laboratory corp of america hldgs (lh) earnings report: … · 2016-04-25 · good morning. welcome...

CompanyName:LaboratoryCorpofAmericaHoldingsCompanyTicker:LHSector:HealthCareIndustry:HealthServices

EventDescription:Q1Conf EarningsCallMarketCapasofEventDate:12.31BPriceasofEventDate:124.0

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

LABORATORYCORPOFAMERICAHLDGS(LH)EarningsReport:Q1ConferenceCallTranscriptThefollowingLABORATORYCORPOFAMERICAHLDGSconferencecalltookplaceonApril25,2016,09:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

PaulSurdez;LaboratoryCorpofAmerica;InvestorRelationsDaveKing;LaboratoryCorpofAmerica;Chairman&CEOGlennEisenberg;LaboratoryCorpofAmerica;CFO

OtherPart icipants

DeborahKeller;Covance;AnalystRobertWilloughby;CreditSuisse;AnalystBillBonello;Craig-Hallum;AnalystLisaGill;JPMorgan;AnalystJackMeehan;BarclaysCapital;AnalystRossMuken;EvercoreISI;AnalystAmandaMurphy;WilliamBlair;AnalystNicholasJansen;RaymondJames;AnalystWillQuirk;PiperJaffray;AnalystRickyGoldwasser;MorganStanley;AnalystIsaacRo;GoldmanSachs;AnalystWhitMayo;R.W.Baird;AnalystRyanHalsted;WellsFargoSecurities;AnalystA.J.Rice;UBS;AnalystBrianTanquilut;Jefferies;AnalystDonaldHooker;KeyBancCapitalMarkets;AnalystMarkMassaro;CanaccordGenuity;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheQ12016LaboratoryCorporationofAmericaHoldingsearningsconferencecall.

(OperatorInstructions)

Asareminder,thisconferencecallisbeingrecorded.

IwouldnowliketoturntheconferenceovertoMr.PaulSurdez,VicePresidentofInvestorRelations.Pleasegoahead,sir.

PaulSurdez (InvestorRelations):

Goodmorning.WelcometoLabCorp'sfirst-quarter2016conferencecall.Asdetailedintoday'spressrelease,therewillbeareplayofthisconferencecallavailableviatelephoneandInternet.

WithmetodayareDaveKing,ChairmanandChiefExecutiveOfficer;GlennEisenberg,ExecutiveVice




PresidentandChiefFinancialOfficer;andDeborahKeller,CEOofCovanceDrugDevelopment.

Inadditiontoourpressrelease,wealsofiledaForm8-Kthismorningthatincludesadditionalfinancialinformation.BothareavailableintheInvestorRelationssectionofourwebsiteatwww.labcorp.comandincludeareconciliationofnon-GAAPfinancialmeasuresdiscussedduringtoday'scalltoGAAP.

Finally,wearemakingforward-lookingstatementsduringtoday'scall.Theseforward-lookingstatementsincludeamongothersstatementsaboutourexpectedfinancialresults,theimplementationofourbusinessstrategyandtheongoingbenefitsfromacquisitions.Thesestatementsarebaseduponcurrentexpectationsandaresubjecttochangebaseduponvariousfactorsthatcouldaffectourfinancialresults.Someofthesefactorsaresetforthinour201510-K.

Wehavenoobligationtoprovideanyupdatestotheseforward-lookingstatementsevenifourexpectationschange.

NowIwillturnthecallovertoDaveKing.

DaveKing (Chairman&CEO):

Thankyou,Paul.Goodmorning.

WehadanimpressivequarterinwhichwecontinuedtodemonstratethepowerofourtransformedCompanythroughouroperatingperformanceandprogressonkeystrategicpriorities.First-quarterproformarevenuegrowthwasnearly9%withstrongorganicgrowthinbothLabCorpDiagnosticsandCovanceDrugDevelopment.

Thisgrowth,coupledwithreengineeringourbusinessprocessthroughProjectLaunchPadandcapturingadditionalcostsynergiesfromtheCovanceacquisition,droveanotherquarterofmarginexpansionanddouble-digitadjustedEPSgrowth.

