LH - Earnings call transcript Q4 2018 | Laboratory Corporation of America Holdings

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and welcome to the LabCorp Q4 2018 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Scott Frommer, Vice President of Investor Relations.

You may begin.

Scott Frommer

to Quarter welcome Conference and morning, LabCorp's XXXX Fourth Call. Good

With there in Development. available a Internet. Eisenberg, Dave Executive today's 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 King

Scott, you, and Thank good morning.

integrated that deeply a operating As to we is enter our guiding a sciences XXth transformed from hospital basement from company global year, local laboratory patient we a have leading care. life in

of LabCorp capabilities these of XXXX is combining goals: XX% increases need to revenue and technology achieved breadth data goals efficiency services, and change growth, $XX medicines patients out respectively. using EPS and to three We are per of to of year innovation, the scale, integration We power our new deliver focused service. share, care billion of way delivering $XX over patients' driven adjusted another faster our delivering of of by closed profitable the over through world-class and We interest bringing foundational enterprise, strong by diagnostics, quality, on and the XX%, and delivered. and

free business onetime over generated of amount cash targeted returned of and from well $X million proceeds divestitures. also us repurchases We to adjusted payment shareholders bring for million debt as our We of down tax range within over billion in that paid $XXX to $XXX X.X through of flow $XXX leverage Xx as to a EBITDA. million

performance our strong Development reported and Our under quarter data from our of basis over Covance was margin and ASC solutions, improvement revenue another of book-to-bill which analytics Drug growth almost cost XXX sale business, strong performance initiative. LaunchPad a X%, XXX. points of in highlighted benefited Covance by organic Covance unique our X.XX and constant-currency

been standard have For CROs, recognition under the X.XX. our comparison to other accounting prior would revenue book-to-bill

and value Our trials. tell customers quality their us consistently they speed in that

same The large We survey strategy of innovative likely of important attributes, this depth to the leadership the CRO all XX.X%. of with capitalizing orphan reported a found fourth quarter Covance of drugs number on operating was specific is our that only approved point professionals new burdened integration of offering. continue success end-to-end expertise. and lab including that a Diagnostics, Covance's approved margin XX% In XXX in to XX% XXXX, with R&D recruitment. quality sell-side quality patient recognized survey independent of believe In major most data therapeutic CROs, Covance's is that to deliver Diagnostics. a solutions, recent and regard, pharma speed the LabCorp XX% sponsors of FDA-approved through speed basis in causing that in our central And CRO items early biologics. an supported combine services clinical drugs we decline and nonoperational the and in development, including is of of services, proof

which the characteristics XX.X%, been have and underlying stable would strong. our the business of margin is core margin remain operating adjusted demonstrates and flow business items, that nonoperational these cash Excluding

volume growth delivered for solid the full we fact, of In year. X.X% organic

We are also off to a strong start multiple on in XXXX fronts.

sales continue regarding because changes expectations. note commenting our are of care contract contract making this networks. we to managed that key and and clear, be with providers engaged To volume the the we January not the our are was provider market the changes, performance. intra-quarter impact about comment laboratory with concern actively in force First, related around of We of policy will our leadership consistent changes

from Second, health November. and systems referral have increased hospitals volumes since

discussions to produced of are care positive potential number health a impact helps solutions. our financial the and We into and clinical on regarding competitive systems differentiate in trials ability integrate by And patient us benefits attractive hospital physicians partnerships. in

return and although tuck-in we with on PAMA industry-wide continue This round deliver and typically on attractive reductions, increasing there relief PAMA's high see significant acquisition which true legislative about capital. price lab judicial of impact. us awareness a of synergies invested second to the Third, number opportunities, presents is

new and improve consumer contribute services to bringing avenues in experience; for closer quality, of focuses eliminating to our on morning, enhancing and $XXX II our Diagnostics LaunchPad of additional Phase will our our digitizing years. customer. to the provide long-term business; on the deliver savings initiative we streamline Phase this operations This processes; of business, in improvement growth will X LaunchPad II margins. the Finally, service; detail within unlock manual and which million initiative technology using

known modest XXXX, and For headwinds despite Diagnostics EPS. growth business, adjusted our total in revenue facing expect company we

to fundamentals continue as approximately in we cash our confidence free of business billion in another expect $X have year flow. high We

deployment, and therapeutic and which discuss analytics, competitive create and that to including patient outlook driven orders, scientific continue acquisitions value. sound platform, and performance provides in profitable with strong in we innovation as expertise shareholder data I'll engagement, convert Our is net us shareholder integrated now repurchases long-term and into creation. anticipated we advantages our by value growth financially Development Drug share capital

to on reflected no global expertise, as XXXX data as as well that $XX executives, scale as Yet Chiltern for our the We capacity as invested around and through differentiated growth and in create important and key years, last the financial world from to investments, in strong X is end-to-end These facility XXXX can X the streams put expansion, just acquisitions be all clinical performance Covance in in as as over invested investment Covance a lines of of Sciformix the and therapeutic have over the guidance. replicate. global have significantly XXXX our including the talent growth a competitor for truly businesses growth well business in exceptional X business. capabilities offering integration XX million the over adding organic trajectory,

performance. X in to to the financial market by almost oncology. skeletal our cutting-edge in capabilities sponsors in awards, are biopharma supporting and initiative, our billion. X deliver translate analytics into the X These launched market on conducted analysis strong clinical During to data-as-a-differentiator development's of backlog translate speed we the as faster rest findings trials neurology our medications relative and continued recruitment patients bring promise to the as of into nearly of quarter, patient book-to-bill combined Covance of disorders, they over they the an and data meaningful $XX to in benefits. on value our months last months increased and recently Based muscle recruitment X highlighting and We years, months indications to

