LH - Earnings call transcript Q3 2018 | Laboratory Corporation of America Holdings

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Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2018 LabCorp's earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.

As a reminder, this conference call is being recorded. I would now like to turn the conference over to Scott Frommer, Vice President of Investor Relations.

begin. may You

Scott Frommer

welcome and third XXXX quarter Good to call. conference morning LabCorp's

With there today's Development. available a Internet. Eisenberg, Dave Executive in Financial Officer; detailed Drug and and Chief will Chairman via today and King, press and Vice call As Covance Glenn conference John release, be Ratliff, Executive of are this replay telephone Chief President me Officer; of CEO

also are furnished additional In in Form measures this of to release, addition call to section includes Both our non-GAAP GAAP. today's morning at include Relations financial Investor we information. website www.labcorp.com available press the that financial our a during X-K of discussed and reconciliation

the could results, are expectations future and statements related today's that of These statements factors Finally, change we include, and These forward-looking assumptions, operating various to are results. XXXX current factors forward-looking subject call. making opportunities on guidance upon are and and respect statements the with affect to limited impact financial for the but our during various to, statements based are upon not financial growth. based

of subsequent Some in XX-Q, set factors company's in in SEC. the the filings Forms other with and XX-K Form these our XXXX detail are and forth

forward-looking obligation any no to We have if updates statements to provide our these even change. expectations

turn the King. to I'll call Now, Dave over

David P. King

revenue Scott, you, X% of growth and year-over-year quarter and XX%. adjusted by Thank good growth highlighted morning. the LabCorp's in were EPS of results

volume in our indications expansion. of driven XXX Covance clear improvement and of our and orders, quarter LaunchPad results over offering business that are growth margin our business, by X.XX These points increased was revenue differentiated a strong of basis Our initiative our market. organic performance and particularly net Covance the process with book-to-bill, investments combining this Hurricane organic X% July are a we revenue deliver Nonetheless, taking strong attack action below our margin we ransomware results impact performance this disappointing in as with a of expectations and was Florence, delivered and X.X% the growth. organic outcome result. In Diagnostics, X.X% the in excluding are to

are performance. to making our First, leadership organizational strengthen we changes and operational

launching Applying LaunchPad in are reengineering, and process the principles streamlined I. new of multiyear to Phase LaunchPad the we Second, business. phase will of before, a prior will same phase tools Diagnostics and even which of similar cost LaunchPad as result automation, next optimization, magnitude savings and an work this efficient more integration on facility lead technology Diagnostics build to of and our

earnings and about additional provide size will Phase call. detail of We our LaunchPad on scope next the II

good sharpened at quarter, the attractive focus stewards be We very valuation. continued Food sciences of our our we capital. to business During life divesting by a Solutions

the in As we business a exited a divestiture, strong result the of cash quarter position.

acquisition our pipeline develop to repurchases $XXX and to million. increased continued We share

for capital near term including internal capital repurchases, strategic creation are share paydown. long acquisitions committed value investments, to We supporting debt and and deployment,

on key As with deploy fourth I'll in we on repurchases, acquisitions our Glenn update strategic shareholder will explain, value. complement sound which to more create progress financially continue will now the share as capital XXXX in quarter we we towards expect you to initiatives. and

and experience. strategic first consumer a The to objective leading is create differentiated

our value-based an Promoter continue and and convenience healthcare XXX at LabCorp-Walgreens and market, our least Scores month, this announced under providers over additional underpins channel, following time. locations. and clinical channel ongoing situated very We personalized, to transition novel expertise to to opportunities interest brand the Examples strong care collaboration loyalty. the XX partnership. agreement build significantly Walgreens positive integrated, this discussion care. enhance engagement, Consumers, collaboration initial broaden high managed patient our we sites, Earlier and to results plans Net innovative at a expand uniquely healthcare research to is consumer-facing supporting approaches and expressed of to deliver complementary of which LabCorp-Walgreens wide in include have to LabCorp range services

LabCorp announcing will Walgreens this later locations year. We at the begin newest

technology Toward tools a This high-quality, also testing wellness Our launch new our small patients, needs these lab care of additional testing and in into strategy platform online collection the system. commercial settings. usage patients Most consumer who offering. trusted immediate integrating healthcare of to is our of anywhere designing for this greatest personalized with the end preparing involves sample critical will complex the high-need of results. is home, consumer which represent access into convenient that reaching to and extend for we cohort the are

metabolic with and also Our convenient, This on have we wellness initial the the to trials accurate as illness office. Covance limited support expand offering will focusing offering went over our outside through menu testing application of we physician and time. will tests the chronic business, offering

We upgraded patient and applications also card self-service tools self insurance improved machine bill continued including online learning, rollout check-in, of using technology recognition enhanced mobile our pay.

from multifaceted at new competitors and further creating differentiating offering consumer growth. is profitable long-term opportunities Our pace, strategy engagement for our a advancing rapid

strategic drug second Our development to is the process. objective streamline

continue our make awards base, one Chiltern new our through offering, that increase development. investments execute efficiency backlog, $X.X We billion win the industry, integrated in our largest to expand customer and the in on and drug of Covance

support investments Our capabilities as well line as encompass that enhance growth performance. top operational

clear delivery projects global we will margins, expand data, health platform. sponsors. powerful to adoption and is increasing over points Xcellerate future, the basis performance see real-world service interest can patient of a improve These In Covance's costs includes the trial improved the initiative quality, offerings, model and decrease has LaunchPad site thereby continue XXX underway on individually the quality. and next technology to as study well which Covance participating or XX existing impact investigator selection, of of software our we component research. such two automation of and and by over patient and robotic, broad in The new year-on-year. insights trials and streamlining process into is combination, recruitment virtual mobile Our processes design a speed and and clinical data and expect in by to years. evidence and duration, in Other sponsor see efficiency burden utilizing initiatives critical technology trials enhance had Technology tools integration include

