Labcorp Holdings Inc.
02/24/2026 | Press release | Distributed by Public on 02/24/2026 12:52
Annual Report for Fiscal Year Ending 12/31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL (dollars in millions)
For the year ended December 31, 2025, the Company's revenues were $13,951.7, an increase of 7.2% from $13,008.9 for the corresponding period in 2024. The 7.2% increase in revenues for the year ended December 31, 2025, as compared to the corresponding period in 2024, was primarily due to organic revenue of 4.4%, acquisitions, net of divestitures of 2.5%, and favorable foreign currency translation of 0.4%.
The Company defines organic growth as the increase in revenue excluding the year over year impact of acquisitions, divestitures, and currency. Acquisition and divestiture impact is considered for a 12-month period following the close of each transaction.
On June 30, 2023, the Company completed the Spin-off. The TSA dated June 29, 2023 between Fortrea and LCAH expired on June 30, 2025, and all services provided under the TSA terminated on or before the expiration date.
On July 4, 2025, the U.S. government enacted the OBBBA, which includes provisions addressing regulations and federal funding affecting healthcare. These provisions include, but are not limited to, changes to Medicaid and the ACA, and could lead to revised regulatory requirements and reduced federal funding. As a result of these changes, the Company could experience a decline in utilization of its diagnostics testing services due to a reduction in overall insurance coverage, which may cause the Company's revenue to decrease. However, the Company currently believes any such reduction would not likely have a material impact on its results of operations in future periods. The potential impacts described above represent the Company's assessment at this time, and the Company will continue to evaluate the impact of the OBBBA on its business and operations, if any, as the legislation's provisions continue to become effective through 2028.
RESULTS OF OPERATIONS (dollars in millions)
The following tables present the financial measures that management considers to be the most significant indicators of the Company's performance. For the discussion of 2024results and comparison with 2023results refer to "Management's Discussion and Analysis of Financial Conditions and Results of Operations"in the Company's Annual Report on Form 10-K for the year ended December 31, 2024.
Revenues
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Dx | $ | 10,876.5 | $ | 10,144.3 | 7.2 | % | |||||||||||
| BLS | 3,098.2 | 2,922.6 | 6.0 | % | |||||||||||||
| Intercompany eliminations and other | (23.0) | (58.0) | 60.4 | % | |||||||||||||
| Total | $ | 13,951.7 | $ | 13,008.9 | 7.2 | % | |||||||||||
Dx revenues for the year ended December 31, 2025, were $10,876.5, an increase of 7.2% compared to revenues of $10,144.3 in the corresponding period in 2024. The increase was primarily due to organic revenue of 4.1% and acquisitions, net of divestitures of 3.2%, partially offset by unfavorable foreign currency translation of 0.1%.
Dx total volume, measured by requisitions, increased by 3.7%, as organic volume increased by 2.2% and acquisition volume, net of divestitures, contributed 1.5%. Price/mix increased by 3.5% due to organic growth of 1.9% and acquisitions, net of divestitures, of 1.7%, partially offset by unfavorable foreign currency translation of 0.1%.
BLS revenues for the year ended December 31, 2025, were $3,098.2, an increase of 6.0% over revenues of $2,922.6 in the corresponding period in 2024. The increase in revenues was primarily due to organic growth of 4.0% and favorable foreign currency translation of 2.0%.
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Cost of Revenues
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Cost of revenues | $ | 9,939.2 | $ | 9,384.5 | 5.9 | % | |||||||||||
|
Cost of revenues as a percentage of revenues
|
71.2 | % | 72.1 | % | |||||||||||||
Cost of revenues increased 5.9% for the year ended December 31, 2025, as compared with corresponding period in 2024, and decreased as a percentage of revenues to 71.2% for the year ended December 31, 2025, as compared to 72.1% for the corresponding period in 2024. This decrease was primarily due to operational efficiencies and the impact from revenue growth, including the performance of Invitae.