capabilities. trial, tools, XX sponsor a engagement combined We that multiple trial competitive apparent and our our The partnership, new execution ensuing patient data a For retention capabilities for expertise example, early-phase value therapeutic among XX to and our development design area in as to the from is awarded to demonstrate in services. our us data and of utilized early see also level. the selecting in increasingly solutions top also development Sponsors recruitment foundational a and reasons Covance. The therapeutic its projects the in highlighted at due recently Covance a process. bid data customer stay end-to-end elect site pharma in Phase deep into with sclerosis XXXX and to generated sets trial the III clinical insights migration of country end-to-end

survey powered uniquely critical patients' data we unique with by engagement insights with design candidates business. we our bring diagnostic and is where trial relationship to continued potential the from to an into incorporating trial value diagnostics trusted drug-development directly quarter, the draw This sponsors. with direct is During Engaging area engagement patients. and our work the

sponsor regimen that helped and many sponsor's to treatment patient recently study. success. through leading convince the to we instance, trial. diseases speed current of businesses demonstrated such placebo-controlled top quality, in to This double-blind and provides engagement, enhance in rare The investigators on that their the our participate insights biotech a focused Drug a For enroll of consider halting would finding trial combination patients Development Diagnostics likelihood

reluctance is offer. the participation. to We executing to competitors challenge due unique sponsors trials face virtualization our in able also patient what burden strategies in recruitment are beyond One significant enroll of to trial are

innovation and the the provided by X,XXX a patients Our lowers solution This have approximately for alone. LabCorp safety approximately for and and network, Covance combining by by scheduling will nearly XX using the up to The not subjects, by testing service into assessment an sample the to perform LabCorp services channels. centers XXXX. could services significantly successful future patient basic PSCs sponsor collection in physician's access to either through burden a centers their performed office. opportunities our need without our expanding increases be the conducted visit We market is patient-centered studies travel for central convenient nationwide using PSC network enterprise accomplished convenience laboratory in solution more and of call Covance ramp business new XXX causing program of

plans Our and next of LabCorp-Walgreens with XXX locations to by at least to solid years. XXX the end over locations partnership progress, open X make continues the XXXX

consumer new service drawn commented consumer us want Our setting. data their including screening, a us the this PSCs channel chose care real-time patients' consumers patient part collaboration and have The therapy beyond surveys because jointly about to thinks Walgreens in and to capitalize that become And integrating shifting with a more through goes by laboratory offering a medication and they recruitment. blood locations. It opportunity convenient essential they the into intend provides to locations direct of centers health-focused our we market. Indeed, health. the health prescription on how allow Walgreens in management channel, wellness patient services

and we and biopharma also partner start-up study of This helping agreements, recruitment Providers, key or them of exceeding our for systems and in transcend appealing are from patient lab payers our and are as business pure-play offering driving Hospitals to proposition activities. and our health goal the with view care for improved solutions wide is opportunity. that differentiator, progress significantly the strategy, a preferred preparing speed value and to sites value-based research our the range transition customers. part the scientific site medical CRO trials integrated and clinical of partnership access a continue Our master an increase to participation to service innovation. value sponsors increasingly

million development offering diagnostics Diagnostics $XXX another over and revenue gold XXXX, in diagnostic by year the leadership plus delivering companion companion orders, benefit had $XXX of of for standard the outstanding Our market commercializing million enterprise test. drug in

year, by integrated have our see we great for built businesses. storied the As XXth ahead. enter powerful an We in company two sciences combination we our supported life years opportunities

as customers Covance, data And and of LabCorp growth renewed LabCorp and We changes, of grow our unique to consumer we the impact deliver in sponsors Diagnostics the power of trial growth the the contract customers in combination opportunities health tremendous the thrive add positions generating are and excited increasing our care rapidly ahead from the insights in value survey evolving increasingly environment. with capabilities of customers and after consumer us proposition power the the globalize engagement, We continued managed work, immediate care integrated opportunity a growth shareholders. Covance offerings to and for to both in Covance value for businesses. opportunities the

of and around XX,XXX what the breadth mission and we maximizing improve best: they world face outlook. platform lives. a and stability health beyond, positive provides to our to to in driving in long-term We deliver unusual remain value colleagues XXXX, growth to on do several Although do our patient-centric enable challenges to the to strength creation XXXX committed and our continuing and improve

Now I'll over Glenn. turn the call to

Glenn Eisenberg

followed Thank to each going with by of our results, quarter performance our you, XXXX start in guidance. review a Dave. and comments a my conclude with of segment discussion I'm our fourth

specifically Revenue the our note January X, adopted we that retrospective to otherwise. ASC XXXX In our using we the Operating results for unless full contributing prepared was the quarter all of year. XX% of divestitures enable and revenue that XXXX method, meaning foreign results This our release, As a of growth million better and by last restated to increase acquisitions to on numbers partially remarks points. and was the basis financial X.X% of unfavorable we over evaluation for X.X% $XXX performance. the X.X%. of are income references XXX with XX% billion, an the was offset $X.X restated of session to Q&A X.X% XXXX reminder, our translation XXXX, or year, million last follow, XX currency $XXX compared press quarter or organic

result well compared we of primarily year. last restructuring related and or quarter, million $XXX revenue margin of acquisition were mix, rate operating and XX.X%. of which a due of special implementation items, reduction or charges higher restructuring personnel $XXX million acquisitions. had $XX and the initiatives integration. operating savings and $XX LaunchPad was the as partially quarter lower $XX divestitures was During offset PAMA, to charges in as LaunchPad by basis income excludes Adjusted increased costs, tax the in The XX.X% and of special XX.X% decline million as demand, The pricing million and primarily income, items, to XXX for amortization to point million adjusted

of million reported the $X deferred taxes to acquisition the integration liabilities revaluation related the of Chiltern. to income tax in deferred quarter, During we due

year. special the Excluding was onetime charges adjusted benefit the XX.X% in quarter, in the amortization, reform from adjustments, was other This from XX.X% primarily tax U.S. reform-related last tax to rate rate due down tax tax lower the and