to support third our care. strategic objective Our transition to value-based customer's is

not-for-profit As discussed self-insured to to laboratory track a collaboration drug is our into year, high providers. anticipation employer-focused also UnitedHealthcare quarter, in Kentucky. The delivering opportunities also favorable and changes In commercial provider with help an lab care engagement largest translated to and each strategy. expanded Health, Baptist both rates plan's better manage teams our developing to comprehensive we and convenient and We're last and Aetna. spend. to value-based of transition announced proven provider relevant with next offering of record services week cost-effective continue reimbursement our Last businesses network laboratory system leadership execute quality the

our expansion laboratory long-standing example fully provides menu solutions, As this operational their of to labs. and to and comprehensive to the them goals. partnership of delivery hospital-based offering test strategic of will and another collaboration, help of expertise financial this turning part eight utilize The care support systems high-value health standardized we achieve hospitals across LabCorp's

have of the an and pipeline future. in you look updates active providing We opportunities forward with this market to in evolving

I about call the Before I our to turn Glenn, outlook XXXX. will comment for briefly over

sum, Their challenges and faced a dedication I want of we the the time, beyond. to establish at contractual XX,XXX savings proud solid flow ransomware cash facing to of this take these will me in company and light challenging again stiffest for deliver by due from of and and Covance, underpinned to solid commend around of from although world. growth a the modest sheet. initiatives we LaunchPad balance year quarter to growth strong headwinds lead made care the next EPS accelerating to our each great expect and acts their growth XXXX in other Florence free attack, year, countless of adjusted to Typhoon individual this Hurricane In be in margin collective once colleagues the changes businesses be enormously we in foundation events revenue of and patients same the will XXXX during both from expect At and and recognize company. the and cost year Particularly, in PAMA another our in impact heroisms expansion managed care. Next the ongoing Mangkhut, in

Now turn Glenn. call to I'll the over

Glenn Andrew Eisenberg

our to a comments my by review include segment year on performance Thank each in full start you, and followed of commentary results quarter our our I'm going of outlook. Dave. my third discussion a with

and method, our XXXX and on performance Q&A note a reminder, we that to press to better to the January we unless retrospective As all we results results our financial guidance. X, our our meaning In restated to XXXX, specifically session references XXXX valuation full are XXXX restated prepared release, follow, numbers using otherwise. the of remarks XXX the adopted the the ASC enable

and During September. the the ransomware events, Hurricane attack quarter July there in two were in Florence usual

income, attack, are labor operating by impact related recovery operating the have certain million as contain higher temporarily metrics and our any million $XX the ransomware built-up as attack to expense $XX $XX company's we ransomware The caused been discrete adjusted approximately Of the take and decision reduced of recovery remaining not total These as do from approximately well consultant the volume excluded benefit These company's adjusted $XX operating $XX expenses. to classified due including include impacted operating processing to income. which been primarily income, expedite million. overtime, insurance million million remediate expenses discrete from the expenses incurred by revenue to and systems lower identifiable, has contractor to backlog. directly by First, offline the income efforts, to pursuing.

operating impacted $X.XX. Florence two due EPS to $X million adjusted approximately million Together, revenue lower adjusted $X income volume. by and negatively these also Hurricane by unusual impacted events approximately Second, by

$XXX acquisition last XX.X% of points. million the X.X% divestitures X% Operating two business translation basis due $X.X constrained $XXX X.X%. remainder together Revenue around the growth for my to the events with was will was revenue, and was of offset over refer partially by last to of disruptions. an XX.X% of for organic was Revenue year. business of XX currency foreign points compared This of billion, XX growth basis year, increase as million, disruptions. X.X% income For remarks, or and or I quarter to growth these quarter of by unfavorable

charges following our and process quarter operating quarter amortization restructuring last compared integration. impacted the was million in which discrete had by items, charges remaining million was income, the and $XX XX.X% to And to recovery $XX of was of attack. million due XX.X% acquisition efforts initiative million, which we special $XX $XXX $XX During the business improvement income Adjusted to special items, ransomware the million related of million year. negatively or disruptions. restructuring operating to or Adjusted business was LaunchPad revenue, related primarily $XXX expenses to and and excludes due approximately

disruptions, the primarily to The excluding rate, due and a as the to PAMA, in increase mix implementation disruptions, net initiative, impact reform pricing LaunchPad growth, The the special implementation due year. on acquisition the the to the divestitures, The last million XX.X% result and was amortization, personnel partially of of the impacts to the acquisitions, tax rate was quarter costs. tax from organic Chiltern. was operating basis of lower for margin year. $XX XX%, XX.X% and offset of divestitures, was from charges, adjusted negative and in implementation This PAMA, last XX.X% lower gain Excluding was adjusted business point U.S. by our from revenue tax savings compared XXX the from the due down business of Medicare decline rate