Selling, General, and Administrative Expenses
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Selling, general, and administrative expenses | $ | 2,216.3 | $ | 2,230.0 | (0.6) | % | |||||||||||
|
Selling, general, and administrative expenses as a percentage of revenues
|
15.9 | % | 17.1 | % | |||||||||||||
Selling, general, and administrative expenses as a percentage of revenues decreased to 15.9% for the year ended December 31, 2025, as compared to 17.1% for the year ended December 31, 2024. The decrease was primarily due to growth in demand as the Company leveraged the growth of its revenues and a decrease in costs related to the Spin-off, partially offset by higher personnel costs and the impact from Invitae.
Amortization of Intangibles and Other Assets
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Amortization of intangibles and other assets | $ | 280.0 | $ | 256.4 | 9.2 | % | |||||||||||
The increase in amortization of intangibles and other assets primarily reflects additional amortization for assets acquired subsequent to December 31, 2024.
Goodwill and Other Asset Impairments
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Goodwill and other asset impairments | $ | 4.3 | $ | 5.3 | (18.9) | % | |||||||||||
The impairment charges for the year ended December 31, 2025, were primarily due to the write-off of certain facility-related assets and capitalized software costs. The impairment charges for the year ended December 31, 2024, were primarily due to the decommissioning of an information system and a robotic asset.
Restructuring and Other Charges
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Restructuring and other charges | $ | 127.2 | $ | 46.0 | 176.5 | % | |||||||||||
For the year ended December 31, 2025, the Company recorded net restructuring charges of $127.2, including $105.5 of charges associated with the restructuring of ED. The charges were comprised of $101.3 in long-lived asset impairment and other non-cash charges, $27.2 in severance and other personnel costs, $17.9 in facility-related costs, and $13.9 in contract termination costs. The charges were adjusted by the reversal of previously established liabilities of $33.1.
For the year ended December 31, 2024, the Company recorded net restructuring charges of $46.0. The charges were comprised of $43.0 in severance and other personnel costs and $5.9 in facility-related costs primarily associated with general integration activities. The charges were adjusted by the reversal of previously established liabilities of $2.9.
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Interest Expense
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Interest expense | $ | 224.1 | $ | 208.3 | 7.6 | % | |||||||||||
For the year ended December 31, 2025, interest expense increased 7.6% as compared with the corresponding period in 2024. The increase was primarily due to higher weighted-average interest rates during the year ended December 31, 2025, when compared to the year ended December 31, 2024.
Equity Method Loss, Net
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Equity method loss, net | $ | (13.3) | $ | (1.4) | (866.3) | % | |||||||||||
Equity method loss, net represents the Company's ownership share in joint venture partnerships along with equity investments in other companies in the health care industry. The increase in Equity method loss, net for the year ended December 31, 2025, as compared with the corresponding period in 2024, was primarily due to the loss recognized from the SYNLAB investment that closed in the first quarter of 2025.
Other, Net
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Other, net | $ | (55.0) | $ | 60.2 | (191.4) | % | |||||||||||
The change in Other, net for the year ended December 31, 2025, as compared to the year ended December 31, 2024, was primarily due to the TSA expiration resulting in a $76.2 decrease of fees charged to Fortrea for the year ended December 31, 2025, as compared with the corresponding period in 2024, related to the provision of administrative and information technology systems support. The costs to provide these transition services were included in Operating income, but the service fees were included in Other, net. In addition, there were net investment losses of $42.6, recorded during the year ended December 31, 2025, compared to net investment losses of $11.4 for the corresponding period of 2024, which are primarily driven by a decrease in the value of investments in other companies or investment funds that develop technology relating to the Company's operations.
Provision for Income Taxes
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
|
Provision for income taxes
|
$ | 229.8 | $ | 212.4 | |||||||
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Provision for income taxes as a percentage of earnings from operations before income taxes
|
20.7 | % | 22.1 | % | |||||||
The decrease in the effective tax rate for the year ended December 31, 2025, as compared with the corresponding period in 2024, was primarily attributable to the release of specific uncertain tax positions.
