Adam Schechter: Yes. What I would say right now. It’s not a large part of our business. It’s a very small part of our business, but it’s an important part because there are new therapies that we believe will become available over time it’s such an important disease and it’s growing in the United States and around the world. So we want to have the broadest portfolio for physicians to use to help with the diagnosis and monitoring of Alzheimer’s patients. But once again, many of those patients not only need these Alzheimer’s test, but they use a lot of routine tests as they learn to diagnose these patients and monitor them over time. I would expect, over time, that market will grow, those tests will grow, but I think it will be to some degree, commensurate with how fast the overall prescription drug market grows because when diagnosed, the physicians also want to know what can I do about that? And what should I do about that?
Operator: Thank you. One moment for our next question. And our next question comes from Eric Coldwell of Baird. Please go ahead.
Adam Schechter: Good Morning, Eric.
Eric Coldwell: Good Morning. It’s going to be an embarrassing question when you’re afraid to ask it, but on the NHP and the pricing comments, I’m curious if you could give us any more detail on where your pricing is today. What it looks like going forward versus the recent past? One of your smaller competitors recently shared with the Street that it saw pricing down about 18% versus last quarter. I’m curious if you could frame it for you. And then I believe at the top of the market, NHP was about half of your early development work in total. I’m curious if you could give us a sense of what that mix looks like today.
Glenn Eisenberg: Yes. Eric, with regard to NHP pricing. We’ve not given what the step down in the pricing has been and obviously, it impacts the mix and where we get the primates from and where they’re used in the studies. What we’ve commented is that it’s been a nice reduction in the price from when we were capacity constrained and obviously, the prices were significantly higher and I think Adam referenced this earlier as well that from our perspective, while it impacts our revenues, it’s really not impacting our profitability because most of the step down in the price of NHPs were pass-through. So the positive is it shows us a lower cost for our customers to get their studies done. So they’re seeing the benefit of it without a negative impact from us overall. To your point, roughly half of the studies that we do are in HP based with the other half that are not, that mix really hasn’t changed very much.
Eric Coldwell: Thanks, Glenn. I appreciate that, just maybe another macro question. The HLM deals come in at a lower margin, as you’ve always said, and you’ve done a flurry of them here recently and then the very big deal with Ascension. I know you’re talking about improvements as you integrate and get those onboarded each over the next year each time. But could you give us an update on where Ascension is at this point, kind of the journey on that contract from the beginning to the present and how it’s stacking up on a margin profile and possibly also a revenue profile versus your original expectations?
Adam Schechter: Yes, I’ll let Glenn answer that question. Eric, before you guys, I think it’s important to note that no two hospital deals are exactly the same, and it really is three pieces to them, right? There’s a lab management part where you run a hospital’s labs, there’s the outreach business and there’s the referral business. Ascension was kind of an outlier to most of the deals that we do because so much of it was the lab management part of the business, and that has by far the lowest margin that starts out low improves over time. Most of the deals that we do, they start out with a lower margin, but overall, with the kind of portfolio of the three types of business, they get to about our average margins over time. So that’s the typical deal since it’s a bit of an outlier, but maybe you can talk about Ascension.
Glenn Eisenberg: Yes. No, I think that’s right. Especially given the size of the transaction overall. Let alone the percentage that was live management, but we normally, in Ascension, was a good example. Let’s say, would be starting a mid-single-digit kind of margin, obviously, mixing us down that we’ve talked about and then we normally see the margin step up over the years. With that one, while we expect to see a step up, probably not as strong in just the second year of ownership as relative to others is we continue to share on a value basis, if you will, some of the synergies and the savings that we get, we’re obviously passing on to that our large partner there and thereafter starting to see the step up. So positive direction, but we’ll see more of an incremental improvement next year.
Adam Schechter: And the revenue for that looks very strong. It’s slightly above what we had guided to originally.
Eric Coldwell: Okay. Thanks very much, guys.
Adam Schechter: Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Michael Ryskin of Bank of America. Your line is open.
Adam Schechter: Good morning, Michael.
John Kim: Hello. Good morning. This is John Kim on for Mike.
Adam Schechter: Good morning, John.
John Kim: So you’ve done a lot of deals. You have Invitae, BioReference and the three health system agreements that you closed in the first quarter and Glenn, you talked about how, given the range that in detail would be included in the top end of the guidance. So could you just update us on your thoughts on the deal funnel and your capital allocation priority? Are there any other larger deals, independent labs or health systems that are still coming our way?