Operating for quarter. rate of or We pension discretionary tax the of implying impact cash capital gain adjusted expect million per Adjusted XX.X%, was by quarter increased earnings divestitures, includes quarter, growth, share, negatively quarter used in reform. from XX%. tax increase $X.XX was or more and benefit capital, compared expenditures to restructuring also amortization, on $X.XX We from approximately charges, increase by timing X.X% fourth were to to $X.XX share last but negatively impacted benefit ago. change tax of a The were in or million, $XXX to $XXX Adjusted the of approximately rate per tax items, million the over discretionary year $XXX the fourth X.X% million, in working and diluted the made than of $X.XX company's in take year. up the million which pension flow per the $XXX offset net business excludes special contribution or in by quarter $XX year. to contribution, disruptions. from working that the were was totaled a The which an divestitures Capital business million earnings share. rates support the $XX revenue, advantage be diluted last on in will net disruptions. EPS, XXXX the earnings the XX% was the a impacted quarter gain Net full-year cash compared

million quarter free last year. compared was a to in $XXX flow cash million result, As $XXX the

of During stock. we the quarter, $XXX million repurchased

capital $XXX quarter, million Between billion cash $X the from of quarter, $XXX times to to gross expenditures. of XX remaining balance plan using on free up at months XX, the hand quarter cash due Total had in deploy X share business. program. fourth As end million, cash the from debt to our and under the expected of billion, September cash in was the the ratio excess fourth after we X.X times. primarily $X.X million cash at target approximately end, was authorization our debt X.X our proceeds compared our of was and end quarter second to EBITDA flow Food $XXX divestiture of to last we quarter Solutions At leverage leverage repurchase

half $XXX to We of of increased around as million. available Food the repurchases of tax This primarily the repayment a around million quarter, divestiture debt on share Solutions of fourth will the well in amount $XXX as acquisitions. strategic payment and million this approximately leaves for maturing spend related $XXX

a with last of review the as beginning organic was to benefit by offset quarter business measured Diagnostics. our billion, in compared from disruptions, implementation divestitures. the volume, I'll performance, and was as the LabCorp The of acquisitions from Revenue impact segment X.X% $X.X requisitions, by year. well Now PAMA, decrease

basis of by year in unfavorable of this impact was day points. approximately one by revenue lowered last from weather offset quarter translation currency quarter. third effect XX the revenue less the Foreign approximately The

impact was As a as basis, XX expected from of by driven excluding XX points of a constant decline business than revenue points basis points. from currency of the Revenue XXX approximately a similar ransomware decreased result, on organic X.X%, requisition well negative impact disruptions PAMA basis was the increased On volume divestitures. basis as This X%, points. the basis included which growth attack XX impact lower from was the but basis impact the by of per total of XX.X% growth the acquisition for LabCorp this volume points disruptions. income from X.X%. organic than costs. adjusted which XX to PAMA, million, negative impact $XXX million revenue, business and the from volume and growth of by XX.X% We year. was basis organic negative divestitures, quarter more acquisitions or volume personnel X.X% and or the of despite was last approximately volume business achieved was from Diagnostics compared $XXX was offset The benefit impact operating disruptions,

our outlook the of XXXX, next XXXX in we beyond. and given mentioned, Dave for initiative, As launched the as Diagnostics LaunchPad the growth LabCorp position we for phase business

details call. this provide program year-end earnings will our We on of

to acquisitions due Chiltern due of X%, billion, margins Development. and from ago. $X.X $X.X acquisitions, orders Now XXXX. for from the I'll last $XX operating basis Drug to organic a to last of billion, by XX end of $XX personnel by remain X.XX quarter of year. track The over of Net Covance for integration synergies the contributing foreign growth million were book-to-bill revenue, demand, compared the and to from the improvement or Covance offset cost to to million translation. an savings a of performance in million, year, unfavorable Revenue quarter deliver during We of of increase partially net offset point compared were of or from review income was quarter X.XX end LaunchPad XX% by points was last year, basis year primarily million the XXX increase in this of by the income growth of XXXX the of savings XX% $XX on organic $XXX costs. operating net XX% million segment partially and LaunchPad $XXX currency XX.X% Adjusted for and up XX.X%

increase $X.X net orders For and last Backlog $X.X quarter the to the million from the end XX billion, net months, X.XX quarter. was X.XX book-to-bill of an trailing $XXX from were quarter. last billion approximately at of increased

this over the $X.X into approximately convert of to XX billion expect backlog months. revenue We next

XX for discuss of assumes which the exchange our of I'll remainder the foreign Now as year. September XXXX rates guidance

guidance in an capital Our quarter of the share also repurchase fourth increase the program, flow free toward allocation cash proceeds our acquisitions and debt from and divestitures in repayment. includes

XX to the basis in business of of unfavorable growth points, impact includes currency disruptions XXXX well expect over XX.X% XX basis our billion, prior We of change points the a basis as now of the of revenue to XX% translation. which revenue point of of translation. and as includes approximately is This range guidance $XX.X benefit XX currency XX.X% from XX.X% narrowing

prior revenue to This of XX of points LabCorp which $X.X basis of X% basis of to change of our X% benefit primarily disruptions XXXX includes and XX expect basis range from the approximately of guidance of growth XX translation. is revenue translation. X.X% the unfavorable impact lower narrowing over business We volume points, to X.X%, Diagnostics due currency point currency billion, a in a

of We of Drug XX% track is our narrowing growth over to deliver XX% This of XX%. includes to translation. XXXX single-digit approximately of to $X.X currency high revenue remain We which of to XXXX. revenue of organic points Covance XX% basis benefit a guidance the growth prior in XXX billion on mid Development range expect

EPS well from business is to which guidance prior quarter. is $XX.XX the the of the lower $XX.XX, in $XX.XX due guidance than the performance per to of disruptions, to $X.XX negative Our as $XX.XX, adjusted impact as primarily share third

flow concludes included to questions. $X.X billion. in Operator? not we'll the approximately $X.X payment Solutions tax between to This to formal our which is due of prior the related million divestiture $XXX cash of to Food take $XXX and This guidance. remarks prior was our be business free billion of now the $X.XXX lower upcoming and expect billion the than we million Finally, guidance

Operator

of Ross comes Muken from first Our Evercore. question

Your is now line open.

Ross Muken

Good morning, gentlemen.

start Covance. let's maybe So on

of I growth you highlight to of were sort obviously, feel disappointment core the momentum on last saw good and also getting the And well, prior think much well. drop-through and that what some temporal felt bookings results you the for it. coming the quarter, sort was the the off as then as piece us that also got across-the-board, change, probably like on better cost of quarter, Maybe relative you that last the stuff saw a give side, materially and kind is kind on was of but just you revenue, how Q of relief better of on margin some the impacted you're of side.