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Results of Operations by Segment
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||
| Dx segment operating income | $ | 1,779.9 | $ | 1,606.3 | 10.8 | % | ||||||||||||||
| Dx segment operating margin | 16.4 | % | 15.8 | % | 0.5 | % |
(1)
|
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| BLS segment operating income | 498.5 | 458.9 | 8.6 | % | ||||||||||||||||
| BLS segment operating margin | 16.1 | % | 15.7 | % | 0.4 | % | ||||||||||||||
| Segment operating income | 2,278.4 | 2,065.2 | 10.3 | % | ||||||||||||||||
| General corporate and unallocated expenses | (482.2) | (670.8) | (28.1) | % | ||||||||||||||||
| Amortization of intangibles and other assets | (280.0) | (256.4) | 9.2 | % | ||||||||||||||||
| Restructuring and other charges | (127.2) | (46.0) | 176.5 | % | ||||||||||||||||
| Goodwill and other asset impairments | (4.3) | (5.3) | (18.9) | % | ||||||||||||||||
|
Total Operating income
|
$ | 1,384.7 | $ | 1,086.7 | 27.4 | % | ||||||||||||||
(1)Amount does not cross-foot due to rounding.
Dx segment operating income was $1,779.9 for the year ended December 31, 2025, an increase of 10.8% from operating income of $1,606.3 in the corresponding period of 2024, and Dx operating margin increased approximately 50 basis points year-over-year. The increase in operating margin was primarily due to increased organic revenue growth, including the performance of Invitae.
BLS segment operating income was $498.5 for the year ended December 31, 2025, an increase of 8.6% from operating income of $458.9 in the corresponding period of 2024, and BLS operating margin increased approximately 40 basis points year over year. The increase in operating margin was primarily due to increased organic revenue growth and operating efficiencies, partially offset by higher personnel costs.
General corporate expenses are comprised primarily of administrative services, such as executive management, human resources, legal, finance, corporate affairs, and information technology. Corporate expenses were $482.2 for the year ended December 31, 2025, a decrease of 28.1% over corporate expenses of $670.8 in the corresponding period of 2024, primarily due to decreases in acquisition-related costs and costs related to the Spin-off.
LIQUIDITY AND CAPITAL RESOURCES (dollars and shares in millions, except per share amounts)
The Company's cash-generating capability and financial condition typically have provided ready access to capital markets. The Company's principal source of liquidity is operating cash flow, supplemented by proceeds from debt offerings. The Company's senior unsecured revolving credit facility is further discussed in Note 11 Debt to the Company's Consolidated Financial Statements.
In summary the Company's cash flows were as follows:
| Year Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Net cash provided by operating activities | $ | 1,640.5 | $ | 1,585.8 | |||||||
| Net cash used for investing activities | (1,194.0) | (1,366.8) | |||||||||
|
Net cash (used for) provided by financing activities
|
(1,457.0) | 779.9 | |||||||||
| Effect of exchange rate on changes in cash and cash equivalents | 24.1 | (17.0) | |||||||||
|
Net (decrease) increase in cash and cash equivalents
|
$ | (986.4) | $ | 981.9 | |||||||
Cash and Cash Equivalents
Cash and cash equivalents at December 31, 2025, and 2024, totaled $532.3 and $1,518.7, respectively. Cash and cash equivalents consist of highly liquid instruments, such as time deposits and other money market investments, which have original maturities of three months or less.
Cash Flows from Operating Activities
During the year ended December 31, 2025, the Company's operations provided $1,640.5 of cash as compared to $1,585.8 in 2024. The $54.7 increase in net cash provided from operations in 2025, as compared with the corresponding 2024 period, was primarily due to higher cash earnings, partially offset by working capital timing.
Cash Flows from Investing Activities
Net cash used for investing activities for the year ended December 31, 2025, was $1,194.0 as compared to $1,366.8 for the
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year ended December 31, 2024. The decrease in net cash used for investing activities for the year ended December 31, 2025 as compared to the year ended December 31, 2024, was primarily due to a decrease in business acquisitions and lower capital expenditures, partially offset by the investment in SYNLAB in 2025.