Ourexcellentfirst-quarteroperationalperformanceandbusinessmomentumgiveusconfidencetoincreaseour2016revenueandEPSoutlook.Ourongoingsuccessisduetosustainedfocusonourmissiontoimprovehealthandimprovelivesandexecutiononourthreekeystrategicinitiatives:beingtheworld'sleadingproviderofdiagnosticsolutions,bringinginnovativemedicinestopatientsfaster,andusinginformationtochangethewaycareisdelivered.

Iwillnowupdateyouonourprogressonthesestrategicguideposts.

First,wearedeliveringdiagnosticsolutionsthroughacombinationofenhancedofferings,complementaryacquisitionsandtechnologicalinnovation.Wecontinuetoleadinofferingcutting-edgetesting,introducingover75newteststomarketduringthepastyear.Weareincreasinglydeployingourintegratedtestingcapabilities,industry-leadingscienceandinnovativetechnologyofferingstoestablishstrategicpartnershipswithproviders.

Hospitals,healthsystemsandlargephysiciannetworksseekusoutforourcomprehensivecapabilitiesinreferencetesting,supplychainmanagement,ITandinformatics,decisionsupportandclinicaltrials.

Wearealsofocusedonourrelationshipswithmanagedcareorganizations,abackboneofourbusiness.Wehavethestrongestmanagedcareportfoliointheindustryandareproudofourdeeppartnershipswiththeseplans.

Inaddition,weareincreasingourfocusonpartneringwithgovernmentandquasi-governmentpayersastheytakeonbroaderrolesindevelopingnewpaymentstructuresandcaremodels.

Underpinningourcorediagnosticstrategyisourinnovationindataintegrationandintoolstosupport




enhancedconnectivity,reportinganddecisionsupport.Wedifferentiatefromourcompetitorsbyprovidingthesetools,aswellasthehighestquality,mostcostefficientlaboratoryservicestohelpawidearrayofpartnersastheymovetomoreextensivemanagementofpatienthealthandbroadersharingofrisk.

Wecomplementourorganicgrowthinitiativeswithcarefullyconsideredacquisitionsandpartnershipsthatdrivelong-termprofitablegrowth.Duringthequarter,weinvestedapproximately$100millioninstrategictuck-indeals,predominantlyfocusedonesoterictestingsuchasanatomicpathology,whichprovidescriticaldiagnosticinformationinthedeterminationoftheappropriatecourseofcancertreatment.

Lookingaheadouracquisitionpipelineremainsrobust,andweseeattractiveopportunitiestoenhanceourtestmenuandexpandourgeographicfootprint.

Inadditiontoourrevenuegrowthinitiatives,wearecommittedtoincreasingefficiencyandimprovingthecustomerexperience.ProjectLaunchPadisintroducingnewtoolsandsystemstoreengineerourprocesses,aswellasenhancethepatient,employeeandcustomerexperience.Withidentifiedprojectsunderwaysuchasimprovingourbillingsystemandpatientservicecenterworkflow,LaunchPadwillsustainablyreducecosts,benefitingthelong-termmarginsofLabCorpDiagnostics.

Weremainontracktodeliver$150millioninnetsavingsthroughthethree-yearperiodendingin2017.AlthoughLaunchPadisafiniteprogramaimedatprocessreengineering,wewillalwayshaveopportunitiestodriveshareholdervaluethroughfurtherproductivityandefficiencyprograms.

OurcultureofcontinuousimprovementbeganlongbeforeLaunchPadandwillremainafterweachieveourstatedLaunchPadgoals.Initssecondyear,LaunchPadhastransitionedfromshorterdurationinitiativestosystemreengineering,whichentailslongertimelinesforexecutionandlonger-termsavingsimpact.

Oursecond-quarterobjectiveisbringinginnovativemedicinestopatientsfaster.Weexecutethatobjectivebyofferinguniquecapabilitiesandsolutionstosolveproblemsforourcustomers.Inefficiencyintheclinicaltrialrecruitmentandstartupprocesspersistsasthemostsignificantpainpointforourbiopharmacustomers.Weareintroducingsolutionsthatnoothercompanycanreplicatetoaddressthischallenge.

WearecommercializingthecombinationofLabCorp'sproprietarypatientdataandCovance'sproprietaryinformaticsandinvestigatordatabaseinsupportofenhancedstudyplanning,aswellasinformedclinical--improvedclinicaltrialplacementandrecruitment.