John D. Ratliff

Sure. Thank is Ross. This you, John.

that clearly, terms as toward and lean going a basis. seeing the of terms you're sequential second from strong In success of Yeah, be book-to-bill, areas, that in and all quarter, It's but funding you're clinical. of or show the our driven that's you or leverage as initiatives, terms pipeline the healthy units. of XX with a in proposals environment, well come quarter-by-quarter on market on development ourselves. both board the strength side, leverage lift in the through terms the that stronger companion whether to stronger up. terms FDA, LaunchPad seeing of margin development, I drug the was in in our the early across revenue, a approvals, the the fundamentals, clearly, offerings the do We differentiation, with interest the or heavy temporal. have we of why high more by, last solutions across biomarkers. And of think across labs, see opportunities the And But continued diagnostics versus, that's innovation data FSP months the of yes,

continued of know margins. upside need continued get in work both that and and to – know margins In terms there. revenue early the We progress margin in we in see do margin development terms we're of for level on to side the clinical we the looking of side, and superior terms the

Ross Muken

of albeit lab of a thrilled of Thanks, near-term lot sort control. philosophically the obviously sure a pieces, it's the I'm out your of John. And business not maybe, obviously, of lot Dave, just here, with parts moving you're and some in

opportunity picking As you year? in some of there? pretty good and set, I I about in to now, are about the M&A the that side set quarter, deploy on you on capital that's market think about firepower thinking up all it CRO like and plenty about fourth to plus opportunity the how seems have the you the guess activity the supplement, know divestiture the next capital you having also the you it continue of to you thinking out how have return on also a are Food talked

David P. King

every about us individually opportunity As collectively. to we've said, we presented and think that's

acquisitions. it there's what total does we as our say I our objectives? another of individually, objectives? look We're growth? to deploying acquisition capital is or then second comes side. assuming value what is for I want collectively, the deploy think how Does PAMA predisposition do will opportunities enterprise? the meet And And to going I one And lab toward toward say the one planned, So it business that is it strategic our when at that individually. to would implemented round be the meet financial so on every to capital will no there

be opportunities as broadened you the think there'll Baptist. health collaboration seen with system our relationship side, in I on

leverage our to And along. balance we so time, very the mind, the in come good and up to we tighten deals job maintain we're that reducing the to and, same done going sheet that do target continue at that leverage and best can so shareholders of the of my capital flexibility returning a have,

Ross Muken

so Thanks much.

Operator

you. Thank

Our next Lisa from comes question JPMorgan. Gill of

line Your now open. is

Lisa C. Gill

morning. Good thanks. Great,

side. First, the Dave, numbers great I'm side. going ask the Covance congratulations Diagnostics on on the about to

So the versus as organic quarter lower you expected. about talked being expectations your delivered, I think about was on than what

debt things understand similar delivered quarter are here? understand what versus yesterday, also competitor the seeing well that concessions about the talked want you're in a some Quest? then versus different Just as you or just chief as LabCorp for issues. things are issue reimbursement you there patient us and reported Can bad walk you through, expectation there if Your seeing is to

David P. King

performance. about with that Lisa. Covance. Sure. for Thanks the Good We're very nice pleased comments morning,

debt percentage. bad as a basically year-over-year is Our flat

way get grows, But differently, be the apply Now the for bad we account percentage, if higher. realize of percentage I the talk debt obviously, revenue we flat. has you basically same each debt talk declined year, quarter. XQ about the of a let's to bad as about a percentage the from old And clear, in and fact, sequentially in revenue, – dollars debt but of bad – is to as as to days revenue used XQ, it in

the So that board of fantastic patient that we're And think a managing team a higher just in comment experiencing front-end I a we our has has – but fantastic management the internally, across addressing do our not done our team center and cycle done job; headwind. innovative a make revenue see business, pricing patient this the lot including that transparency through collections responsibility job. tool. and service tools, We in do

debt been headwind. has not bad So a

specific tests and monitoring down. the trending continues the individual denials, On is growth terms medical callouts to payment in drug of although rate grow

on constraints Some because prescriptions. of scripts written of has fewer being been opioid that

directly get insourcing the it of physicians it bill labs. it and they work is as out lab opposed because to sending paid Some can for to

And some been has of policies. denial it

was would The of thing is than seen growth in this slower call come back quarters one vitamin what The D, we rate have it from prior C grow grown I it nothing it we've hepatitis there. materially over incremental slowing it didn't want just again, out XQ. historically Now quarter grew, I terms prior the – in quarters. XXandMe there's to at in that has what and the seen was different to

as you to of where a growth, the some saw that's is in contributor said, so that we've growth. And because organic our decline organic

increase expect fourth sequentially the in We to that quarter.

the as it so, I see as unit growth XXandMe's encounter but price that profitability rate. it's price – reason but than XXandMe are not because of rate that said, growth the because, we've price a is improvements detractor on is requisition. price per again is terms slowed average our of would volume our said, fact our thing And lower mix, it's organic would probably out the fine that point in part be one That a you

Lisa C. Gill

we or say on else care And any a contracting from you think there's the business? wouldn't perspective Diagnostic changes when managed sequential about anything

David P. King

at all. not No,

Lisa C. Gill

Okay, great. Thank you.

Operator

Thank you.

Goldman from comes Donnelly Sachs. of Patrick question next Our

Your line is now open.

Patrick Donnelly

thanks, guess, that be with you retail Walgreens versus so centers? through of made guys. strategy expansion, initial the some that standalone you what thinking How I should the expanding just kind comfortable of on locations? patient about encouraged Maybe what the the we just you talk about significantly? Great, economics can

David P. King

Dave. Start economics. the It's with Sure.