Capital expenditures were $434.5 and $489.9 for the years ended December 31, 2025, and 2024, respectively. Capital expenditures in 2025 were 3.1% of revenues, primarily in connection with projects to support growth in the Company's core businesses. The Company expects this level of spending to increase in 2026 to 4.0%, primarily in connection with projects to support growth in the Company's core businesses, facility expansion and updates, projects related to its LaunchPad initiative, and further acquisition integration initiatives.
Cash Flows from Financing Activities
Net cash used for financing activities for the year ended December 31, 2025, was $1,457.0 compared to net cash provided by financing activities of $779.9 for the year ended December 31, 2024. This movement in cash within financing activities for 2025, as compared to 2024, was primarily due to a decrease in proceeds from senior note offerings of $2,000.0, an increase in common stock repurchases of $199.9, and a decrease in proceeds from the Company's accounts receivable securitization facility of $75.0.
In addition to Cash and cash equivalents, the Company had $1,000.0 of available borrowings under its revolving credit facility, which was amended on June 27, 2025 and expires in 2030. Under the Company's credit facilities and indentures relating to the Company's senior notes and the accounts receivable securitization facility (AR Facility), the Company is subject to negative covenants limiting subsidiary indebtedness and certain other covenants typical for investment grade-rated borrowers, and with respect to the credit facilities, the Company is required to maintain certain leverage ratios. The Company was in compliance with all covenants under the credit facilities and the indentures related to the Company's outstanding senior notes and AR Facility at December 31, 2025. The Company expects that it will remain in compliance with all covenants associated with its existing debt obligations for the next 12 months.
In 2025, the Company borrowed an additional $225.0 under its AR Facility, bringing the amount outstanding to $525.0 at December 31, 2025.
On January 28, 2026, the Company amended its AR Facility. Among other things, this amendment extended the scheduled termination date to January 26, 2029 and permits the Company at its option to increase the facility limit from $700.0 to $825.0 at any time on or before May 29, 2026.
On July 24, 2024, the Board adopted a new share repurchase plan authorizing the repurchase of up to $1,000.0 maximum value of the Company's shares in addition to the remaining amount outstanding under the previous plan. At December 31, 2025, the Company had outstanding authorization from its Board to purchase up to $830.4 maximum value of Common Stock. The repurchase authorization has no expiration date.
For the year ended December 31, 2025, the Company paid $240.7 in Common Stock dividends. On January 14, 2026, the Company announced a cash dividend of $0.72 per share of Common Stock, or approximately $61.0 in the aggregate. The dividend will be paid on March 12, 2026, to stockholders of record of all issued and outstanding shares of Common Stock as of the close of business on February 27, 2026. The declaration and payment of any future dividends will be at the discretion of the Board.
Guarantor Information
In 2024, the Company, LCAH and U.S. Bank Trust Company, National Association (the Trustee) entered into a seventeenth supplemental indenture (the Seventeenth Supplemental Indenture) to the indenture, dated as of November 19, 2010, between LCAH and the Trustee (2010 Indenture). In addition, the Company, LCAH and the Trustee entered into the 2024 Indenture on September 23, 2024 (the 2024 Indenture, together with the 2010 Indenture, the Indentures). The Seventeenth Supplemental Indenture, among other things, provides for the full and unconditional guarantee by the Company of LCAH's obligations under the 2010 Indenture, and each series of senior unsecured notes issued and outstanding thereunder, and the 2024 Indenture provides for the full and unconditional guarantee by the Company of LCAH's obligations, and each series of senior unsecured notes issued and outstanding, thereunder (collectively, the Labcorp Holdings Guarantees). Also, the Indentures permit the Company to satisfy LCAH's reporting obligations so long as the Labcorp Holdings Guarantees remain in place and the Company's Consolidated Financial Statements and other information comply with the requirements of Rule 3-10 of Regulation S-X.
At December 31, 2025, there was $3,097.3 and $2,000.0 aggregate principal amount of issued and outstanding senior notes of LCAH, issued under the 2010 Indenture and the 2024 Indenture, respectively, that are fully and unconditionally guaranteed by the Company. Accordingly, pursuant to Rule 3-10 of Regulation S-X, separate consolidated financial statements of LCAH have not been presented. As permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized
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financial information for LCAH because the assets, liabilities and results of operations of LCAH are not materially different than the corresponding amounts in the Company's Consolidated Financial Statements and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Credit Ratings
The investment grade credit ratings from Moody's and S&P Global Ratings contribute to the Company's ability to access capital markets.