the impacted a million earnings compared share. Net for and year be XXXX, company's the divestiture $XX earnings. U.S. $X.XX our loss diluted per XX.X% mix business, the lab per year special a and forensics for or of up year. the caused investment reduced flow net to to tax primarily by over million to XX% $X.XX in related Net our million our charge amortization, one quarter quarter approximately and expect and projected rate due in to were cash share volume of full to $XXX these pension exclude were in on XX% diluted reform million weather. We by full per approximately the increase tax were $XXX quarter, due $X.XX items, venture losses, included EPS, the quarter, XX% an to for settlement $XXX tax the lower with due adjusted unfavorable divestitures. earnings fund. Adjusted plans in on $X.XX a was Adjusted or write-off of testing diluted the which the charges on last by negatively share the Operating of payment XXXX earnings which were state noncash the between restructuring

compared Excluding flow increase to earnings, revenue million cash this $XX increased line X.X% compared million $XXX a X.X% This of operating due working to to ago. growth. capital cash year. would Capital onetime was million million top offset million been last tax year or higher to partially $XXX have totaled support by payment, expenditures $XXX $XX or

end the of and million excluding last the of leverage We plan was Total $XXX quarter debt up million, active quarter cash was balance quarter. company's excess shareholders. during our X.X plan continued with the quarter, free paid As February remained our end, of compared to At our Xx million XX of payment free $X.XX stock, year. third and acquisitions. our target. down million billion, cash board million allocation. a at $XXX $X.X the new of is in capital $XXX the in cash, existing invested cash $XXX at the million authorizing was down debt EBITDA, we at flow from of $XXX demonstrating flow repurchased billion Utilizing the X, end a to $XX repurchase Xx or capital tax stock, repurchase On of the million commitment terms months end to quarter $XXX in replaced quarter returning upper which leverage to to last the onetime result, throughout $XXX debt was to gross and share million

As this to shares delever which repurchasing would of leverage we in back billion while we acquired frame. the our time during time ratio, targeted we committed accomplished $X our over we had Covance XXXX, at still

we of year we of year, maturing strength use the via well no expect noncore to remain forensic optimization million portfolio our mandatory cash the debt flow as share repurchases for divestiture focused all of included balance Given assets. on XXXX, our sale the acquisitions. our business and of small Food Throughout this in sheet for free $XXX the X Transactions testing businesses. Solutions as and

beginning performance, review Diagnostics. LabCorp our I'll segment Now with

the business our to These days day and payroll negatively the and items. During quarter, due from translation. extra foreign fewer impact refer implementation Diagnostics nonoperational divestitures, PAMA, these of include the impacted by I'll calendar X items weather, as items. nonoperational year-over-year adverse to collectively currency revenue was several

of foreign our negative a revenue of volume Now was underlying benefit by I'll nonoperational approximately was as the operating better the our on was which items, the X.X% basis business. X.X%, currency translation last portrays year. of X.X%. billion, the negative performance quarter Organic currency to which for decrease impact the impact from divestitures X.X% constant discuss well as due offset Diagnostics of $X.X acquisitions to of was from the strength and X.X%. This Revenue of a

quarter, points. basis the adverse points, was calendar XX XXX from the XX basis points, the negative was During basis PAMA weather and impacts was

driven the partially of organic impact per Revenue by the test XXX by XX the impact PAMA nonoperational the offset Excluding by excluding items, decreased divestitures points, for points, basis quarter requisition revenue from from X.X%. mix. increased by approximately basis

basis from as increased volume points basis by XX volume organic basis volume XX total divestitures, and the acquisition points. Excluding contributed impact XX points declined

impact operating adjusted $XXX $XXX due PAMA points, million divestitures last calendar higher acquisitions basis to year-on-year income $XX Diagnostics and in quarter LabCorp was the of income personnel revenue X.X%. margin and $XX or XX.X% impact approximately and basis XXX by adverse points, of the increased primarily volume decline XX offset The or approximately or million XX.X% operating organic the from for to year. weather, from million items, approximately nonoperational by partially was or of compared the the cost Excluding million reductions. costs,

items, margin XX.X%, approximately and respectively. Excluding the were $XXX and nonoperational adjusted operating income million

$XXX noted, X net in II the costs. incurring As savings while LaunchPad years $XX million approximately the million approximately implementation onetime to initiative Dave next over deliver expect we of

each We be expect the total realized of roughly to savings X/X year. in

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

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

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

year currently cash rates Now acquisitions. as discuss the free for XXXX, guidance, the December capital for being our of assumes impact entire and used from which flow repurchases anticipated with XXXX share XX, exchange allocation, I'll and foreign

from which expect divestiture of translation. revenue negative includes to currency billion, impacts X.X% We of X.X% XXXX over growth X% and of revenue $XX.X from X.X% the

basis XXXX in negative expect approximately of of This in points. foreign currency of revenue negative Diagnostics LabCorp inclusive the of compared XXXX. impact revenue change divestitures X% includes to guidance approximately negative X% the negative XX $X X% We to from billion, translation of as

from in Excluding revenue the down be to is change Diagnostics divestitures, in primarily expected the due LabCorp to to PAMA. X% impact flat,

Medicare that other million. assumed and approximately will XXXX Diagnostics have consisting Medicaid-related approximately direct primarily reimbursement, lower our $XX reduce We million X.X% the PAMA in reimbursement of of of on $XX plans by indirect approximately revenue impact

to care expect addition, another organic from to year Independent dynamics, organic volume In volume networks. changes onetime mix down flat acquisitions. PAMA contracts slightly to the be contributions of year-over-year favorable and from of good care expect and growth, divestitures, impact and managed we managed due certain we in

of We billion, currency of X% expect Covance revenue which Drug over basis XXXX points Development $X.X the negative revenue impact of X% of growth includes XX translation. to approximately

growth be rate currency We its to of range, expect negative Covance's translation. impact guidance to first quarter due and primarily below full revenue foreign the timing year

to $XX.XX, X% of Our adjusted EPS a to guidance $XX in XXXX. change is $XX.XX to X% compared

business We be expect across Diagnostics impact due by Covance, driven by contracts. from partially adjusted the and EPS changes modest capital managed and our deployment, to to the LaunchPad in care PAMA in enterprise offset growth