So, that the in But we patient either a have are incremental in we're pleased stores, who feedback the than service new see centers. to Walgreens, those patients to year. we're LabCorp they economics getting standalone to significant LabCorp out is the essentially that we're we of patient from patient that in feedback that been say the – real-time fairly are getting of to with the a identify more number or it's retail they haven't that our like that strategy they're you worked with difficult reason very economics the we comparable And volume.

think so it is standalone And versus patient we float the increasing service centers. patient

to to the The it about the opportunity services other attractive thing provide is very that's broader patient. health

whether So opportunity whether the centers. the monitoring consumer engagement or robust it combine pharmacists, piece, a drug whether the it's it's with to information, information with drug we patient their clinical through of whether collaboration presenting the much in-depth management their and in their the it's pharmacy and it's the get with and share lab more biometric the information, screening, trials Walgreens

data. on we And and capitalize our to why of it's power important the our very of so platform consumer increasing ability think as part the strategically that's

Patrick Donnelly

us understood hear there, some to about underlying well at XXXX. I is helpful of I going it pretty profitability are offset shifting then pull-through looking Whether helpful, new for this and think trends, think perspective That's be XXXX but you're forward, just think to your to the would on maybe increasingly not And guide thanks. focus know point. by headwinds on initiatives, those I But any some maybe just on just headwinds. help LaunchPad fundamental levers means,

David P. King

say bricks-and-mortar, step a not laboratory. is laboratory. Number just going one, the the reemphasize system and sides innovation rooms stiffest, further business the some providers prepared all are XXXX in clinical the deploy that impact with three, whether through think for the that business, of just the there's need part when to through of whether significantly community what's remarks it's business. our they front elements also who it's said aren't obviously that in ever LaunchPad. perspective, will, of back one healthcare whether let's us headwinds toward we in and you're or near healthcare example, a can to and both without physicians, But on to hospitals. we'll around, and want will share broader are digital be of in and two term, healthcare, healthcare Covance And it's significant Covance line from repurchase capital happen amount But in me in emergency savings opportunity we whether the of thing is get that any to a Let offset – but I be Number diagnosis is and things. two, about think the Number have will seeing about in I it's fundamental going of inconceivable we growth in from of say the that the do the the growth you investors, the acquisitions. key the sorts to what PAMA, Diagnostics take about to for the

Medicare business. going under also deploy. markets. a the And hospital it's market it's think in of hospitals, The XX insurance about for capital where have have it's day the whether hospital eligible whether assets, turning scale as and We're XX,XXX for our sales coverage whatever of people we and collaborations, we're becoming a trends think about demographics increasing we to are, are structure direction, we So whether moving to outsourcing.

our in we to term, the about building Covance grow a going out long on some the lab scale for yes, leverage challenges, we business. the business is there for optimistic where side in as we're The The side, be XXXX I a is in ton year flow. cash opportunity feel but in very there. And are long the look the the and a perspective years, term, are. on significant at So a of generates we're there. which great It is

Patrick Donnelly

thank very much. you Understood,

Operator

you. Thank

Meehan Our next of Barclays. question Jack from comes

is line Your now open.

Jack Meehan

wanted I all XXXX. I really commentary the that Dave, and continue on morning. good line, Thanks, on to appreciate

pretty of whether national quantifiable. impact be side? on the I think That the payer and impact on you on PAMA provide LaunchPad additional is both there changes, any are But volume the can the and it visibility be helpful. would pricing

David P. King

difficult try Good or estimate very The quantify, that. going side is so to and morning, I'm Jack. not to do and volume

that that that pleased unit the we pricing if United, said very was to were that they price that position price. were in negotiation outcome. the time to contract with felt said the And concluded open were increase side, On contract going we we an – at we entitled the negotiations our in with we the the

pricing in conclusion that of be. the draw you I pricing terms Aetna, With we can think we all So as is there relatively what your to flat. receive the going view in,

network care with going from And from change. so or transition out I contract the going of in in don't the Aetna to see of United the managed price-downs significant

the headwind exclusive lab percentage our loses net it's the more going national a headwind going mat price-downs. of be United I because us. being last each prior you, math than math to be a the of transition just because be not, it's of having had a the on for risk simple to said will Aetna you say, the not having larger with that accused at they but doing arrangement, my that that will net which the smaller says Now and for talking view, membership the tells I'm lose I'm the the the membership we as same of competitor. just headwind year, contract In But call, customers will down net in I if

Jack Meehan

I had That's fair. segment Dave, Glenn follow-up Diagnostics operating income one or for quarter. the on the the in

little year. $XX it So down million quantified estimating over that $XX is million. business you over million. impact, I'm PAMA The $XX as about was year a

segment the had positive also anything to terms whether else quarter, call You of Is it or out year? over earnings year this the Eurofins just there negative of a sale. be in

Glenn Andrew Eisenberg

it. were be they acquisitions. personnel really well the have To little some up, divestitures. costs is And would expected the or organic had we the that were talked bit gave did just the about The we as of we volumes that while other cost we down that positives your obviously where volume with up as from a point,

supporting as to level the current the Our improvement and into was we be right-size go part structure the And part what expect we levels. taking higher to more an LaunchPad of cost of will of be quarter fourth those with demand. down costs

Jack Meehan

Thanks, Great. Glenn.

