpoint of our enterprise revenue range and our adjusted EPS range by $42 million and $0.30, respectively. Enterprise revenue is expected to grow 5.4% to 6.3%, which represents a 30 basis point increase at the midpoint. The guidance continues to include a 40 basis point benefit from foreign currency translation. Diagnostics segment revenue is expected to grow 5.3% to 6%. This is a 20 basis point increase at the midpoint. We continue to expect the majority of growth to be driven by organic performance. BLS segment revenue is expected to grow 5.5% to 6.5%. We have raised the midpoint of our BLS revenue guidance by 140 basis points, driven by continued strength in Central Labs and a more favorable outlook for Early Development. The guidance continues to include a 150 basis point tailwind from foreign currency translation. For the full year, on an organic constant currency basis, we continue to expect Central Labs revenue to grow in the mid-single digits. We now expect Early Development revenue to grow in the low single digits. We continue to expect enterprise margin expansion with margins improving in both Diagnostics and BLS in 2026 versus 2025. Consistent with our prior expectations, BLS margin is expected to expand more than Diagnostics. This reflects continued strong top line growth in Central Labs and the benefits from the strategic actions in Early Development. At the enterprise level, we continue to benefit from our Launchpad initiative, which remains on track. Our adjusted EPS guidance range is $18.10 to $18.55 with an implied growth rate at the midpoint of more than 11%. Compared to prior guidance, we have narrowed the range and raised the midpoint by $0.30. Our free cash flow guidance range remains $1.24 billion to $1.36 billion. We continue to expect capital expenditures to be approximately 4% of revenue. Our full year guidance assumes foreign exchange rates as of June 30, 2026. The guidance also reflects our current capital allocation assumptions, including the use of free cash flow for acquisitions, share repurchases and dividends. We remain focused on delivering profitable growth and strong free cash flow to generate long-term shareholder value. Now, I will turn the call back to Adam for closing remarks.

Thank you, Julia. Let me close with a few takeaways. First, we delivered another strong quarter of financial performance, including solid revenue growth, significant margin expansion and double-digit adjusted EPS growth. Second, we strengthened our leadership in specialty testing and announced several important partnerships with health systems. And third, we are leveraging technology and AI to create differentiated customer experiences to enhance productivity and to transform our business. All of this has led to us increasing our full year revenue and EPS guidance. Looking ahead, we remain confident in our long-term growth trajectory. We are executing with discipline, investing in areas of significant opportunity and remain well positioned to deliver sustainable growth and long-term value to both customers and shareholders. Operator, we'll now take questions.

[Operator Instructions] And our first question comes from Lisa Gill of JPMorgan.

Adam, I just really wanted to understand a couple of things when we look at the strong organic growth. You talked about specialty testing being double-digit growth. You talked about advancing strategic partnerships in the marketplace. Can you just talk about underlying what you're seeing from a utilization perspective, one? And then just on the back of that, I think previously, you had talked about a potential impact from changes of -- around ACA and Medicaid. Do you still have something in your guidance or anticipation that we could see some type of headwind because of changes to the exchanges in Medicaid?

Yes. Thanks for the question, Lisa. I'll take the first part. I'll ask Julia to comment on ACA and what's built into the guidance. So Diagnostics had a very strong quarter. That's for sure. We had $2.9 billion in revenue, which increased 5.5% versus last year. And as you mentioned, it was strong organic growth. The organic growth was 3.6% and then just under 2% was due to acquisitions. If you take a further look, the volume growth was also good at 3% with the majority of that volume growth coming from organic growth. We're certainly seeing our specialty business grow faster than the routine business, and we expect to continue to see that. Importantly, when we have the specialty business and you look at an area like oncology, it's not just the oncology test, but it's the oncology patient. And if you look at an oncology patient, they tend to get many, many, many more tests than a typical patient over time. So that's why we also believe we're seeing tests per accession continue to increase as well.

Lisa, in terms of the ACA impact, previously, we provided an estimate of 30 basis points to the Diagnostics segment volume for full year 2026. At this point in time, we continue to believe that this assumption is appropriate, and we have incorporated it into the updated guidance that we just provided this morning. As you might recall, we shared on our last earnings call that the impact from ACA during Q1 was immaterial. Subsequently, in the second quarter, it was a slight headwind of about 20 to 30 basis points of the diagnostic volume. Now it is important to note that this particular payer cohort accounts for a very small percentage of our total diagnostic volume, which is less than 4% to 5%. Therefore, our expectation for the full year impact remains unchanged. But of course, we will continue to monitor closely and manage appropriately.