Duringthequarter,theuseofLabCorpdataplayedakeyroleinwinningalargePhaseIIIoncologystudy,whichincreasedourcumulativeordersfromuseofLabCorpdatatoover$190million.Wehavebeguntoconvertthisbacklogintorevenueandremainontracktodeliver$150millioninincrementalrevenuethrough2018.

Inaddition,thenumberofpatientsthatprovidedconsentthroughourpatientportaltobecontactedaboutclinicaltrialssteadilyincreasedthroughoutthequarter.Webelievepatientswillwanttobepartofaprocessthatimprovesthespeedatwhichcutting-edgetherapeuticsaredeliveredtothemarket,andwe'reexploringpartnershipstoexpandourreachwiththisinitiative.

Overtimewebelievethatthisdatabasewillfurtherdifferentiateourstudy'sstartupandrecruitmentcapabilitiesinsupportofbetterdrugdevelopment.

Wecontinuetodevelopcomprehensivesolutionsinkeytherapeuticareas,capitalizingonourunique




end-to-endcapabilitiesacrossallaspectsofdrugdevelopment.

ThescientificandclinicalexpertisethatCovanceDrugDevelopmentandLabCorpDiagnosticsofferincombination,ourcombinedlaboratoryexpertiseandourabilitytodeliverallofourserviceswiththehighestqualityandatscaleputussignificantlyaheadofourcompetitors.

Togiveyouacoupleofspecifics,ourindustry-leadingcentrallab,aproductofourcombinedcapabilities,reportedanotheroutstandingquarterofdouble-digitorganicrevenuegrowth.

WerecentlyintroducedautomationtoourGenevacentrallabtoimproveproductivityandexpandedittodoublecapacity,allowingustobetterservethegrowingdemandforourenhancedmenuoflabtestinginEurope,Africaandaroundtheglobe.

Ourcompaniondiagnosticfranchisecontinuestothriveandisanotherexcellentexampleofthepowerofourcombinedoffering.Companiondiagnosticsaregrowinginimportancetoourcustomerstohelpthemsecureregulatoryapproval,reimbursementandmarketadoptionfortheirmedicinesinanincreasinglydemandinghealthcaresystem.LabCorpandCovanceuniquelyoffercompaniondiagnosticcapabilitiesfromdiscoverythroughcommercialization.

Thesecapabilitiesincludedevelopment,validation,supportforinvitrodiagnostickits,abilitytoresponsiblylaunchlaboratorydevelopeddiagnostics,marketanalysis,reimbursementsupport,lifecyclemanagementandtimelycommercializationofdrugsandtheircompaniondiagnosticstooursizablebaseofprovidersandtheirpatients.

Weseestrongrevenuegrowthincompaniondiagnosticservicesacrossmanytherapeuticareas,includingoncology,inflammationandcentralnervoussystemdisorders.Weremainconfidentthatwewilldeliver$100millioninincrementalrevenueinthisareathrough2018andhighlightourdifferentiatedcapabilitiesfromourcompetitors.

Forourthirdobjective,wearechangingthewaycareisdeliveredthroughtheuseofinformationandtechnology-enabledsolutions.Indiagnostics,asnoted,weareexpandingourmenuofdecisionsupporttoolsandintegratedcontenttoassistpayers,physicians,healthsystemsandpatientsinbetterunderstandingandmanagingmedicalconditions.

Wealsorecentlymarkedtheone-yearanniversaryofBeaconLBS'scommerciallaunch,andwearepleasedwiththetechnology'sclearfinancialandclinicalbenefits.

Inaddition,weareseeingincreasedprovidersatisfactionwithBeaconLBS'stestandlabselectionfunctionality,aswellasitsease-of-use.WeintendtoaddnewcapabilitiestoBeaconLBSthisyearandremainoptimisticaboutitsintroductioninnewmarkets.

Indrugdevelopment,weareenhancingCovance'sacceleratedsuiteofservicestoenablefasterpatientenrollment,moreefficientsitemonitoring,andimprovedstudyplanning.Xcelleratehelpsreducethetimeandcostoftrialsbyprovidinganeasy-to-use,replicabletooltoimproveinsightintotrialsiteperformanceandtrialsuccess.

Wewillalsoimplementnewapproachestolowerthepatientburdenandimprovethepatientjourneythroughclinicaltrials.Werecentlylaunchedasuiteofmobilecapabilitiesdesignedtohelpbiopharmaceuticalandtechnologycompaniesnavigatetherapidlyevolvingmobilehealthlandscape.Throughthisnoveloffering,wewillprovideregulatoryconsultingandvalidationservicestohelpcompaniescertifytheaccuracyandconsistencyofmobiledevicesandapplicationsforuseinclinicaltrials.