Operator

Thank you.

comes of Ellich from question Craig-Hallum. Kevin next Our

now line open. Your is

Kevin Ellich

I back guess, for prepared your Thanks the taking I to questions. remarks. Dave, go guys. to wanted Hey,

organizational covered? made that you or changes. about you more any there can already comments details think was Were provide, I

David P. King

Good morning, Kevin.

just will of the focus. organizational were that's within do. all manage we margin and are The but it, to, streamline when takes, and, changes leadership basically what the and the Glenn details better, of take growth, a and expense going are volume We improve we designed the organizational level to changes But our to as we're puts you as out the satisfied said, quarter. frustration, structural that said, more provide and was the basically,

Kevin Ellich

smaller the guess the of volume I then other. shift back you come between largest it, on more Got transition of stance thought here? change comments conservative with taking you can even your us just okay. the that than I dynamic? because two more – would having Aetna, Or United a And that just versus the we help payer national going from members some to are labs understand guess, labs each more

David P. King

we been business. from where market, is has United have sense that My our targeting Kevin, our competitor aggressively accounts the

volume largest so that so largest the to we're contract the go? share change, going gain be and labs, And secret have You're are we it's certainly to you're some if two there'll the looking largest from United going you to go but with target. shifting volume where business. And to regional no a of

So to our certainly natural accounts. our competitors is seems targeting it that me

greatest opportunity we for be volume and some just be would Quest expect with some Where's to be share us. gain the shifting share? That that would regionals, So for United think business, if there'll single be but who the – there'll largest them. the from gain you us, us why I volume from of about be for and there'll that had the you loss that's agree

Kevin Ellich

Got Thanks, it, okay. Dave.

Operator

comes of Citi. Giacobbe Thank question Ralph you. next from our And

now is line open. Your

Ralph Giacobbe

that to high Is don't Thanks, hoping, expectation overall And just want on share margin structure? on that XXXX. can Is back willing operating good morning. you earnings? be to more mid-single, low I give just little margin or guide, Dave, you your to but a single, EPS growth. just may any further I explicitly go definition – want to again, single? know And Thanks. of give details you including repo modest

David P. King

We'll the call, our do XQ give guidance when Ralph. we

the likely margins of there. said, to guide, than, we LaunchPad result share all expect of is But as we a it, about to what see So modest, number be deployment, to PAMA, process, to margin and be so margins. EPS John of other don't again, not impact going because includes capital it going growth modest a improvement acquisitions, the we're Diagnostics margins, Covance means the is. includes components. And modest as to down. until we Modest say flat put repurchase, will generally, on of anything it

that I So can that's say. probably about all

Ralph Giacobbe

but, the that of you're you from disruption share and to did to volume. right, away was business, from all business some seeing go of maybe Thanks. But organic I positive comment book slow, enough. the early in you shift UNH I want It And know can it of fair specifically on? you anything Okay, mentioned again, did the impact. then terms

David P. King

that shift. sole to seeing we're share are that still for terms anything we the significant exclusive of United the provider not national end up No, And remember, early end, through in year. the of

shift good from going It's an patients. not share if system. for and good our not So any provider, to that's is mean provider, out-of-network for moving early in-network the to they're would competitor, an something that

So seeing year. is we're to And we're the expectation of see my first much. until going not the much not

Ralph Giacobbe

you. thank Okay,

Operator

Thank you.

next question from Erin of comes Our Credit Suisse. Wright

Your (USA) outside Wright Credit book-to-bill It the side? business LLC Hey, nice was line Covance is and Erin there were thanks. of Thanks. trend the LabCorp - now business was and your rates I And CRO how the combined CRO broad-based on in when open. you overall Wilson wins Suisse Securities Or any side I'm on win curious assets guess the comment could if the business? data both a it? across leveraging

John D. Ratliff

Great. was this And bookings, John. above the of outsized is was $X.X wins. There XX% nothing Erin, no billion. there

broad-based. your question the then lab pretty terms the Nice and again? early Sorry, apologize. it's second on of I wins was So development, side aggregate in clinical. And

Glenn Andrew Eisenberg

and... The data rate

John D. Ratliff

the Oh, win rate.

David P. King

data leveraging (USA) Suisse Yeah, Credit Win rate. Securities Erin - LLC Wilson Wright the assets.

John D. Ratliff

two-thirds majority of and our move and trials vast to using and use of is wins our the our data clearly seeing We're the that three-quarters the of proposals that up all the all around a Clearly, to in to data. to of looking XXX% moving trials. differentiation. our We're and then proposals, of of

needs comment and in Okay, Suisse A of accordance can the way to follow-up embed materialize timing, thoughts centers? And your the Erin (USA) our with but will your a our I a high know great. that from sort patient you you're opportunities. Credit service quick - So kind your here. clearly I in some that LLC interest we of in the of are of how guess, Walgreens really footprint sort this balancing here, making and using of capital-efficient it you guess, before, Securities for when do stronger terms drug some partners I magnitude, relationship rationalize here us on on little of with manner? own more Wilson productively commented development on Wright pipeline bit Thanks.

David P. King

Dave. it's Erin,

did would patient coming service existing the really started originally we the to as substantial stores. viewed the not channel. buildout Walgreens. centers, we of traffic acceleration year many we in what seen required we a terms year Obviously, and gating going anticipate balance another there's from in of be project, sort nice into When into But new is relocating see service opening patient that factor. centers of we've this through You're stores a the pretty that's this next of the of

service we'll move Suisse patient Wilson determine Walgreens with are So opportunities to capabilities. whether the Okay, to Walgreens them (USA) at essentially you. existing looking Erin the Wright to center or great. Thank be - them Credit Securities LLC there combine structure

Operator

you. Thank

Morgan of question comes Goldwasser Stanley. Ricky next from Our

open. now is line Your

Ricky R. Goldwasser

morning. Good

haven't when a some to assume comment, about duplicate all, infrastructure. yet facilities made we of but XXXX, this just structure? out saying on Walgreens cost our how following first on up So think we rationalize last models you're so building in you Should you're decision existing

David P. King

It's No, Ricky, Dave. no.

