Prepared remarks
Good day, and thank you for standing by. Welcome to the Q2 2026 Labcorp Holdings Earnings Conference Call. The operator will now provide instructions to participants. 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 one 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 tests, 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.
Questions and answers
The conference will now be open for questions. 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 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. 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 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 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.
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 doctor 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 tests per accession increases. So if you were to include that, you would actually see tests 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 tests per accession growth, it's also another 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, that's almost 3.6% in the terminology of number of test growth. Immediately post-COVID, we have seen significant growth in tests per accession versus prior to COVID. But over time, we continue to see consistent and slight growth in tests per accession quarter in and quarter out. Longer term, we continue to believe that the mix growth will be supported by structural factors as well as our own strategic focus, which include 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.
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, 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 two. If you look at ED, we continue to see 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.
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 tests, 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.
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 collection efforts to ensure that we manage it very effectively. Regarding the midpoint raise for the Diagnostics revenue guidance, as you might be familiar with our practice, at the beginning of the year, we generally plan for certain in-year revenue for deals that we might not necessarily have already inked but have line of sight to close. Once we feel much more confident about the ability to close and generate revenue in the year, we move that to the respective segment. In this case, we moved that revenue expectation from corporate into the Diagnostics segment because we feel more confident about our ability to deliver against that expectation.
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, as you kind of look at the landscape, how much of this delta do you think is either competitive or market or just a conscious decision not to chase certain hospital arrangements that are lower margin or just something else that helps interpret it?
Yes. No, thank you, Jack, for the question. 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. Historically, some might say margins improved because of lapping Invitae, but this is after that. So what we're doing is focusing on high-growth areas like specialty oncology, women's health, autoimmune disease, and neurology. We're focusing on higher margin segments. And in some of the lower-margin segments, we've not focused because we have many other growth opportunities, including our Central Laboratory business and hospital deals that we feel confident about. So the guidance we provided reflects high-quality, strong growth with margin expansion.
Jack, to build on what Adam shared, I'd like to provide additional color regarding our margin progression. 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 segments. In the second quarter, we delivered 70 basis points of enterprise margin expansion versus prior year. Specifically, we improved about 50 basis points in Diagnostics and expanded the BLS segment margin by 130 basis points versus prior year. For full year 2026, we expect another year of meaningful margin improvement in both segments, with BLS expanding more than Diagnostics. Overall, we remain highly focused on driving durable top line growth that is profitable, and this focus is reflected in our operating margin trajectory.
Our next question comes from Michael Ryskin of Bank of America.
Maybe let's shift to specialty testing and oncology specifically. You talked about double-digit growth in specialty in the first half. I don't know if that accelerated in the second quarter. Would love to hear more about how impactful that is to the 3.6% organic growth in Diagnostics. How much is moving the needle, whether it is some of the newer updates and portfolio expansions like ColoSense or other investments? And how much upside could that provide to the second half and beyond?
Thank you, Michael. We've made significant progress in oncology over the years across solid tumor and liquid capabilities, through partnerships like ColoSense and MRD products for lung, colorectal, and breast cancer. We continue to bring new tests to market in oncology. When you do 750 million tests per year, it takes a lot to move the needle. The oncology market will continue to grow well; we expect it to grow two to three times faster than the overall market. Importantly, think about the oncology patient rather than an individual test. If you do therapy selection and a patient ends up on immunotherapy, the number of tests that patient will have over the course of the year is significant. Labcorp offers over 6,500 different tests so oncologists can use what they need from one place. Tests per accession increasing can be driven by these patients. Our neurology business also continues very strong double-digit growth and is becoming a meaningful portion of our specialty business within Diagnostics. These areas are scientifically important and are helping increase tests per accession.
Our next question comes from David Westenberg of Piper Sandler.
I want to go on some of the self-collection and how that might change the future of lab medicine. First, is there a number of patients who might not be accessing health care due to transportation problems or fear of needles? Second, over the longer term, how do you think self-collection changes cost of goods sold and margin? There could be overhead savings or other changes. This concept may change the industry over the next five years; I'd love your thoughts.
Thank you, David. We invest in companies working on various self-collection capabilities. There will be certain tests where self-collection makes sense today, such as tests that can be done with a drop of blood sent into a central lab. Over time, you'll be able to get more from capillary collection. But for oncology or neurology patients who require significant blood volumes and multiple tubes, it's hard to see home collection replacing phlebotomy for those needs. The question will be what level of patients prefer home collection versus going to a phlebotomist. We want to offer both options depending on patient needs. There are pros and cons to the economic profile of either approach. I don't think it will be exclusively one or the other; there will be a combination. For relatively healthy patients seeking a limited number of tests, home collection could be more common. For chronically ill patients who need significant testing, in-person collection will likely remain predominant, but we'll continue to monitor developments closely.
Our next question comes from Pito Chickering of Deutsche Bank.
A follow-up on Elizabeth's questions on BLS. Can you talk specifically for Early Development: how the market looks, how the new deals look, how is your win ratio, how is pricing, and how these strategic actions can impact margins in the back half of the year?
So first, the BLS business had a very strong quarter, driven by strength in Central Laboratory, which is about 70% of the business. For Early Development, we made strategic decisions; we've announced and largely completed the actions and are implementing them. You see the impact in margin expansion for BLS and in improved growth in Early Development. RFPs remain strong, win rates are consistent, and study starts are more on time compared to prior periods. That helps our confidence for the remainder of the year and is a factor in raising guidance for Early Development.