And our next question comes from Kevin Caliendo of UBS.

I want to dive a little bit into the organic volumes number and how to think about that relative to the markets? How are you faring in the retail segment? How are you faring hospital versus doc offices? And sort of what's embedded in that in terms of how you calculate volumes versus number of tests that you're doing? Is it sort of an apples-to-apples because we're hearing that there are more tests per accession. And I'm just trying to understand how to think about this organic -- your positioning in organic volumes versus the market versus your peers and how it's reported?

Yes. Thanks, Kevin. So let me start, and I'll ask Julia to provide additional context. So first of all, the volume growth was 3%. So it remains strong. And the majority of that 1.8% was organic volume growth. That does not include the test per accession increases. So if you would increase that, you would actually see tests actually going up even more. We're doing very well. The market typically grows at 1% to 2%. So we're growing substantially more than the overall market. And I think a big part of that is some of the hospital deals that we're doing, the local and regional laboratory deals that we're doing that continue over time to give us additional growth opportunities. If I look in the overall market, we're doing very well in primary care. We're doing well in the hospital segment. And if you look at hospital reference testing, for example, we're actually even growing faster there than the overall segment. So I think we have some real strength if you look at reference testing as well. So overall, I'd say that it's a good organic growth, and that's why we were comfortable to raise the midpoint of the diagnostic revenue guidance by about 20 basis points, and we remain excited about the rest of the year.

Yes. Kevin, in terms of your question about the way that we account for volume for Diagnostics, it is beneficial to bring some clarity to that. As you know, we typically report that out in the measurement of accession. And then we would account for the number of tests, including the accession in the price mix calculation. However, if you step back and think about volume in the unit of test, you could potentially argue that the combination of the volume growth in accession combined with volume growth in number of tests is a more intrinsic representation of the volume growth. So with that being said, maybe I can give you a little bit more color. For example, in the second quarter, we just shared that the price mix growth for the Diagnostic business was about 2.5%. And out of that, the organic aspect of our business contributed 1.8% once again in terms of accession. But if you think about the test per accession growth, it's also another kind of majority of the contributor to the price mix improvement. So all in all, I would say, if you take the accession growth of 1.8% and 1.8% price mix contribution is almost 3.6% in the terminology of number of test growth. Now immediately post-COVID, we have seen significant growth in test per accession versus prior to COVID. But over time, we continue to see consistent and slight growth in test per accession quarter in and quarter out. Now longer term, we continue to believe that the mix growth will be supported by structural factors as well as our own strategic focus, as you've heard from Adam earlier, which, of course, include the considerations around the aging population, the health and wellness trend, the advancement in Diagnostics testing as well as the breadth of our testing menu and our focus on specialty testing.

And our next question comes from Elizabeth Anderson of Evercore ISI.

Maybe one on BLS. Obviously, nice to see this morning. If we think about Early Development, can you talk about from maybe a revenue perspective, like how much of the revenue improvement was sort of the end of the restructuring versus the end market improving there? Central Labs, obviously, continues to be strong. And then can you help us sort of decompose the bookings, just looking for a little bit more color there.

Sure. So if you look at BLS revenue, it increased 6.5% versus last year. So it was very strong. And it was driven by Central Lab that's really performing well, represents about 70% of the BLS segment. And the Central Labs grew 10% or on organic constant currency, it was about 8%. If you look at Early Development, it was down 1% reported, but it was up 3% on an organic constant currency basis. So we've certainly seen that business do a bit better than it has in the prior year or 2. If you look at ED, we continue to look at RFPs, which are strong. We look at our win rate, which remains consistent. We're also seeing study starts to be a bit more on time. So we were able to raise the guidance, frankly, to single-digit growth for that business for this year versus prior, it was relatively flat. And that's based upon a strong book-to-bill. For Early Development, you might recall that within a year, you can have a study start and finish. So you typically have a lower book-to-bill overall for Early Development, but those studies can start and end in the same point in the year. The strength in our book-to-bill was really driven by Central Laboratories. And if you look at the Central Laboratories, typically, the book-to-bill is for future years. So the strength in our book-to-bill for the quarter of 1.14 or 1.03 trailing 12 months bodes well for the Central Laboratory business as we look into the future.