Sorry, there. with should we sequenced patient assume structure. service cost duplicate didn't the will center I No infrastructure. understand be key not with Walgreens Whatever do the word you

Ricky R. Goldwasser

to Okay. Great. you you And see return then, when XXXX, Dave, going also highlighted prepared about remarks you're in to talked growth. XXXX, that your

are you basically to to the can in account XXXX? see clarify, you top XXXX, that that PAMA so saying line return step-down, step-down another into just in growth So PAMA we're going taking

David P. King

there'll and contract in think by not have we're top because we the opportunity get XXXX, the way, don't say line growth annualize won't still I impact be we to changes, And assumption will managed we very my I'm under we get then will return we're line we be I going care But absolutely, growth. we don't relief, still impact, the think and relief have But Ricky. the get to we to earnings XXXX. but to at PAMA a Covance. that relief. end top the any view, once yes, assuming top on stronger Yes, obviously, still growth that incremental can, in expecting, growth working which of XXXX, assuming that, of hard in have line proceeding

Ricky R. Goldwasser

Thank you.

Operator

Thank you.

comes question De Bank of Derik next from America. of Bruin Our

open. now Your is line

Derik de Bruin

terms incremental partner morning. a some still early you color discussed potentially the strategic follow-up could on between that, outsourcing memory give you is just then chance a Hi. what in of they've business gaining terms late-stage your the tight of just Covance A their couple curious and on And I'm I serves, for that a Are split of with Covance increasing some forward. and Bayer Bayer. them? any in Good was of going growth from know and of my businesses? were if as questions business, rates was

John D. Ratliff

Derik. John. is This

us then Bayer, I the break was we areas They've segment, be color really side. growth And partner revenue in led really the of the early All the so early specifics. labs parade, and that And out a of customer the been continue terms And actual segments, from across board. don't growth, talk very in but grew. nice on do development versus to so growth versus so. clinical the all terms will don't we great to specifically, development

Derik de Bruin

when Are half for the you're changes, of do expecting, year? And in that first next of you Okay. lab contract the the modeling be I'll one still follow-up. bulk to

John D. Ratliff

Yes.

Derik de Bruin

Okay, that's it. Thanks.

Operator

you. Thank

Our next question comes from Brian Tanquilut of Jefferies.

now line open. is Your

Brian Gil Tanquilut

guys. Hey, good morning,

Dave. in And In just we Just have past am then prepared interpreting it's about should talked trend you overall worries, a any you I physicians testing. your comments that your about? remarks, a that don't one-off question, think demand, in-office be broadly you quick doing worried structural these Is that this have right speaking, QX? more about that situations just as you

David P. King

Yeah. in-office Good don't testing. morning, Brian. there physician I more said was that I my think in prepared remarks

we physician business that, in to thought we that Covance I what we're office the that self-collection and the outside opportunity could new of that be relevant trial. to the launching, terms think platform I the provide had was said

So maybe on have been. clear I wasn't that I should as as

Brian Gil Tanquilut

Hey, Dave, prescription sorry. the on think. meant drug I I business, monitoring

David P. King

testing regulatory area issue start or of not remember, significant you are strong drug response system. significant that the of in shell all covered And again, there leads at is these which the what testing. pretty And simply insourcing, in doing specifically there were the you pathology to necessarily, either do of really Oh was typically there's utilization space patient yeah, labs and growing in historically, pathology set rapidly, it physicians an that's because best prescription increases moment. interest up an to a when is if the all happens ago, insourcing the the when there's monitoring years may

throughout the So, total this certainly characterize of And area throughout specific I physician my business. near-term wouldn't long-term a one trend. a the low see testing industry. in single-digits I the career been basically has as in lab of as in-office trend as the it in – a market percentage

as no, a So, trend, alarming issue. temporal see more as don't particularly that a

we one-offs, ransomware, businesses today, being is let's incidents quarter just healthcare a and one-off. a It's an the among The third constant. unpredictable realistic, attacked. constantly business them, be But weather I constant. terms In of is every mean obviously, certainly being is certainly hope

responding. I think a did phenomenal so job And our team

issue. and of I IT investment – security seeing a our going continue continuing is our isn't not never continuing we We're to think to high, certainly implications increase you in it it. But security. be can

I are events run. be not are So the that persist to and say these long things going would singular we need to thinking in

Brian Gil Tanquilut

I follow-up for appreciate one and quick just No, it, John.

be and LaunchPad can is that take reasonable in, to? over XX%, thinking about with do number you we think Covance As to synergies about Chiltern a margins where coming to time? XX% I think

John D. Ratliff

of we'll at at we'll tactically that. But and know industry you our XXXX the the talk do next call the on we we development, there. more then we're that clinical more details see the But we'll know in work can and the about so so early margins, opportunity on terms have on I give quarterly look guidance, peer-level then and next looking to do so call.

Brian Gil Tanquilut

guys. Thanks, it. appreciate I

Operator

Thank you.

Quirk Our of next question Piper comes from Jaffray. Bill

line Your open. is now

William R. Quirk

seeing comment drive, thank to or would over on any want there first curious services and pricing? everyone, higher healthy thoughts market earlier growth time back it, about sales now industry the referenced opportunity questions. And several so or two one segment? Thanks. obviously the and this pilot you're good that provide, go Great, your volume higher future in should secondly, thinking that call John, capacity. we additional overall help morning, of be about Walgreens then as It then to occasions, to lead same-store just in which a on You you volumes. to Dave, presumably the I I you guess program, this could referenced you is something off, that questions.