Our EPS from all-in PAMA approximately by guidance impact that diluted per assumes the $X.XX share. reduces

our the cybersecurity guidance addition, per of $X.XX $XX diluted approximately million share. expenditures increase in In or year-on-year reflects

quarter growth, the acquisitions we comparable the lower as quarter well provide than impact of to year, savings ramp-up quarter have expect adjusted as This due of the not in EPS do quarterly the be from EPS adjusted implies prior and of first we EPS reported of the first in a in from to year calendar. revenue of XXXX. we the during the years, timing total XXXX Covance fourth to impact percentage While adjusted guidance, LaunchPad the primarily the divestitures in

compared investments last and in billion capital technology we In to XXXX, $XXX X% approximately of expect expenditures $X.XX to facilities, revenue, by year. of million growth. support $XXX is to guidance flow cash free Our automation million driven

will Clarissa within the to leadership in of the will job Relations and questions, in am take our past we transition on now now of Diagnostics CFO be business. Scott our formal financial remarks, before to leading leadership like Diagnostics which we Willett an a take announce pleased outstanding and I the years. our Now LabCorp, Relations. PAML, now has that Clarissa role will Scott experience. announce over of Relations. over done a efforts taking Clarissa I'd in several Operator? Investor Investor XXXX. years to has business role our the acquired XX has over questions. Prior This been we in health joining take care was Investor concludes financial Frommer leadership

Operator

Evercore from [Operator Instructions]. question And first our Ross ISI. Muken is from

Ross Muken

Congrats, Scott.

from on I we'll biotech for just the on then booking of I feel maybe the part board. of as the resonate do you landscape think made, Dave, late-phase And of enter of like XXXX? mean, the So in and you 'XX patient thanks share given of even overall guess volatility, you starting Covance. and about as cetera, efforts potentially perspective into et that's you gains obviously, you point new a and how fantastic Dave, your over the share of sort recruitment, are the IT I the a trending, terms at quarter environment evidence color. sort balance side, sort some in about the guess business? see of RFP across the thinking to some starting of how to more terms of business

John Ratliff

is This John.

in the in that's is whether late early whether I think RFP that's across development, and the stage. business labs that's strong in whether board, the the

how the data leading side believe on the the I to strength, allowing solutions the as in quarter XXX and Very the a win. the side. seeing proud even So and bookings on as of gains to compared side X.XX the other on side, the kind well fourth basis of X.XX LabCorp on that us if report. and do to the of book-to-bill biotech Covance pipelines, CROs look pharma is at they XXX And you

helping think and So helps end site business. entire Dave win I piece and, as our of the that solution day side stated, do of the at the on selection us that's

Ross Muken

maybe took capital buyback. perspective, helpful. That's just you up quickly, the from allocation obviously, And a

sort got to valuation of M&A I equity, if given the do general obviously business. ammunition yield on things? of are guess M&A in trade-off some wanted side on what have still and versus seeing you're what provides side of and how of thinking your of stock guess I the You maybe sort either you where return the own to the you sort about of kind your on of

David King

Ross, Yes. Dave. it's

and strategic did We business. at every we've our complement access and we Sciformix a acquirers, So criteria been disciplined did to look very financial very will was based a potential and We on Covance the which deals the tuck-in market our we of important to be couple last continue acquisition criteria. disciplined year, deal, acquirers. lab

look we're opportunities in deploying recognizing stock going So repurchase. with from that, very view, in to high attractive we to a the capital continue at toward again, disciplined but, a return way that our and undervalued, share get

Operator

Our next Barclays. question is from Jack Meehan from

Jack Meehan

variable on we of Dave, in That was trends. one were least visibility I when had November. was hoping terms hospital you the in could provide an update the seeing on what guiding referral you you're

do market improved on? So at have And all? visibility that into new dynamics were what you going has any

David King

we grow and in of, on XQ. for variety just and is referrals. I'm revised part the trial when capabilities, of really Covance hospital LabCorp's piece to and for We Again, a the menu we we to highlight, couple think, quarter, be hope the a discussions that business into again. the ongoing of that as like a at to things beginning attractive year. and falloff of ways to report market of these So think, December, going out improvement saw service, guidance, And consistent an with breadth that, test a partner. the I'd is stated I the productive. will looking of the of our systems. referral combination when systems the dynamics, see, increasingly strategy, and, have we And to are started speak built we through we to of site interesting partnership to guidance trial be in pleased the partnership that I is quality stabilized number business health ultimately did health recruitment, also enrollment differentiator turn

Jack Meehan

Great.

Glenn, then, And commentary for just to on those one forward XXXX. updates. the PAMA Looking

other think in helpful. contracts? it What's do -- So basically schedules related all terms floating-rate the Medicare -- follow that will on the to any what's of going XX impact would Is there? Medicaid you schedule? fee fee Just assumption PAMA the contracts, figure why be on the commentary

David King

it's Jack, Yes. again. Dave

So survey along, that PAMA the was fundamentally the as done was cuts flawed. all said to market we've support

imposed the the market. called plans, reducing which bring comments were his been And anticipated This so would to as in by fee-for-service of in that far within not Medicare. $X Medicare basically is next out it managed the the we reductions. called payment It language, to year, rate knock-on of million this was to reductions year, and with both that the approximately the 'XX. their out the PAMA fee-for-service obviously statutory what Medicare specifically rates statute. part both -- which that, rates Medicaid for prepared contained have not PAMA and that of applied of is were has -- is us excess on Glenn effect that required 'XX, consistent Medicaid, impact But was exacerbated The

reducing effect rate in entirely Medicaid we straight the in the Glenn about had that cut projected. are the terms plans you is rates. number But And following And Medicare is administratively negotiated These prepared of comments. suit fee-for-service so the knock-on the XX% gave that not decreases. almost