Throughallofthisactivity,wehavebeenandwillbeexcellentstewardsofcapital.Wehavemadesteady




progressinourcommitmenttodeleverthebalancesheet,andwearenowatapproximately3.5timesleverageapproachingourtarget.Wecontinuetodeploycapitaltowardstrategicacquisitionsandexpecttobeinapositiontoreturncapitaltoshareholdersinthesecondhalfoftheyear.

Byvirtueofourinvestmentsininnovation,talent,science,quality,operationalexcellenceanddistinctivetechnology,LabCorpisincreasinglywell-positionedtoprofitfromglobalopportunitiesacrossour$200billionaddressablemarket.

Iamproudofmycolleagueswhoeverydayreflectourcorevaluesofexcellence,integrity,teamwork,courage,inspirationandownershipastheyworktirelesslytoimprovethehealthandlivesofpatientsaroundtheglobe.

Ourteamseffortsarethereasonforoursuccessthisquarter,andtheywillcontinuetobeLabCorp'sgreatestcompetitiveadvantage.Ithankthemfortheirgreatworkandtheresultstheycontinuetodeliver.

NowIwillturnthecallovertoGlenn.

GlennEisenberg (CFO):

Thankyou,Dave.I'mgoingtostartmycommentswithareviewofourfirst-quarterresults,followedbyadiscussionofourLabCorpDiagnosticsandCovanceDrugDevelopmentsegmentsandconcludewithanupdateonour2016guidance.

Revenueforthequarterwas$2.3billion,anincreaseof30%overlastyear.Covancecontributed24%year-over-yeargrowthduetostrongdemands,aswellastheinclusionofafullquarterofresultscomparedtoapartialquarterlastyear.Theremainderoftheincreaseof6%wasdrivenbyLabCorpDiagnosticsstrongorganicgrowthandtuck-inacquisitions,partiallyoffsetbycurrency.

Grossprofitforthequarterwas$777millionor33.9%ofrevenuecomparedto$625millionor35.3%lastyear.Theincreaseingrossprofitwasdueprimarilytostrongdemands,productivityandacquisitions,partiallyoffsetbypersonnelcosts.ThedeclineingrossmarginwasprimarilyduetothemiximpactfromafullquarterofCovanceresults.

Onaproformabasis,grossmarginwouldhaveincreased50basispointsoverlastyear.

SG&Aforthequarterwas$412millionor17.9%ofrevenuecomparedto$442millionor25%lastyear.Specialchargesinthequarterwere$10million,primarilyrelatedtotheintegrationofCovanceandexecutivetransitionexpenses,comparedto$119millionayearago,whichwereprimarilyrelatedtotheacquisitionofCovance.

Excludingspecialcharges,SG&Ainthequarterwas$402millionor17.5%ofrevenuecomparedto$322millionor18.2%.TheincreaseinadjustedSG&Awasprimarilyduetoacquisitions,personnelcostsandbaddebt,whilethepercentageofourSG&AbenefitedfromafullquarterofCovance'slowerrate.

Onaproformabasis,adjustedSG&Awouldhaveimproved10basispointsoverlastyear.

Duringthequarter,werecorded$19millionofrestructuringcharges,primarilyrelatingtotheclosureofredundantfacilitiesandgeneralintegrationinitiatives.Amortizationexpenseforthequarterwas$44million,upfrom$31millionayearagoduetotheimpactofacquisitions.

Operatingincomeforthequarterwas$302millionor13.2%ofrevenuecomparedto$132millionor7.5%lastyear.Excludingamortization,restructuringandspecialitemsof$74million,adjustedoperating




incomewas$376millionor16.4%ofrevenuecomparedto$302millionor17.1%lastyear.ThedeclineinmarginwasprimarilyduetothemiximpactfromafullquarterofCovanceresults.

Onaproformabasis,adjustedoperatingmarginwouldhaveimproved60basispoints.

Interestexpenseforthequarterwas$55millioncomparedto$104millioninthefirstquarterof2015.Thedecreasewasduetononrecurringacquisitionrelateditemsof$53millionrecordedlastyear,partiallyoffsetbyhigherdebtbalancesfollowingtheacquisitionofCovance.