David P. King

XX things Good providing in services. morning, Bill. basically capability do or stores. have our and biometric now, capabilities Walgreens own do the It's additional centers indeed for those employees, into like patient employers screening migrating up we'll be is service our many set initial to the done Dave. On of of the we In Walgreens, in lab draws we've centers the what the service for

might There's thing to be There think There There might prototype an pharmacy. in there of might vision. Walgreens about activities care. be be urgent a health-related are other is, there. these audiology. is other The the stores

information to care and to biometrics, really cases, all because the us healthcare experience person, broader be data, will have around opportunity of experience, a the to robust cases, the capitalize have So we for give in patient more helpful that, in engagement the to quasi-primary the in consumer don't for some things a that a would around many of don't a see patient almost for us comprehensive with combine around collect. on we these these even

I'll Covance Now ask John pricing you on the question that asked.

John D. Ratliff

the in always capacities the you need to deal lot looking pricing. Early Pricing pressure is then environment, a pressure lot The of saying margin and to be order is there. development, again, technology, margins are we're that tight. And doing into upside the that in but more environment a best-in-class moving better of clinical, on from pressure. side, pricing model and process the those of FSP terms more the programmatic labs, be work on a milestone the to And and on though efficient automation margins. pricing tools, standpoint effective for pricing, good. normal in the pricing to But forces offset will thus under we're even that

William R. Quirk

Great, you. thank

Operator

you. Thank

Mark of from Genuity. next question Massaro Our comes Canaccord

Your line is now open.

Mark Anthony Massaro

timing to that just can the give And us be options X. like to speak making Congress? and Dave, Hey, of and here to ACLA substance stay, is on business you thank and relates January lobbying you. it seems actions? any of for actions of any in as legal to you're further managing can implemented you PAMA it the is sense But terms or now market PAMA pricing X Phase certainly any

David P. King

I'll Mark. Good Sure. legal the actions. morning, with start

reach And of decided questions the they on was were presented case decision can arguments lawyer court them. narrow that directly one there say didn't CMS's statue. were that which on regulations the the she reach made, district procedural ACLA significant merits, to were contradictory authority the very beyond didn't she was the that Putting She because my the the key hat, I So disappointing. grounds. long-abandoned that on although judge noted

and to from reality likelihood Appeal. appeal the Notice I after of is a decided expedited decision pretty discussion has of Court think file XXXX low to for of but middle an and end a ACLA, correctly of So is schedule, the the board before the We'll Appeals. getting ask the

play process continue legal the to now itself out. on will we'll press So the front, but

legislative characterize key regulatory with is, XX% staff to intended, be we can front, from LabCorp it, this that XX% that the committees for Quest, just if of general was sense come very and cherry-picked members not There are Congress. points and was was a the expected On among and active what to a not would that was I within it "market the and pick price the everything. going were and this analysis" lowest that going data to

has at And would a ACLA so fixes. they were looking scoring has potential provide for been sent some that near-term language fix. that submitted

front. meet there options considerable we be And and of activity continue to on as may Congressional a with there's what well. amount So discuss CMS the administrative then

you have hospital and in with more ways of could in CMS we've and asked recently As include data, proposed been saw about fee made the meeting rule, them proposals. number a they physician which schedule

the be hospitals data. report initial required the from One to resources of amount that was the of objections would

And to surveys statistically things data we've significant look allow them the of reporting. enormous CMS burden would market to around aggregate that proposals without some that like provided so at reporting as

is way. of how going we're activity still a there going prevail as to terms say, as sense of planning to to be But here in implemented. PAMA I'm on and is fully do common So that and be meant lot the implemented, you though optimistic PAMA it's every going what running and was that is we're front, business to

Mark Anthony Massaro

can like areas called liquid NIPT comment ways offerings? both that can growth Is importance advance you terms you've tools next-gen your health degree CRO historically, strong on is that of areas. And Great. you business? in are that and the biopsies, then those case? your the there and still Diagnostics out And in women's like And of sequencing-based as

David P. King

strong of Women's NIPT us. health to continue areas for and be growth

biopsies. liquid mostly we within LabCorp the a of liquid to and methodologies. certainly business Next-gen innovations have opposed testing program prior in testing or biopsy running that Covance, a genomic of terms part are Covance technologies we're genetic both and sequencing onto as is or And other In in both arrays SNP existing businesses, actually things lab moving like that on considering. pilot other platform

technology care improved obviously they tools see to be we to and are going sense, make these continue going provide to as as and and things the patient change the as trends. So to they reimbursement – them we're adopt continue

Mark Anthony Massaro

Thank you.

Operator

conclude does would call back this I our Dave session. to any And to now you. remarks. question-and-answer King Thank over like closing the turn for

David P. King

Thank given fourth our clear that we've strategic us into also you. success you look to we speaking thank the and call only to for hope I on joining day. of insight this We of quarter the you execution. third but forward and you great morning. the business wish quarter Well, view the a the have not into long-term you

Operator

participating thank Ladies in and concludes gentlemen, you for program. today's conference. This today's

a Everyone disconnect. all great may You have day.

Scott Frommer	Laboratory Corp. of America Holdings
David P. King	Laboratory Corp. of America Holdings
Glenn Andrew Eisenberg	Laboratory Corp. of America Holdings
John D. Ratliff	Laboratory Corp. of America Holdings
Ross Muken	Evercore ISI
Lisa C. Gill	JPMorgan Securities LLC
Patrick Donnelly	Goldman Sachs & Co. LLC
Jack Meehan	Barclays Capital, Inc.
Kevin Ellich	Craig-Hallum Capital Group LLC
Ralph Giacobbe	Citigroup Global Markets, Inc.
Erin Wilson Wright	Credit Suisse Securities (NYSE:USA) LLC
Ricky R. Goldwasser	Morgan Stanley & Co. LLC
Derik de Bruin	Bank of America Merrill Lynch
Brian Gil Tanquilut	Jefferies LLC
William R. Quirk	Piper Jaffray & Co.
Mark Anthony Massaro	Canaccord Genuity, Inc.

Laboratory Corporation of America (LH) 24 Oct 182018 Q3 Earnings call transcript