And our next question comes from Michael Cherny of Leerink Partners.

Maybe just one quick clarification and then a build on that. Just on the guidance update for Diagnostics segment, is the 20 basis points of volume organic or inorganic in terms of what's changed? And then along those lines, looking at the trend file you sent out, there was a shift higher in patient responsibility as a percent of total revenue versus clients and third-party. Anything specific to call out there in terms of what you're seeing?

Yes. I would say -- I'll answer the second question first. If you look at some of the patient pay, typically, the second quarter has been a bit higher than other quarters. And patient pay includes a lot of things, co-pays, deductibles as well as patients buying direct. We have seen double-digit growth in our Labcorp OnDemand test, which will be included in patient self-pay. And the good news about that is patients pay upfront, so it doesn't increase bad debt. If you look at our bad debt, it remains consistent, and we haven't seen any significant increases there even with that patient pay. So the more growth we get from Labcorp OnDemand, you will see that fall into the patient pay.

Yes. And the only thing I would add on that patient responsibility and bad debt topic is that if you look at our bad debt as a percentage of revenue for the diagnostic business, it continues to be in line with prior year as well as historical benchmarks. So from that standpoint, we continue to work very hard on the collection efforts to ensure that we manage it very effectively. I think, Michael, the other question you have is as it relates to the midpoint of the revenue guide raise for Diagnostics. Now, as you might be familiar with our practice, at the beginning of the year, we generally would be planning for certain in-year revenue for deals that we might not necessarily have already inked, so to speak, but have line of sight. But once we got to a point where we feel much more confident about the ability to close and generate revenue in the year, we will move that to the respective segment. And in this particular case, we are moving that revenue expectation from corporate into the Diagnostics segment because at this moment, we feel more confident about our ability to deliver against that expectation.

And our next question comes from Jack Meehan of Operon Research.

I wanted to push a little bit more on the diagnostic lab organic growth. The 3.6%, that's nothing to scoff at here, but it comes after a notably stronger print from your closest peer. So I was just curious, like, as you kind of look at the landscape, how much of this delta do you think is either competitive or market or just like a conscious decision not to chase certain hospital arrangements that are lower margin or just something else like help us interpret it.

Yes. No, thank you, Jack, for the question. And if you look at the Diagnostics business, as you said, 3.6% organic growth is a good number. But importantly, if you look at our margin, our margin for the quarter improved 50 basis points. And that is already after we've lapped Invitae. So that's -- and historically, people have said, well, you're lapping Invitae, of course, your margins improved. This is after that. So what we're doing is we're focusing on high-growth areas like the specialty oncology, women's health, autoimmune disease, and neurology. We're focusing on higher margin segments. And in some of the lower-margin segments such as some of the partnerships in the consumer area, we've not focused because we have so many other growth opportunities, including our Central Laboratory business, including some of the other hospital deals that we feel very confident with the guidance that we've given that it's a very high-quality, strong set of guidance that's not only good top line growth, but also with margin expansion.

Jack, to build on what Adam just shared, I'd like to provide some additional color as it relates to our margin progression. I would start by saying that we continue to be very pleased with our operating margin expansion trajectory. For perspective, Q2 of this year represents the fifth consecutive quarter that we have been able to expand our operating margin for the enterprise as well as for both of our operating segments. As we just shared in the release this morning, in the second quarter, we delivered 70 basis points of enterprise margin expansion versus prior year. And as Adam also pointed out, if you look at the segment, we improved about 50 basis points in Diagnostics, and we expanded the BLS segment margin by 130 basis points versus prior year. Now as you look at the full year 2026, consistent with our communications, we continue to expect another year of meaningful margin improvement in both segments. And we also continue to expect even greater margin expansion year-over-year by the BLS segment than the Diagnostics segment. So overall, I would say that as an enterprise, we have been highly focused on driving durable top line growth that is profitable. And our relentless focus has clearly been reflected in our financials, including the operating margin trajectory.

And our next question comes from Michael Ryskin of Bank of America.

Maybe let's shift to specialty testing and oncology specifically. You talked about, I think, double-digit growth in specialty in the first half. I don't know if that accelerated or not in the second quarter. I think you only gave a first half number. But would just love to hear more about how that's doing, also double digit is sort of a broad range. What I'm trying to get at is sort of how impactful is that to the 3.6% organic growth that you've been talking about in the Dx business? How much that's moving the needle, whether it is some of the newer updates and portfolio expansions that you've talked about, whether it's ColoSense or some of the organic investments? And just sort of how much upside do you think that could be providing to the second half and beyond?