Thetaxrateforthequarterwas37.3%.Excludingspecialchargesandamortization,theadjustedtaxrateforthequarterwas36.5%,upfrom35.4%lastyear,primarilyduetothegeographicmixofearnings.

Forthefullyear,wecontinuetoexpectouradjustedtaxratetobecomparabletolastyear'srateof35.3%.

Netearningsforthequarterwere$160millionor$1.55perdilutedshare.Excludingamortization,restructuringandotherspecialitems,adjustedEPSwere$2.02inthequarter,up15%from$1.76lastyear.Theseresultsincludedanetgaininthequarterof$0.05perdilutedshareonthesaleofinvestmentsecuritiesfromourventurefund.

Duringthequarter,operatingcashflowwas$123millioncomparedtonegative$87millioninthefirstquarterof2015.Lastyearcashflowwasnegativelyimpactedby$154millionofone-timechargesrelatingtotheacquisitionofCovance.Excludingthesecharges,operatingcashflowwasup$57millionoverlastyear,dueprimarilytoimprovedearnings.

Capitalexpenditurestotaled$71millionor3.1%ofrevenue,upfrom$34millionor1.9%lastyear.Capitalexpendituresinthequarterwereinlinewithtypicalspendinglevels,whilelastyear'sCapExwaslowduetothedelayedspendingrelatedtotheacquisitionandintegrationofCovance.

Asaresult,freecashflowwas$52millioninthefirstquarter,anincreasefrom$33millionlastyear,excludingthenonrecurringitems.

Atquarterend,ourcashbalancewas$696millioncomparedto$716millionattheendof2015.Totaldebtwasapproximately$6.4billion.

Duringthequarter,weinvested$97millioninacquisitions,andourleveragedeclinedto3.5timesdebttolast12monthsproformaEBITDA.

NowIwillreviewoursegmentperformance.Forcomparativepurposes,segmentresultsarepresentedonaproformabasisforallperiodsasiftheacquisitionofCovanceclosedonJanuary1,2015,andexcludeamortization,restructuring,specialitemsandunallocatedcorporateexpenses.

Reconciliationsofsegmentresultstohistoricallyreportedresultsareincludedintoday'spressreleaseandthecurrentreportfiledtodayonForm8-K.

NowIwillreviewtheperformanceofLabCorpDiagnostics.Revenueforthequarterwas$1.6billion,anincreaseof7.2%overlastyear.Theincreaseinrevenuewastheresultoforganicvolumegrowthmeasuredbyrequisitions,BeaconLBS,pricemixandtuck-inacquisitions,partiallyoffsetbycurrency.TherevenueincreaseincludesabenefitfromBeaconLBSof1%andunfavorablecurrencytranslationof0.6%.

Revenueperrequisitionincreased2.7%,benefitingfrompricemixandtuck-inacquisitions.

Inaddition,esoterictestingrevenuegrewatafasterratethancoretestingrevenue.

Totalvolumeincreasedby4%,ofwhichorganicvolumewas3.4%andacquisitionvolumewas0.6%.




VolumebenefitedfromtheimpactofweatherandtheadditionaldaythatwaspartiallyoffsetbythetimingoftheEasterholiday.

LabCorpDiagnosticsadjustedoperatingincomeforthequarterwas$310millionor19.5%ofrevenuecomparedto$290millionor19.5%lastyear.Theincreaseinoperatingincomewasprimarilyduetovolume,pricemixandproductivity,partiallyoffsetbypersonnelcostsandbaddebt.Althoughtheoperatingmarginwasconsistentwithlastyear,itwasconstrainedbythemixedimpactfromBeaconLBSandanincreaseinthebaddebtrateofapproximately25basispointsduetoanincreaseinpatientresponsibility.

Fortheremainderoftheyear,weexpectourbaddebtratetoimprove,benefitingfromourLaunchPadinitiatives.Weremainontracktodeliverour$150millionLaunchPadsavingsgoaloverthethree-yearperiodending2017.

NowIwillreviewtheperformanceofCovanceDrugDevelopment.Revenueforthequarterwas$703million,anincreaseof12.6%overlastyear.Excludingtheimpactfromapproximately160basispointsofnegativecurrencyandtheexpirationoftheSanofisitesupportagreement,revenueincreased17.9%overlastyear.Thestrongrevenuegrowthwasbroadbasedacrossourearlydevelopment,clinicalandcentrallabbusinesses.