Operator

Our next from Caliendo UBS. is Kevin from question

Kevin Caliendo

and any your there's cuts in to impact the an pricing PAMA the love get any XXXX from on or a you and you've to of and seen if Medicaid like. little other of outside impact pricing see update managed care if Would bit into any PAMA contagion expect

David King

bled plans the contract the and been PAMA just related of the -- the for just the with care over managed million speaking did X on pricing renewals. the the Dave. than to none contract. And PAMA, into and renewal team, extension Humana of negotiation have don't referenced, I It's there's the of Humana of of happen. should this pleased the renewal care the managed conclude a the my because Most with reductions. But We no negotiations. is contract, Medicaid I cuts that that by managed to care payers other believe begin $XX mentioned directly asking knowledge we've the

So And some managed over foreseeable table next the having in basically, pleased years. is we're all for contracts shape the big couple the future. to certainty care off of going about how are of the up

Kevin Caliendo

on than would sort there had margin material, higher not on about in rate? forward? of we pricing Covance recurring? expected. increase think pretty as anything of the we Is sort but the well, Is there follow-up, going in that Is Covance, that that One run much this should number be expect the we was anything margin not

John Ratliff

on built a of seasonality side growth. organic was LaunchPad fourth first, foreign actions, the headwind you on Glenn in always built strong the on the But on backlog, was revenue you'll well of fourth as strength it built as Well, you. currency as bit terms it against quarter, have the see, stated, was to of it

in feathers where backlog where in increases margin well year XX% see will pull terms margin the as revenue projected, see will down the mix as see the in We increases you'll But see out reasons sequentially on of you XXXX, and for the year-on-year businesses. based of plays just full improvement. where those

Operator

from JPMorgan. Our next question Gill Lisa is from

Lisa Gill

working with best and the you role. wish you, I've really enjoyed I First, your in Scott, new

expectations more organic be us expectations give just system just my us around Is around Second, Dave, it can as color the changes. little to can comments the If partnerships? utilization? a are Is on your you of shift care managed would growth earlier first your you're give going outside around what that as color to and side, seeing? that what comment a you back to little organic the health question.

Glenn Eisenberg

changing historically, may with expectation rationale Lisa, Yes. contracts the kind the for flat 'XX volume with X% really start, going to down. changes to we've the you negative if slightly Dave commented organic Glenn. a you But we organic we've to given, impact think I'll of as that X% growth, a from talk on, side. of this look some was the and or care that organic that don't did just -- at you we the -- net been and managed on the managed And volume. be roughly color. see with of is for be guidance When exception about, to volume provide the care the about of is the that

David King

size volume And and obviously, from to United apparent. I a more this we've of Horizon the said equation. look that in Horizon the it's up putting the would Yes. size compared negative Lisa, times, at when perspective Dave. many you on we're side say, into end Aetna, going the losses to of projected of that obviously, some even make

It because because because to new population. the and share within rough. it of grows gains It market. coming tests grows However, as grows the the Glenn market. aging shifts of grows because of It grows business And said, our share demographics. of

confident this growth will the feel we will impact managed there the X.X% 'XX. organic confident growth be It be muted so the there was that very there as net next shifts. full 'XX. organic year in by be feel will just We of year And of year, for care

Lisa Gill

as a follow-up. then And just

an update gave Walgreens. You on

us goal you said Dave, of stores that stores be centers? of years. helpful. over kind can with any seeing color around you those Just service still XXX any with you versus, expectation? Are have stores, think as I your one, incremental X would volumes consistent the XXX volumes? two, give color And seeing better performed patient are XXX to you how

David King

Yes.

daily Net the XXX immediate kiosk from and consistent through take a and been end 'XX. very favorable. weekly -- number either the mobile be Just surveys Promoter satisfaction been patient from of But we and of and growing, -- the be we have rates real-time patients They centers Walgreens. devices, new volumes. on the inside track Scores customer say We the have California or their clear, opened of will service I by in to can the what --

when we volume. of we in center, centers, service complement what see better volumes other beginning. volumes Walgreens is service quite a patient When to center course, So a a actually would comparable add we see existing of at the into an relocate terms add Walgreens, typically even lower When we, service volume. patient typically from or patient -- we

Operator

Erin Our from Wright question is next from Crédit Suisse.

Erin Wright

on some and how Across backlog whether the thereon? of the resonating the types service trends the traction trials, of the and and large where offering you're of data it profile mix as should conversion customers Covance or business, sort of better we profit be seeing as in pharma full biotech could think well the the FSP about you comment versus

John Ratliff

It a is the still There companies This mix programmatic. is are FSP the John. FSP. versus of that have embraced

acquisition I programmatic capabilities that now the Chiltern and think biometric in mix our our swung. there FSP FSP on monitoring of hasn't But stronger based FSP strength, into and adding strength. we're the

our better gotten that. regard much in that capabilities I think have to

said patient I've was strength to environment plays now, differentiator strength is of terms you resonates versus that or the say research, It's the pipeline, Those as the the small. it data. the of as in the data Right into biotech And biotech funding these calls, it the front. of protocol terms in sides differentiator both there's of terms that is and side out molecule and the terms also that in are the strategy obviously, the in majority on for optimization. data terms the RFP In the been there increase about both in side. recruitment is for all as in no large in company. that in large cancellations whether total as the mid-tier site VC say across weightings. if selection, in is -- of would that biotech, pharma, on a put then healthy the of look on in environments, of team And to And have and large also you It the robust is volume you that. a solution area. pretty developments I That equal the that's and pharma.

in there talked therapeutic as actual time lines no biotechs well as reducing data, the really as all large. there in demonstration Dave is as the all between areas, areas what Showing in is and delineation that pronounced so about. of across And the trials the two. well is It's

Erin Wright

helpful. really quarterly offsets been days of contracts. about that's other rolling the well And Great, the care then is changes with should in those how sort surprises course XXXX? that progression early managed contract of as contract anecdotally, business out there Has as And think switching how of of over the the any we the -- the to shifts?

David King

any been rolled the it's not have that There surprises in Dave. It's way out.