Yes. Thank you for the question, Michael. As I think about oncology, we've made significant progress in that area over the years, whether it be in solid tumor capabilities or it be in liquid capabilities, whether it be through partnerships like screening with ColoSense or it be an MRD, where we've launched products for lung cancer, colorectal cancer, breast cancer, we continue to make extraordinary progress in bringing new tests to market in that area. Now when you do 750 million tests per year, it takes a lot to move the needle. And when you look at that 3.6%, you think about the 3.6% of the base, it still takes a lot to move that needle. There's no doubt that the oncology market will continue to grow well. We expect it to continue to grow 2 to 3x faster than the overall market. But what's really important is to think about the oncology patient versus just thinking about an individual oncology test. And let's say you do therapy selection for a patient and a patient ends up on an immunotherapy. The amount of tests that a patient on an immunotherapy will have over the course of the year is very significant. And what Labcorp offers is over 6,500 different tests so that the oncologists can use all the tests that they feel is appropriate for that patient from one place. So I think when you see the number of tests per accession increasing, you can start to see that, that can be driven by some of these patients. You also saw our neurology business, and that continues to have very strong double-digit growth there as well. We haven't disclosed the size of that business yet, but it is certainly becoming a significant portion of our specialty business within Diagnostics. So those areas are important in themselves. It's important scientifically that we'd be seen as good as we are scientifically, but it's also important for us to offer to the physician all the needs that a patient may require.

And our next question comes from David Westenberg of Piper Sandler.

So I want to go on some of the self-collection and kind of how that might change the future of lab medicine. So just a couple of different concepts I was hoping you can touch on. First, I wanted to know if there is a number of patients out there that might not be accessing health care due to maybe transportation problems or fear of needles. And then over the longer term, I wanted to get your kind of thoughts on self-collection and cost of goods sold and margin. I would assume there's going to be some changes over time in kind of costs, but I also would think about maybe some of the overhead savings or anything like that. So I do think this is a concept that's going to change the industry, maybe not next year, but maybe over the next 5 years. So I'd love to get your thoughts on that.

Yes. Thank you for the question, David. And we actually invest in companies that are working on various self-collection capabilities. And there will be certain times that self-collection will make sense. So even today, there are certain tests that people can do at home with a drop of blood that they can send into a Central Laboratory, one of our laboratories, and we can run a test for them. I do think over time, you'll be able to get blood through capillaries and so forth. But when you think about like an oncology patient or a neurology patient and you think about the amount of blood and the number of tools or the number of tubes that you have to take, it's hard to see a way that home collection can get to that level. And the question is going to be for what level of patients will they want to do home collection versus if they have to take significant blood, having to go to a phlebotomist at any rate. And we continue to watch that closely. We want to make sure we have both offerings for patients depending on what their needs are and then make it a patient decision. And for the reasons you said, there's pros and cons from an economic profile to both ways, either phlebotomy or at-home collection. But I don't think it's going to be one or the other. I think you're going to need a combination of both. And I think for a relatively healthy patient looking for a limited number of tests, you could probably do at-home collection years from now. But if it's a chronically ill patient that needs significant amount of tests, it's hard to see a path forward at this moment, but we'll continue to monitor that over time.

And our next question comes from Pito Chickering of Deutsche Bank.

A follow-up on Elizabeth's questions on BLS. Just can you talk about specifically for earlier-stage development, how the market looks, how the new deals look, like, how is your win ratio? And how is pricing and how these strategic actions can impact margins in the back half of the year?

Yes. So let me start and then Julia can talk a bit about margins. So first of all, I'd say the BLS business in general had a very strong quarter, and it was driven by strength in our Central Laboratory, which is 70% of that total business. If you look at Early Development, we made some strategic decisions. We've announced all of the ones that we are going to put in place, and we've begun and we've mostly completed implementing those announcements. So we've really told everybody what we were going to do, and we went out there and we did it, and we're implementing it very well. And you see that in some of the margin expansion, obviously, for BLS. You also can see that in the growth that we're seeing in Early Development now. I think the strategic decisions we made were really smart and good decisions. If you look at RFPs, they remain strong. I wouldn't say that they've increased significantly, but they have been strong. Our win rate is very consistent. Win rate to me is kind of a sense of market share, and our market share has remained consistent for quite some time. But we are seeing study starts to be a bit more on time where historically, we're seeing the study starts delayed a bit. And I think that's helping us as we go through the first half of this year and gives us confidence as we go into the second half of the year. And if you look at the book-to-bill, for Early Development, there's always a certain amount that you count on getting the trials within the year to start. And we see those in our pipeline. We see those in our book-to-bill, and we feel good about that. And that's why we're able to raise the revenue guidance for Early Development.