Off-balance Sheet Arrangements
The Company does not have any variable interest entities or special purpose entities whose financial results are not included in the Company's Consolidated Financial Statements.
The Company has a noncancelable contract with a vendor to purchase inventory supplies pursuant to which the Company is obligated to make expected total future minimum payments of $129.2, including $34.7 in 2026, $20.5 in 2027, and $74.0 in 2028.
Other Commercial Commitments
The Company has debt instruments outstanding. At December 31, 2025, the Company had total future payments of $5,622.6, with $500.3 payable within 12 months, which the Company anticipates refinancing in future periods.
The Company has leases for PSCs, laboratories and testing facilities, clinical facilities, general office spaces, vehicles, and office and laboratory equipment. At December 31, 2025, the Company had total future lease payments for short-term and long-term leases of $1,144.3, with payments of $234.4 due within 12 months.
At December 31, 2025, the Company had provided letters of credit aggregating approximately $110.2, primarily in connection with certain insurance programs that are renewed annually.
At December 31, 2025, and in connection with the pending acquisitions of select clinical laboratory assets from Empire City Laboratories, Inc. (Empire City) and select assets of the outreach business from Parkview Health System, Inc. (Parkview), the Company expects to pay up to $415.0, which includes $85.0 of consideration contingent on performance. The Empire City transaction closed during the first quarter of 2026. Subject to customary closing conditions and applicable regulatory approvals, the Company expects the acquisition of select assets from Parkview to close in 2026. See Note 4 Business Acquisitions and Dispositions to the Company's Consolidated Financial Statements for additional information.
Based on current and projected levels of cash flows from operations, coupled with availability under its revolving credit facility, the Company believes it has sufficient liquidity to meet both its anticipated short-term and long-term cash needs for the next 12 months and the reasonably foreseeable future; however, the Company continually reassesses its liquidity position in light of market conditions and other relevant factors.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles in the U.S., requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. While the Company believes these estimates are reasonable and consistent, they are by their very nature estimates of amounts that will depend on future events. Accordingly, actual results could differ from these estimates. The Company's Audit Committee periodically reviews the Company's significant accounting policies. The Company's critical accounting policies arise in conjunction with the following:
•Revenue recognition;
•Business combinations;
•Income taxes;
•Goodwill and indefinite-lived intangible assets; and
•Legal contingencies.
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Revenue Recognition
Dx
Within the Dx segment, a revenue transaction is initiated when Dx receives a requisition form to perform a diagnostic test. The information provided on the requisition form is used to determine the party that will be billed for the testing performed and the expected reimbursement. Dx recognizes revenue and satisfies its performance obligation for services rendered when the testing process is complete, and the associated results are reported. The Dx segment also enters into lab management agreements which have monthly and non-testing-based fees which are recognized each month as the services are provided. Revenues are distributed among four payer portfolios-clients, patients, Medicare and Medicaid, and third party. Dx considers negotiated discounts and anticipated adjustments, including historical collection experience for the payer portfolio, when revenues are recorded.
The following are descriptions of the Dx payer portfolios:
Clients
Client payers represent the portion of Dx's revenue related to physicians, hospitals, health systems, ACOs, employers, and other entities where payment is received exclusively from the entity ordering the testing service. Generally, client revenues are recorded on a fee-for-service basis at Dx's client list price, less any negotiated discount. A portion of client billing is for laboratory management services, collection kits and other non-testing offerings. In these cases, revenue is recognized when services are rendered or delivered.
Patients
This portfolio includes revenue from uninsured patients and member cost-share for insured patients (e.g., coinsurance, deductibles, and non-covered services). Uninsured patients are billed based upon Dx's patient fee schedules, net of any discounts negotiated with physicians on behalf of their patients. Dx bills insured patients as directed by their health plan and after consideration of the fees and terms associated with an established health plan contract.