In terms of margin, while we do not break out the two business units within BLS, I can share that in the first quarter we improved the BLS segment margin by 60 basis points versus prior year, and in the second quarter we expanded by 130 basis points. The drivers are primarily twofold: continued strength in top line growth in Central Labs and the strategic actions taken in Early Development, which began contributing meaningfully in the second quarter. As we move into the third and fourth quarters, two dynamics to note: seasonality generally leads to stronger BLS operating margin as the year progresses, and the strategic actions in Early Development are largely complete. Therefore, in the second half of the year you can expect both strong top line growth in Central Labs and the completed ED actions to help drive further margin expansion. We reiterated that for full year 2026, BLS margin expansion should outpace Diagnostics, contributing to our enterprise adjusted EPS expectation of over 11% at the midpoint.
Our next question comes from Erin Wilson Wright of Morgan Stanley.
You launched a new consumer offering, Marker. Can you detail your overall consumer strategy around direct-to-consumer testing? Do you expect this to move the needle? How do you think about opportunities to partner across the consumer-driven health care ecosystem versus organic initiatives? It sounds like you're mindful of profitability and durability of these offerings; how do you balance that?
Our Labcorp OnDemand business continues to perform well, delivering strong double-digit growth. We've been strategically investing in our consumer space with innovative testing solutions and strong customer experience. Labcorp OnDemand now offers just over 200 biomarkers, allowing consumers to take a proactive approach to health in areas like cancer screening, men's and women's health, allergies and wellness. In August, we launched Marker by Labcorp to provide combined biomarker and genetic testing from a single trusted source. We evaluate partnerships across the market, but we are focused on ensuring a solid margin profile because consumer market prices can decline over time. We have many other higher margin growth opportunities—Central Labs, health systems, specialty testing—so we will focus on those and on Labcorp OnDemand, which delivers good margin similar to our other businesses.
Our next question comes from Ann Hynes of Mizuho.
I'd like to focus on the ACA and bad debt where hospital peers have noted deterioration in collectibility even within the insured population. I know you don't have much bad debt related to your hospital partnerships. From the physician practices and your service centers, can you remind us what your ACA guidance assumes for bad debt and whether you're seeing signs of deterioration in co-pay collections?
If you look overall at our bad debt, we have not seen a significant increase. For ACA, we built in a 30 basis point impact. The ACA-related cohort is less than 5% of our business, so its effect is small. We believe roughly a 30 basis point impact for the full year is appropriate. Our hospital business continues to grow and we have actually seen some accelerated growth in hospital reference testing. We're not seeing the same impact that some other customers have reported, which may be due to mix differences. Overall, we feel confident in the guidance we provided today.
For perspective, our payer mix has stayed relatively consistent over the last few years, and our bad debt as a percentage of revenue for Diagnostics continues to be in line with prior experience, typically just under around 5% of revenue. This is an area of heightened organizational focus, and we continue to work diligently to manage collections effectively.
Our next question comes from Tycho Peterson of Jefferies.
Two quick ones. First, on capital allocation and the M&A funnel: is there a stronger appetite to look at some of the hospital labs amid the ACA noise, and does that change your lens on M&A? Second, any visibility into PAMA ongoing data submissions from independent labs? I think there was another request for information as well; any update?
Our pipeline for deals is very strong. Hospitals are under pressure from ACA and with PAMA potentially occurring next year, so there could be opportunities. We maintain a high bar: deals must be accretive in the first year, return cost of capital in two to three years, and be integrable. If they meet that criteria, we are open to them and the pipeline remains strong. Regarding PAMA, the submission date is tomorrow, the 31st, and we have submitted our data. We likely won't have visibility into other lab submissions until around October. The RESULTS Act is being promoted by our trade group and has bipartisan support; we're monitoring legislative activity, including potential delays of PAMA. We'll continue to plan for both scenarios and will discuss more at our Analyst Day in September.
Our next question comes from Luke Sergott of Barclays.
I appreciate you squeezing us in. Wanted to ask about early adoption for the ColoSense test launched in June. Can you talk about reimbursement dynamics and overall how it's been going so far?
Thank you. We're excited to bring another option to market for noninvasive colorectal screening. ColoSense is FDA approved, uses at‑home collection, and is for average-risk adults 45 and older. We see it as an opportunity to expand screening options and reach people not currently screened. Early signals are encouraging: we launched nationally in June, received a positive reception from the American Cancer Society, it was included in their guidelines, and we have CMS coverage. It's still early, and we need to continue to secure broad payer access over time.
Our next question comes from Yujin Park of Baird.
I just wanted to follow up on Early Development margin. Outside of the strategic actions benefiting margin, can you talk more about the underlying margin improvement? Where do you see opportunities? Were there any changes on pricing?
A couple of points. First, margin improvement starts with top line growth. Pricing for Early Development has been relatively flat. Therefore, generating organic constant currency top line growth will be a key source of margin expansion in addition to the strategic actions we've implemented. Given that the actions are largely complete, we are well positioned to continue expanding the BLS segment margin in the second half of the year, including ED, which supports our enterprise adjusted EPS outlook of over 11% at the midpoint for 2026.
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.