Yes. In terms of the margin, while we do not break out the 2 business units within the BLS segment, but what I can share is the following. As you can see in the first quarter, we improved the BLS segment margin by 60 basis points versus prior year. And in the second quarter, we expanded 130 basis points of margin. When you think about the drivers, they are really primarily 2 sources. First of all, is the continued strength in the top line growth in Central Labs. And the second area of margin driver is really the strategic action that we have taken in ED, and that started contributing in a relatively meaningful way in the second quarter. Now as you move through to the third and the fourth quarter, a couple of dynamics to be mindful of. First of all, we've always said that from a seasonality and the cadence perspective, the operating margin for the BLS segment generally strengthens throughout the year. Second of all, we've also shared that the strategic actions for ED have already all been announced and largely complete. Therefore, in the second half of the year, you can expect both the strong top line growth in Central Labs and the strategic actions taken in ED to help us drive further margin expansion. Lastly, I would say, we also reiterated our expectation that for full year 2026, the margin expansion for BLS as a segment is expected to outpace that for Diagnostics. And when you combine the margin expansion expectations for both operating segments, that gives us confidence to really guide for a full year EPS growth at the midpoint of over 11% for 2026.

And our next question comes from Erin Wright of Morgan Stanley.

You launched a new consumer offering marker. Can you just detail a little bit on your overall consumer strategy at this point around DTC testing? And do you expect this to move the needle for you? How do you think about the opportunities to partner across the consumer-driven health care ecosystem versus your own organic initiatives? And it sounds like you're mindful of the profitability and durability of some of these either partnerships or offerings on the DTC front. So how do you kind of balance that?

Yes. No, thank you for the question, Erin. So our Labcorp OnDemand business continues to perform well, and it's delivering strong double-digit growth versus last year. We've been strategically investing in our consumer space through our innovative testing solutions, and we're making sure that the customer experience is actually meeting the patients where they are, and we're giving a very good patient experience. If you look at our OnDemand now, Erin, we have about 200 biomarkers. It's actually just over 200 biomarkers, which gives them the ability to take a more proactive approach to their health care wherever they would like to take that in areas like cancer screening, men and women's health. We have things for allergies and wellness. You mentioned that we also expanded our OnDemand, where in August, we're going to launch a genetics offering called Marker by Labcorp. And that's going to give them a single destination for consumers that want both biomarker and genetic testing through Labcorp, which is a trusted brand for them. So we are really focused on bringing to market through Labcorp OnDemand. We do look at all of the other alternatives in the marketplace. I can tell you most of those companies would love to work with us, but we want to make sure that we have a good margin profile that we understand the floor of where the price can go because a lot of those consumer markets, the price continues to decline over time. And we just feel like we have so many other growth opportunities in higher margin, higher quality revenue that we're going to focus on our Central Laboratory business, our health system business, our specialty testing business, and then our Labcorp OnDemand business, which also has a relatively good margin similar to our other businesses.

And our next question comes from Ann Hynes of Mizuho.

I just want to focus on the ACA and also bad debt where the hospital peers have noted a deterioration in collectibility of even the insured population. And I know that you don't have much bad debt related to your hospital partnerships. But just from the physician and your service centers, can you remind us what your ACA guidance assumes for bad debt and maybe what your Labcorp policy is and if you're seeing any signs in kind of this deterioration of co-pays, that would be great.

So let me start. First of all, if you look overall at our bad debt, we have not seen a significant increase in our bad debt. If you look at the ACA, we built in 30 basis point impact. The ACA total amount of our business is less than 5%. So it's very small. And we think for the full year, it's about a 30 basis point impact. If you look at our hospital business, which is kind of a surrogate to part of what you're asking, we continue to see growth in the hospital laboratory businesses to where we would expect that growth to be. And we've actually seen a bit of accelerated growth in the hospital reference business, which is a good place to be. So overall, we're not seeing the impact of some of our other customers may be seeing, and it could be the mix of patients, whether they're relatively healthy versus chronic disease and so forth. But as we look at our business, we feel confident in the guidance that we increased and provided today. We feel confident in our diagnostic business and what we provided today as well.