Glenn Eisenberg: Yes. Thanks, so when you think about — to your point, the transactions that we’ve done this year and as we commented, embedded in our guidance is the assumption. That we’ll use our free cash flow for acquisitions, dividends and share repurchases. We have been — this has been a good year for M&A. We’ve always talked about that we’ve had a strong pipeline of deals, and we’re seeing them come to fruition this year. But between the three deals that we closed in the first quarter, the announcement of BioReference and Invite, you’re looking from an M&A standpoint over $700 million of capital allocated to M&A this year. And then you put that with the dividends, you’re getting closer to $1 billion. So, on the positive side.
We had a strong balance sheet. So another $100 million of call it, free cash flow is that will be used between M&A and share repurchases. But we’re currently leveraged at around 2.5 times debt-to-trailing 12 months EBITDA, and we’re at the low end of 2.5 times, and we give a targeted range of 2.5 to 3. So within that, call it, 0.5 point on a, call it, a $2 billion plus EBITDA basis. We have another $1 billion of capacity. So we’ll still have a lot of financial flexibility to do share repurchases, to do tuck-in acquisitions that we feel are strategic, but we feel very good about the deals that we’ve announced this year. Obviously, we’ll spend a lot of time integrating them into the company, but we have the — obviously, the financial flexibility as well as still a good pipeline of potential opportunities on the deal front going forward.
John Kim: Got it. I appreciate that. And if I could ask one on the biopharma early development, so you talked about the cancellations coming down still a little high. But I wanted to ask, you previously talked about targeting perhaps medium-sized clients. Any — has there been any shift or your win rates are good and last in the central lab, has there been any shift in that direction in terms of garnering attention or RFP from the medium-size clients?
Adam Schechter: Yes, so we’re trying to improve our mix to more larger to medium-sized clients. It takes some time because many of those clients have master service agreements and you have to wait for us to expire or find ways to be part of those. But over time, I’m confident that we’ll continue to shift the mix more towards the medium to larger size pharma.
John Kim: Got it. Appreciate that. Thank you.
Adam Schechter: Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Brian Tanquilut of Jefferies. Your line is open.
Adam Schechter: Good morning, Brian.
Brian Tanquilut: Good morning, I guess my question for you guys. In the past, as we thought about hospital lab acquisitions and outsourcing contracts, the distress in the space or the pressures in the hospitals was one of the driving factors. So as we’re seeing broad utilization pickup in the hospital industry health seems to be improving. Adam, have the conversations changed? Or what does that pipeline look like today? And yeah, just curious what those dynamics are and how they’re playing into future deals and agreements with hospitals?
Adam Schechter: Yes. No, it’s a good question, Brian, and it’s good news that the systems are doing better and that the hospitals are performing better. I think that’s good for all of healthcare, frankly. So I’m pleased that they are beginning to rebound and do better. The interesting thing was before the issues with the health systems, a lot of the discussion was, can you do it and can you do it well? And should we take the risk that things aren’t going to go well. Because we’ve done so many in so many large institutions, I don’t think people have that question anymore. They realize that we are really good at this, that we can manage it better than they probably can by themselves that we’ll have no physician interruption or patient interruption of note.
So therefore, they’re willing to look and talk to us about continuing to do these deals. Now I think there was a sense of urgency that caused these deals to move quicker in the past. So I’m not quite sure the sense of urgency is there as much as it was before. But the number of discussions and the types of discussions we’re having remain very good.
Brian Tanquilut: Awesome. Thank you.
Adam Schechter: Yes. Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Pito Chickering of Deutsche Bank. Your line is open.
Adam Schechter: Good morning, Pito.
Kieran Ryan: Hi there. You’ve got Kieran Ryan on for Pito. Thanks for taking the questions.
Kieran Ryan: I noticed you didn’t touch on waiver when discussing the diagnostic margin drivers. I think one of your peers cited some modest improvement in the environment. So can you just give us an update on what you’re seeing on labor as it relates to things like wage growth and turnover?
Adam Schechter: Yes, so I’ll start with turnover, and I’ll give a sense. Overall, across Labcorp, our turnover is better now than it was last year or the year before that. In our biopharma business, I’d say it’s back to pre cover levels, maybe even a little bit better. So the turnover there has really improved. In our diagnostics, we see in certain areas, there’s still a higher turnover than what we would have seen prior to the pandemic, particularly in frontline employees, where they have not only other choices in healthcare, but in other industries. But even there, we start to see less, turnover than what we’ve seen in the past. There’s been a significant inflation of cost due to retaining employees in the past as we go forward. I think it will move back more towards the level of inflation of about 3% or so.