As contracts that expectation start about changes, commenting with were we within volumes relatively market quarter, again, a the only concern about the losses of quarter. caveat, I I early. the going -- want -- would to be commented policy would clear, to said those basically contract as performance commented, as commented because of -- January our riding the was and for basically But we're I were there and throughout I be expectations. And heightened fourth make not

accuracy pleased So with this well our point as in of -- with our as respect January actually those with we're contracts performance to estimates. the our to

Operator

Donnelly Our next from Sachs. question Patrick is Goldman from

Patrick Donnelly

Appreciate LCD just on margins. the the margins. Maybe on Covance color side, the the other

aggressive margins. just XXXX in guys, on? Given the through kind the go-forward the could you be from there? the pricing talk as Just trying of shift levers managed What offset care think perspective away the most shifts the on you can the through causing dynamics, you to

David King

Dave. Patrick, it's Yes.

certainly some LaunchPad. we've about that And the thing plan. one reductions. think that XXXX substantial cost will I -- mean, be talked So That will involve I of part

fourth the years, Just revised what very to separately obviously, like about the X I looking we be genetics We did pretty when to for guidance, up straightforward. having just million trend which, as staffed over have the experience from $XXX as expected at would business, consumer of pretty we a not in is seasonal we the materialize. strong math said, quarter, talked we comment the did that. in heavily

But those those fully the in the in time trend, quarter started the you And can most it the quarter. quarter actually by taking were 'XX. the enough of actions so reduction that cost actions of was late we aware the of we impact of in fourth see first

down variety personnel performance Having to from a be the will said, prepared to about were expect that, in the much we do LaunchPad, of affect I've on margins in repeatedly to that 'XX. all are there as talked as and XXXX down but margin of to in down facilities levers, we in them So not I combination things comments expect be of do have managed Diagnostics said XXXX. changes, as care because PAMA they we think the the

margin the in expect of terms be the XXXX decline. we to relative performance in So better

Glenn Eisenberg

to and would not year-on-year -- from 'XX Diagnostics I'd unusual were margin we to The unfavorable there earlier, that in for within had, All the that also versus forecast payroll about on add of had were, the the in future, those will margins be impacted of impact some XXXX. impact X not we Yes. Patrick, weather in that the a the that we we've business the Diagnostics an it, business. XXXX day in is call extra negatively that our just the talked thing only obviously disruption that of 'XX that negative business fact divestitures also forensics items the

potential do we'll and the point, LaunchPad, favorable believe Dave's items to as tuck-in incremental impact offset the still well. managed see margins mix because acquisitions the care recurring but and by PAMA not again, we of the these decline well So as as offset of having by for

Patrick Donnelly

quarter. That's And this driver helpful. a genetics Appreciate been growth for business. on it. touched then XXandMe had nice the you consumer

the in a in about slowing genetics what so growth well, that testing this kind go-forward it could of to the type down upside? help on be of out seems baking The in, genetics surprise as quarter be consumer a of general player you're potential biggest what shortfall the just think industry other view Can bit. kind there, called us you

David King

have on but our contemplates receive we from basically to Obviously, we what flat XXandMe Yes. relatively go is plan projections our being customers, year-on-year.

the is what better, we've our we into into but mapped the feel So do comfortable they potential budget. that with --

Operator

is question Citigroup. from Giacobbe next from Ralph Our

Ralph Giacobbe

in But versus will, I report wanted letter take kind to it Dave, a recently with a sales then well. of outsized M&A like from sent and being first, PAMA out that of to. get a and guess, that on out the in GAO's of influencing process reality. physician of and XXXX Grassley business characteristics if your I office was pushing get of they're hospital doing sort even perspective think your that report terms as terms you and to in out you a tuck-in Grassley the just around what operationally, pretty -- that hoping to other on sort is know of I latched sort and seem outreach of loophole, on then expect if whether just some labs maybe change has overpayment likely in the of of just and take the maybe that numbers terms The you

David King

Ralph. Thanks, Yes.

that I multiple unfortunately dimensions. So would really start by quite on saying erroneous report was

CMS -- components. there of -- certain to number a have what chemistry are So that that we pre-PAMA, if by defined chemistry go back automated are panels CMS

to would up of PAMA, bundling the and those pay just is Let's you if the together short bundles has CMS it Pre and components, make X panel the a that an total price. that logic CPT rate. change with and order automated chemistries to chemistries, the panel, you that were bundle for particular in chemistry X code use panel you or X

logic. were to actually bundling was went passed logic. have the So CMS been paid that That use When you market sort that PAMA reimbursement, initially. paid -- not did than X and was bundling a market-based chemistries would less was for of CMS you

sorry, happened rate because payment. was bundled longer is is that PAMA what does, no what market be those CMS And PAMA so of -- panels to market a the supposed and

which you are of CMS ordered, Furthermore, components X-chemistry that panel. ordered, you is as X has bundles chemistry tests says and are are bundle the the a laid panel if bundle. that it that the the to office demonstrating CMS loophole. no rules labs, to There no the are doing is exactly follow Grassley's This -- do. to is data exactly labs ACLA continuing labs there is did, told the what submitted into under logic rules build test all bundling we that and if So Sen. anything out, statute nefarious. the bundling back-end And

much numbers. So it's me how you mentioned, with a this exaggerated a become little issue, has mystery even as grossly overpayment an to these, bit less of

Medicare number spend. fact, report lab In potential a entire the than think overpayment GAO I had the bigger

the are from on. this and industry ACLA a unfortunate with talked of it's just GAO So very perspective distraction the the is and which Medicare a PAMA outsized impact which and the earlier, is the misunderstanding, this a Medicaid. Unfortunately, about created we excessive -- now educating cuts, Congress a both and about both follow-on

So as but long, I PAMA rules. it's the hope implementation important was that's little a called it well understood the it's this do statute be and payment what I and is of that think helpful, this apologize the I Ralph, market-based for,