Yes. And just for perspective, right, if you look at our payer mix for the last few years, it has really stayed relatively consistent and also, as we shared earlier on the call, our bad debt as a percentage of revenue for Diagnostics really continues to be in line with our prior experiences and -- which is typically just less than around like 5% of our revenue. So as you can expect, this is an area of heightened organizational focus for us, and we continue to work extremely diligently to ensure that we manage it appropriately and effectively.

And our next question comes from Tycho Peterson of Jefferies.

Maybe 2 quick ones. First, on capital allocation, just thinking about the M&A funnel. Is there a stronger appetite to look at some of the hospital labs amid some of the ACA noise that is out there? Does that change your kind of lens on M&A? And then second unrelated one, just on PAMA, any visibility into the ongoing data submissions from the independent labs? And I think there was another crush request for information as well. Just maybe touch on that as well.

Yes, Tycho. So first of all, our pipeline for deals is very strong, and it continues to be very strong. And I do think that hospitals are feeling additional pressure, not just from ACA, but as they think about it, PAMA is going to occur next year that feel even some additional pressure potentially. So I would say that we have a very high bar. It has to be accretive in the first year, return its cost of capital in 2 to 3 years and be a partner that we can work very well with to help with the integration. If it meets that financial criteria, we are open to it, and that pipeline remains strong, and I'm excited about the things in our pipeline. So stay tuned. Separate and distinct from that, you mentioned PAMA. The submission date is tomorrow, the 31st. We've obviously submitted our data. We probably won't have significant insight into how many other laboratories submitted their data until October time frame. So stay tuned for that. What I can say is, the RESULTS Act continues to be focused on by our trade group as well as us. I think we're making real progress. We have real bipartisan support, both in the Senate and Congress and even the physicians in Congress have cited that they believe the RESULTS Act is a good legislative package to approve. So we're going to continue to march forward with that. It's hard to predict what happens with legislation, particularly in November with elections and so forth. Our backup will be to see if there's a way to have another delay of PAMA. And then we're always going to plan that if it occurs, we'll have a really strong plan next year. And if it doesn't occur, the plan will be even stronger. And we look forward to discussing that in more detail in September at our Analyst Day.

And our next question comes from Luke Sergott of Barclays.

This is Anna Kruszenski on for Luke. I appreciate you guys squeezing us in here. Wanted to ask about how early adoption is going for the ColoSense test that you launched in June. And if you could talk about reimbursement dynamics and just overall, how that's been going so far.

Yes. No, thank you for the question. So first of all, we're excited to bring another option to market for noninvasive colorectal screening. So ColoSense is FDA approved. It's at-home collection tool-based and it's for average-risk adults above the age of 45. We think it's an opportunity to expand screening options that are out there. There's still a lot of people that should be screened that are not screened. And I look at it as another important alternative to be considered for patients. The early signals, I would say, are encouraging. We launched it nationally in June, positive market reception by the American Cancer Society. It was included in their guidelines. We have CMS coverage. Early signals are encouraging, but it's still very early. And we have to really focus on getting broad payer access, and that just takes time. So stay tuned, and we're going to continue to work on access.

And our next question comes from Yujin Park of Baird.

I just wanted to follow up on Early Development margin. So outside of the strategic actions benefiting margin, can you talk more about the underlying margin improvement? And where do you see opportunities? And if there were any changes you see on the pricing side?

Yes. So let me start and Adam, please chime in. I would say a couple of things to consider, right? So when you think about margin, first and foremost, start with the top line growth. And in terms of the pricing for ED, it has been relatively flat. Therefore, to the extent that we could get into a trajectory of generating organic constant currency top line growth, that is going to be a key source of our margin expansion in addition to the strategic actions that we have taken. Now given that at this point in time, we have announced all the actions and they are largely complete. As I look out for the second half of this year, I believe we are very well positioned in continuing to expand the margin for the BLS segment, inclusive of ED to be able to contribute to our overall enterprise adjusted EPS expectation of over 11% of the midpoint of our guidance.

Well, thank you, everybody, for joining us today, and we look forward to seeing you all soon. Have a great day.

This concludes the question-and-answer session and today's conference call. Thank you for participating, and you may now disconnect.