Medicare and Medicaid
This portfolio relates to fee-for-service revenue from traditional Medicare and Medicaid programs. Net revenue from these programs is based on the fee schedule established by the related government authority. In addition to contractual discounts, other adjustments including anticipated payer denials are considered when determining net revenue. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to Dx's results of operations in any period presented.
Third Party
Third party includes revenue related to MCOs. The majority of Dx's third-party revenue is reimbursed on a fee-for-service basis. These payers are billed at Dx's established list price and revenue is recorded net of contractual discounts. The majority of Dx's MCO revenues are recorded based upon contractually negotiated fee schedules with revenues for non-contracted MCOs recorded based on historical reimbursement experience.
Third-party reimbursement is also received through capitation agreements with MCOs and IPAs. Under capitated agreements, revenue is recognized based on a negotiated per-member, per-month payment for an agreed upon menu of tests, or based upon the proportionate share earned by Dx from a capitation pool. When the agreed upon reimbursement is based solely on an established rate per member, revenue is not impacted by the volume of testing performed. Under a capitation pool arrangement, the aggregate value of an established rate per member is distributed based on the volume and complexity of the procedures performed by laboratories participating in the agreement. Dx recognizes revenue monthly, based upon the established capitation rate or anticipated distribution from a capitated pool.
Dx has a formal process to estimate implicit price concessions for uncollectable accounts. The majority of Dx's collection risk is related to accounts receivable from both insured and uninsured patients who are unwilling or unable to pay. Anticipated write-offs are recorded as adjustments to revenue at an amount considered necessary to record the segment's revenue at its net realizable value. In addition to contractual discounts, other adjustments including anticipated payer denials and other external factors that could affect the collectability of its receivables are considered when determining revenue and the net receivable amount. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to Dx's results of operations in any period presented.
BLS
BLS revenue is generally recognized over time, as the services are delivered to the customer, based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion
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requires judgment and is based on the nature of the services to be provided. The majority of BLS's contracts contain a single performance obligation, as BLS provides a significant service of integrating all promises in the contract and the promises are highly interdependent and interrelated with one another. For contracts that include multiple performance obligations, BLS allocates the contract value to the goods and services based on a customer price list, if available. If a price list is not available, BLS will estimate the transaction price using either market prices or an "expected cost plus margin" approach. The total contract value is estimated at the beginning of the contract, and is equal to the amount expected to be billed to the customer. These contracts generally take the form of fixed-price or fee-for-service arrangements subject to pricing adjustments based on changes in scope.
Fixed-price contracts are typically recognized as revenue over time based on a proportional-performance basis, using either input or output methods that are specific to the service provided. In an output method, revenue is determined by dividing the actual units of output achieved by the total units of output required under the contract and multiplying that percentage by the total contract value. When using an input method, revenue is recognized by dividing the actual costs incurred by the total estimated cost expected to complete the contract, and multiplying that percentage by the total contract value. Contract costs principally include direct labor costs, research model costs, and allocated overhead costs. The estimate of total costs expected to complete the contract requires significant judgment and these estimates are reviewed periodically. Any adjustments to these estimates are recognized on a cumulative catch-up basis in the period they become known.
Fee-for-service contracts are typically priced based on transaction volume or time and materials. For volume-based contracts, the contract value is entirely variable, and revenue is recognized as the specific service is completed. For services billed based on time and materials, revenue is recognized using the right to invoice practical expedient.
Contracts are often modified to account for changes in contract specifications and requirements. Generally, when contract modifications create new performance obligations, the modification is considered to be a separate contract and revenue is recognized prospectively. When contract modifications change existing performance obligations, the impact on the existing transaction price and measure of progress for the performance obligation to which it relates is generally recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.
Most contracts are terminable with or without cause by the customer, either immediately or upon notice. These contracts often require payment to BLS of expenses incurred and fees earned to date and, in some cases, a termination fee or a payment to BLS of some portion of the fees or profits that could have been earned by BLS under the contract if it had not been terminated early. Termination fees are included in revenues when services have been performed and realization is assured.