Ralph Giacobbe

mentioned and a Yes, you've care talked and squeeze one you no, lot the was can it I well. managed appreciate XXXX more opposed could hoping I bit more sort as earlier in, could volume the about timing importantly, on of maybe now beyond. XXXX little thinking more perhaps start a and have the business the out I influence if that on near in And partnership as term side has just that. as call whether flesh influence discussions about or those more just an an and, and to we

David King

Yes.

a lot think design, of we've talked focusing value-based I benefit are participants in the rates. payment partnership network, discussions, as about, the on

so network to the And ASO out-of-network in and need things design. the and the of design benefit be made benefits how use by minimizing changes payers utilization, by employers are benefit particularly, like and that there

year. XXXX I changes really start those the are for think going selling next So XXXX season, be think impact see in made to but you'll I to start to the

Operator

Deutsche next from from Our is Leonard Bank. question Dan

Daniel Leonard

modeling indirect exist fair quick persist and Is on impact beyond to just that or purposes the PAMA. for whatever indirect these that? residual a it beyond into clarification might impacts knock-on So XXXX XXXX of assume

David King

Dave. it's say I would Dan, yes.

Daniel Leonard

And my Okay. then follow-up.

Dave, health that volume there and you improvement in hospitals sense for on And drove it, the plan you to, the referral quarter? Thinking that which from back systems December. the needed you respond the on back industry early the fourth why below December? that recovered to was that in do Looking mentioned quarter, any happening appreciate tactically in anything in dipped have

David King

trends in similar to drivers rate bed and speaking they they did similar were the as admission rate, we -- and have delayed calendar to in were and least speaking flu a seeing rate, yes, big from -- in at lower season. delay rates able I customers, were those the we admission customers, So tell flu. really, far mean, were seeing with as

So I customers. it, had more I a from our color lot that was wish high-level on takeaway but the

Operator

from question Morgan Stanley. from Ricky next is Our Goldwasser

Rivka Goldwasser

opening So open the exclusive do in one XXXX, previously and you of see on question big are number prepared remarks, all at Dave, to contracts any that care renewed, off point, But care. contracts we've opportunities for were said additional table. contracts a up. managed that managed Obviously, in this Humana up? you the seen

David King

we Well, have not the been in. exclusive I think Blue that fronts. Blue the that number a engaged it's pretty well of a known on with in we major remaining is Florida conversations Florida participant contract are And

patient We centers Florida the have service Walgreens-located in market.

the that out to you to contract years. with how that engage about with can't to there, see progress that We've So firm willing because we've turn going for give I going out. we're a good hopeful pleased some been of it's but been we're fact us they've of number been a prediction

Rivka Goldwasser

care timing for you contracts, managed the and impact a the trying in to to lot of helpful kind back points. data to get growth. net gave different managed Glenn, headwind what going fair then care They're assume kind And XXX Okay. changes like a organic of that of the But basis a from of it I've like points share contract could in be to in like heard, year? is this kind very

Glenn Eisenberg

the be think to, the at area to It's number volume And try we there, and that dealing get with obviously, you, growth operational to X% fair other of issues we way newness you're X% directionally it. organic it's given that would of saying that's that provide obviously didn't the given a volume the these flat is of -- organic kind the directionally we're there, why of been reason And we've business, we're but -- The was number assume least level. to kind company. a just one I that quantitative instead that for flat. our historically

of least you a kind number clearly your which we've within. falls band, So at well given

So it's of reasonable way thinking it. a about

Operator

from from is Kevin question next Craig-Hallum. Ellich Our

Kevin Ellich

been So going call has a on time. long Dave, the

was share in flow there. million clarify, accounts is Looks stated reverse? wanted free wondering correct? free Just Glenn, was XXXX to payable just unusual just cash. quick QX. then cash if you that also going and of of on that M&A. to be one. And your repurchases on a in there like a anything the And Is all that's cash used $XXX flow I Is in source question

Glenn Eisenberg

would see, it's flow the Fourth Yes, was made on But capital first, management. we the on number feel payables, just about progress to you really good as to the we've cash say tend we be see free Kevin. Yes, source. quarter source. a broadly, did more quarter, a fourth overall I Obviously, related. working that timing payable

to continue manage We cash tightly.

XXXX continue saw continued continued a expectations We in as to look progress DSOs our see continued and well for as to a in when expectation XXXX, improvement the there. we

no implying can guidance balance look obviously, sense. take of billion, to But do to valued, -- we'll So overall, our towards as between cash that repurchases where upper our so of as benefit, year, flow targeted it's regard We the the as the positive end. debt, flow all use we on that share to at the expect is especially where With range. sheet the flexibility cash makes program, continue are the next capital shares upper now commented have advantage of for M&A that acquisitions, our the financial outlook as we front. as maturing stay the that we at repurchase the working and have well end leverage, share the will albeit well free we free within $X that

David King

Dave. it's want acquisitions. to I disciplined Kevin, And financially stress, just

to thank for So have of X like We all financially. don't make the And so the comment, on XX. questions to after go and them. in also sense warning, spend I'd giving to do acquisitions so we'd you that strategically no, to we're going money not just it's get queue, like X

if your already we and if the can been answered. limit questions try follow-ups, questions short particularly Let's have the to make

Operator

is question KeyBanc. next from from Our Hooker Donald

Donald Hooker

question. So a quick follow-up

strong. the growth quarter, in the of really Covance of terms In X% looks

the called quarter? and being can quarter, the continue side that driver. X% I out early a Covance, parts this that out think as how growth? you reflects segment the last Did different of Maybe preclinical big development that revolves around you parse

John Ratliff

in in Yes. in and the late the of half, We on stage late-stage the growth on the development X%. in out the but revenues terms on both early second labs first the the don't as well We quantification, yes, terms all the give within even terms in the the in half the of the clinical in and across segments areas bookings. continued on saw strength strength as the of board and, individual on terms ED of, the strength

Operator

Our next question is Merrill Bank Derik Lynch. from Bruin America of from De

Derik De Bruin

we've revenue backlog of Could across is, you've that really most trends doing you're up? books-to-bill but you So one CROs, accelerating. and the seen Covance the growth few level numbers is actually organic good quantify your of of to the the backlog basically backlog conversion? and north of that there I of XX% are guess you in what conversion, question speed just your sort the seen