Adjustedoperatingincomewas$103millionor14.7%ofrevenuecomparedto$74millionor11.9%lastyear.Theincreaseinoperatingincomeandmarginwasprimarilyduetodemand,productivityandcostsynergies,partiallyoffsetbytheexpirationoftheSanofisitesupportagreementandpersonnelcosts.Weremainontracktoachieveourthree-year$100millioncostsavingsgoalthrough2017relatedtotheacquisitionofCovance.

Netordersduringthequarterwere$830million,representinganetbooktobillof1.18,whilebacklogattheendofthequarterwas$6.9billion.Thetrailing12-monthnetbooktobillwasalso1.18.

NowIwillupdateour2016guidance,whichassumesMarch31foreignexchangeratesfortheremainderof2016.Weexpectrevenuegrowthof8.5%to10.5%aftertheimpactfromapproximately40basispointsofnegativecurrency.Thisisanincreasefromourpriorguidanceof7.5%to9.5%duetostrongorganicgrowthanda60basispointimprovementincurrency.

WeexpecttheLabCorpDiagnosticssegmenttogrow4%to5.5%over2015aftertheimpactfromapproximately20basispointsofnegativecurrency.Thisisanincreasefromourpriorguidanceof3.5%to5.5%duetoorganicgrowthanda30basispointimprovementincurrency.

WeexpecttheCovanceDrugDevelopmentsegmenttogrow6%to9%over2015proformarevenueaftertheimpactfromapproximately50basispointsofnegativecurrency.Thisisanincreasefromourpriorguidanceof2%to5%duetostrongorganicgrowthand150basispointimprovementincurrency.

ExcludingtheimpactfromcurrencyandtheexpirationoftheSanofisitesupportagreement,wenowexpectnetrevenuetoincreaseapproximately9%to12%.WeexpectadjustedEPSof$8.55to$8.95,whichimpliesgrowthof8%to13%over2015andisanincreasefromourpriorguidanceof$8.45to$8.85.

Asareminder,ouradjustedEPSguidanceincludesanincreaseinoursharecountduetostockcompensationandoptionexercises,butdoesnotincludeanysharerepurchases.Weexpectfreecashflowof$900millionto$950million,unchangedfromourpriorguidance.

Thisconcludesourformalremarks,andwewillnowtakequestions.Operator?

QUESTIONS&ANSWERS




Operator :

(OperatorInstructions)

RobertWilloughby,CreditSuisse.

RobertWilloughby(Analyst-CreditSuisse):

DaveandGlenn,wonderingwhymaybenotabitmoreprofitmarginleverageonthequarterbasedonhowwellthelabvolumes,aswellasrevenuesperaccession,trended,andthenmaybeaquickcommentonjustthedealpipelinerobust?Isitrobustforsmallerkindsoftuck-ins,oristhefocusmoreonsomelargertransactionsadditivetosomeofyournewerplatforms?


Okay.Letmegoahead--andthisisGlenn--IwillcoverthemarginquestionandthenpassovertoDave.Firstofall,obviously,wehadgoodmarginsoverallfortheCompany.At16.4%margins,wewereuparound60basispointsyearoveryearonaproformabasis.

Iknowyourcommentwasprobablymoredirectedtothediagnosticssideofthebusinesswherewemaintainedour19.5%marginsyearoveryear.AsIcommentedinouropeningremarks,ourfirstquarterwasconstrained.Sowereitnotforsomeofthoseissues,wewouldhaveseenmarginexpansion,andreallytherearethreeprimaryreasons.ThefirstisourBeaconLBSbusiness,whichwehadafullquarterthisyearwithnonelastyear.Itanalyzesactuallynowbeginningintothesecondquarter.Sogiventhatmostofitrightnowisstillpass-through,thatputsconstraintonourmargins.

Wealsodidhavebaddebtrateincreaseforthefirsttimegiventhehighpatientresponsibility.But,again,aswesaid,weexpectthatratetocomedowngoingforwardthroughLaunchPadinitiatives.Soitwon'tbeaconstraint,webelieve,goingforward.