BLS incurs sales commissions in the process of obtaining contracts with customers, which are recoverable through the service fees in the contract. Sales commissions that are payable upon contract award are recognized as assets and amortized over the expected contract term, along with related payroll tax expense. The amortization of commission expense is based on the weighted-average contract duration for all commissionable awards in the respective business in which the commission expense is paid, which approximates the period over which goods and services are transferred to the customer. The amortization period of sales commissions ranges from approximately 1 to 5 years, depending on the business. For businesses that enter into primarily short-term contracts, BLS applies the practical expedient, which allows costs to obtain a contract to be expensed when incurred if the amortization period of the assets that would otherwise have been recognized is one year or less. Amortization of assets from sales commissions is included in Selling, general, and administrative expenses in the Consolidated Statements of Operations.
Business Combinations
The Company accounts for business combination transactions under the acquisition method of accounting and reports the results of operations of the acquired entities from its respective date of acquisition. Assets acquired are recorded at their estimated fair values as of the acquisition date. Estimated fair values are based on various valuation methodologies, including an income approach using primarily discounted cash flow techniques for the customer relationships intangible assets. The aforementioned income methods utilize management's estimates of future operating results and cash flows discounted using a weighted-average cost of capital that reflects market participant assumptions. The excess of the fair value of the consideration conveyed over the fair value of the assets acquired are recorded as goodwill. The goodwill reflects management's expectations of the ability to gain access to the acquired entities' historical patient base and the benefits of being able to leverage operational efficiencies with favorable growth opportunities based on positive industry and market conditions.
Income Taxes
The Company accounts for income taxes utilizing the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
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recognized in income in the period that includes the enactment date. The Company does not recognize a tax benefit, unless the Company concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that the Company believes is greater than 50% likely to be realized. The Company records interest and penalties in Provision for income taxes in the Consolidated Statements of Operations.
Goodwill and Indefinite-Lived Intangible Assets
The Company assesses goodwill and indefinite-lived intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The annual impairment test for goodwill includes an option to perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value. Reporting units are businesses with discrete financial information that is available and reviewed by management. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs the quantitative goodwill impairment test. The Company may also choose to bypass the qualitative assessment for any reporting unit in its goodwill assessment and proceed directly to performing the quantitative assessment. The Company recognizes an impairment charge for the amount by which the reporting unit's carrying amount exceeds its fair value.
In the qualitative assessment, the Company considers relevant events and circumstances for each reporting unit, including (i) current year results, (ii) financial performance versus management's annual and five-year strategic plans, (iii) changes in the reporting unit carrying value since prior year, (iv) industry and market conditions in which the reporting unit operates, (v) macroeconomic conditions, including discount rate changes, and (vi) changes in offerings provided by the reporting unit. If applicable, performance in recent years is compared to forecasts included in prior quantitative valuations. Based on the results of the qualitative assessment, if the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its carrying values of the reporting unit, then no quantitative assessment is performed.
The quantitative assessment includes the estimation of the fair value of each reporting unit as compared to the carrying value of the reporting unit. The Company estimates the fair value of a reporting unit using both income-based and market-based valuation methods. The income-based approach is based on the reporting unit's forecasted future cash flows that are discounted to the present value using the reporting unit's weighted-average cost of capital. For the market-based approach, the Company utilizes a number of factors such as publicly available information regarding the market capitalization of the Company, as well as operating results, business plans, market multiples, and present value techniques. Based upon the range of estimated values developed from the income and market-based methods, the Company determines the estimated fair value for the reporting unit. If the estimated fair value of the reporting unit exceeds the carrying value, the goodwill is not impaired, and no further review is required.
The income-based fair value methodology requires management's assumptions and judgments regarding economic conditions in the markets in which the Company operates and conditions in the capital markets, many of which are outside of management's control. At the reporting unit level, fair value estimation requires management's assumptions and judgments regarding the effects of overall economic conditions on the specific reporting unit, along with assessment of the reporting unit's strategies and forecasts of future cash flows. Forecasts of individual reporting unit cash flows involve management's estimates and assumptions regarding:
•Annual cash flows, on a debt-free basis, arising from future revenues and profitability, working capital changes, capital spending and income taxes for at least a five-year forecast period.