John Ratliff

the revenue of to in consistent our we about we covered rare convert. area actually quantification oncology, are seems I'll XX% as in that estimates that to that about backlog. draw do a enter last terms backlog on out itself. in type of and the In way different And has. into in have bit It's backlog therapeutic little terms stabilized. a XXXX, stated are the try Highly conversion quarters. aggregate has of terms in, XX% of terms different little measure Glenn orphan approximately been -- of you're then dependent volatile the of should that XX% our by and and a revenue pretty of That's of the almost this four

hopefully, helpful there. So that's

Derik De Bruin

the Loxo obviously, with some on one this partner trials. a time. can Lilly cancel follow-up got a been just going Great. quick long they've And you've And deal and on, for

changes in of anything there's on we about concerned given So in that everything if be going that just relationship should terms there.

John Ratliff

see won't normal ending come no partnership issues relationship. presently No, very and continued course and contracts relationships, up and the good in in

Operator

question is Our from from Brian Jefferies. next Tanquilut

Brian Tanquilut

CRO John, just in a follow-up the question.

milestones more you are So are industry? structures in around pricing project time taking competitors or in seeing Meaning, risk the any lines? seeing you change

John Ratliff

we've risk-based doing in way years side. a et competitive while risk general, And late-stage And terms few it's marketplace based cetera. the the stable early on last the labs, to pricing terms been on in the from of standpoint the as terms the of and That's the of No. for in of but in for side. milestones, pretty that's development pricing, of in aggregate -- what feature a been a been

Operator

Our Quirk is Bill Jaffray. Piper from from next question

William Quirk

that the seeing not PAMA. care Dave, your does discussions. managed seeing providers, So are managed of particularly hospitals, it PAMA appreciate But that rates for pressure into to you're some appear related some care bleed smaller

more So around, of about also are just think time hospitals that you XXXX that collection kind when data included with we against thinking we PAMA how expanded or then about rather the how be and beyond? should and this balancing thinking

David King

although along, database. relief required to not legislative occurred the collection to right And we data more of expanded solution hospital an appreciate judicial the is that's PAMA, but we'll step, it CMS least or to wrong is rates is here. improvement, commercial take see and said obviously, as at that in the So or all regulatory flaws we've then the being the willing

soon for terms of period. 'XX the of data 'XX, I in cycle. be good what's have in is impact collection And the the that's happen, will reductions occurred there's think most to of next going X-year beginning 'XX, to news supposed the relatively another

Medicaid other cost particularly that because reduction ways in look that's at side size are -- side, Medicare, similar XXXX, similar in others And will partnering going so of the the an to industry the business increasingly, this impact there's under coming dependent it have which to same And going time, another think, at I revenue be is year. cause in a to payment, and can those on the now or their pressure. of more optimize they for

year. as with highlighted some So think remarks, will in last we there accelerated prepared I opportunities be And for us. health the have of systems those

to attractive you of than think terms flow thought deals, deal As were deals, was there'll would be pretty a think one particularly, in XXXX in XXXX. it what observed, year the for in there's but we more every of reason light smaller them that

William Quirk

follow-up then business. Got the quick genetics on it. just consumer And one

this appreciate see expectations, lower that? cue recall If average, slightly can just 'XX. to the we seem from of I you flat corporate here? but modeling -- can outperform You're than that margin remind for I you're those us it's you this flow-through

David King

No, The expectations. corporate average, lower is but -- Bill. comfortably margin is corporate within the the than pricing our

Operator

Mark from question is next Canaccord from Massaro Our Genuity.

Mark Massaro

relates don't to get to as the outreach? all hospital the half that, so, to second awareness see to familiar hospital it M&A, you that as of or that relates lot XXXX potential a deals But with executives Dave, And increasing? first do it obviously, do if seem be of do more PAMA. sense is you

David King

what I I lead I PAMA And response the likelihood, to Mark, think 'XX. to do Yes. do will, all and higher, awareness in in it consistent with we that a is indicated said in remarks as and think the Bill's well. think 'XX more prepared I deal of question, robust in flow

Mark Massaro

doing health of a in you're testing. what I And leader Can the try are adoption Great. talk you women's average-risk to know NIPT? you encourage maybe that about to

David King

be Obviously, fairly risk Yes. a actually, women of of major papers syndrome maternal recent have of reported indicating microdeletions is prevalence nonetheless pregnancy. Down particularly a in concerning in higher-than-previously that frustrating, genetic couple NIPT of or indicates fetuses, the players so-called average the well clinical so-called impact percentage as high that on a other things their that there's scientific and quite of terms actually of recent noncoverage by evidence because the as average-risk would

ACOG we're approach cost-effective in So tide And with testing. And this average-risk well. to persuade the we the leader approach screening a the plans for it's will and, to also the course, working coverage thought is groups ACLA, of indeed providers that decisions more are and that And the members coalition prenatal of a and the offer better think -- as turning working is women that Congress we're payers and our thought ACMG leaders, population. with by the try noninvasive I our among hope prenatal the with influence of major that, to certainly, of support prenatal screening. the working

Operator

I King call questions. I no remarks. like to closing At the back am this to turn over further time, Dave would showing for

David King

terrific you thrilled years. much. my this Scott CFO Clarissa all Investor in we listening to want step morning. who Relations place. came past from the I into to to also we done are you PAML us who's role him, over really thanks the personal Thank for to with Thank to Frommer, although his have a add job very And will miss

forward in updating welcome role the this to So ahead. you over quarters to Thank we for day. in look where a and wish company iteration, he'll joining reporting continued best be morning. all and to you the Clarissa. Scott in the just Good me, continue diagnostic all interest your us Appreciate different the

Operator

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

You disconnect. may now

Laboratory Corporation of America (LH) 7 Feb 192018 Q4 Earnings call transcript