•A terminal growth rate for years beyond the forecast period. The terminal growth rate is selected based on consideration of growth rates used in the forecast period, historical performance of the reporting unit, and economic conditions.
•A discount rate that reflects the risks inherent in realizing the forecasted cash flows. A discount rate considers the risk-free rate of return on long-term treasury securities, the risk premium associated with investing in equity securities of comparable companies, the beta obtained from the comparable companies, and the cost of debt for investment grade issuers. In addition, the discount rate may consider any specific risk in achieving the prospective financial information.
Under the market-based fair value methodology, judgment is required in evaluating market multiples and recent transactions. Management believes that the assumptions used for its impairment tests are representative of those that would be used by market participants performing similar valuations of the reporting units.
Management performed its annual goodwill and indefinite-lived intangible asset impairment testing as of the beginning of the fourth quarter of 2025. The Company elected to perform a qualitative assessment for goodwill and indefinite-lived intangible assets for each of its reporting units. Based upon the results of the qualitative assessments, the Company concluded that the fair values of each of its reporting units, as of October 1, 2025, were greater than the carrying values.
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Although the Company believes that the current assumptions and estimates used in its goodwill analysis are reasonable, supportable, and appropriate, continued efforts to maintain or improve the performance of these businesses could be impacted by unfavorable or unforeseen changes which could impact the existing assumptions used in the impairment analysis. Various factors could reasonably be expected to unfavorably impact existing assumptions primarily delays in new customer bookings and the related delay in revenue from new customers, increases in customer termination activity, or increases in operating costs. Accordingly, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill impairment analysis will prove to be accurate predictions of future performance. It is possible that the Company's conclusions regarding impairment or recoverability of goodwill or indefinite-lived intangible assets in any reporting unit could change in future periods. There can be no assurance that the estimates and assumptions used in the Company's goodwill and indefinite-lived intangible asset impairment testing performed as of the beginning of the fourth quarter of 2025 will prove to be accurate predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in 2025 or future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace, or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of revenues and earnings before interest, taxes, depreciation, and amortization.
Legal Contingencies
The Company is involved from time to time in various claims and legal actions, including arbitrations, class actions, and other litigation (including those described in more detail below), arising in the ordinary course of business. These matters include, but are not limited to, intellectual property disputes, commercial and contract disputes, professional liability claims, employee-related matters, transaction related disputes, securities and corporate law matters, and inquiries, including subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid payers and MCOs reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties.
The Company also is named from time to time in suits brought under the qui tamprovisions of the False Claims Act and comparable state laws. These suits typically allege that the Company has made false statements and/or certifications in connection with claims for payment from U.S. federal or state healthcare programs. The suits may remain under seal (hence, unknown to the Company) for some time while the government decides whether to intervene on behalf of the qui tamplaintiff. Such claims are an inevitable part of doing business in the healthcare field today.
The Company believes that it is in compliance in all material respects with all statutes, regulations, and other requirements applicable to its commercial laboratory operations and drug development support services. The healthcare diagnostics and drug development industries are, however, subject to extensive regulation, and the courts have not interpreted many of the applicable statutes and regulations. Therefore, the applicable statutes and regulations could be interpreted or applied by a prosecutorial, regulatory, or judicial authority in a manner that would adversely affect the Company. Potential sanctions for violation of these statutes and regulations include significant civil and criminal penalties, fines, the loss of various licenses, certificates and authorizations, additional liabilities from third-party claims, and/or exclusion from participation in government programs.
The Company records an aggregate legal reserve, which is determined using calculations based on historical loss rates and assessment of trends experienced in settlements and defense costs. In accordance with FASB Accounting Standards Codification Topic 450 "Contingencies," the Company establishes reserves for judicial, regulatory, and arbitration matters outside the aggregate legal reserve if and when those matters present loss contingencies that are both probable and estimable and would exceed the aggregate legal reserve. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. For more information about legal contingencies, see Note 15 Commitments and Contingencies to the Consolidated Financial Statements.
Labcorp Holdings Inc. published this content on February 24, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 24, 2026 at 18:52 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]