Andthen,finally,worthnotingisthatwithourmeritincrease,wedidhaveagoodmeritincreaseyearoveryear.ThatwillannualizeinJulyofthisyear.So,forthefirsthalf,wewillseesomeconstraintonthemarginfromthat.Butoverallatover7%top-linegrowthmaintainingverystrong19.5%marginsstillmeansouroperatingincomegrewbyover7%,despitethoseconstraints.

Dave?


Thanks,Glenn.Bob,ontheacquisitionpipeline,Iwouldsaytheacquisitionpipelineisrobustacrossthebroadest--acrossthewholespectrum.Ourfocus,asevidencedinthequarter,isonthetuck-instrategicdealsthatonthediagnosticsidewouldenhanceourgeographicfootprintorexpandourtestmenuandonthedrugdevelopmentsidewouldprovidespecificareaseitheroftherapeuticexpertiseorotherassetsthatwouldcomplementourcurrentsetofofferings.

RobertWilloughby(Analyst-CreditSuisse):

Thankyou.

Operator :

BillBonello,Craig-Hallum.

BillBonello (Analyst-Craig-Hallum):

So,particularlygood-lookingquarterontheCovancesideofthebusinessandoverall.I'mjustwondering




ifyouwouldbewillingtocommentatallatthispoint,withCovanceonboardformorethanayearnow,howyouarethinkingaboutgrowthoverthelongerperiodoftime?Doyouthinkyoucanbeasustainable10%plusEPSgrower,ordoyouhaveanykindofinternalobjectives?Anythingthatyoucangiveofcoloronthatfrontwouldbegreat.


Goodmorning,Bill.It'sDave.Thanksforthecomments.Ithinkwehaveasenseofwherewethinklong-termrevenuegrowthshouldbe,andthat'swiththediagnosticsbusinesslowtomid-singledigitsandwiththeCovancebusinessmidtohighersingledigitsconsistentlyovertime.HowthattranslatestoEPSobviouslyisafunctionofcapitaldeploymentandsomeotherthings.

So,Ithinkyoucanexpectusthisyeartosetsomeinspirational--aspirationaltargetsforEPSgrowthovertime.Ithinkifyoulookbackhistorically,obviously,beforethemajorreimbursementcutsof2013and2014,wehadaverynice,Ibelieveitwasafive-yearEPSCAGRof13%plus,andwehadacoupleofyearsofflattodecliningEPSsimplybecauseofdecliningpricingandthecutsattendanttothat.

ButIthinkit'sanexcellentquestion,andasIsay,Ithinkyoucanexpectusduringthisyeartosetoutsomelong-termEPSgrowthexpectationsthatweexpecttoachieveovertimeasthesebusinessesarefullyintegrated.

BillBonello (Analyst-Craig-Hallum):

Okay.Thanksalot.

Operator :

LisaGill,JPMorgan.

LisaGill(Analyst-JPMorgan):

Dave,canIjustfollowuponacoupleofyourcommentsthatyoumade?Justfirst,whenyouthinkabouttheacquisitionstrategyandyouthinkabouthowwellCovanceisdoingrightnow,canyoumaybejustgiveusalittlemorecolorastohowyouthinkabouttheacquisitionstrategythere?Youtalkedabouttuck-inmoreonthediagnosticside.But,onthedrugdevelopmentside,isthereareasthatyoufeelthatyouneedtoreallytrulycompeteinthemarket?

And,aswethinkaboutthebetterresultsinthequarter,wastheresomethingspecificthatdrovethatversusyouroriginalexpectations?


Morning,Lisa.Intermsoftheacquisitionstrategy,specificallyforthedrugdevelopmentbusiness,whatIwouldsayisthereis--Iwoulddivideitintotwoparts.Thefirstpartisjustcontinuingtolookatforrightnowthetuck-insandthethingsthatareadditivetoparticularpartsofthebusinessthatwewouldliketoexpand.So,therapeuticexpertise,marketaccess,theareaswherewefeelthatthereisaninterestingopportunitytoeitherexpandcapabilitiesorenhancecapabilitieswiththingsthatwouldbeadditivetotheoverallend-to-endcapabilitiesofthebusiness.

Overtime,aswehavesaid,weneed--wefeelthatweneedtobelargerintheclinicalbusiness,andsomeofthatwillcomefromorganicgrowthandtheinitiativesthatwehaveunderway,therapeuticexpertiseandintegrationwithLabCorpDiagnostics.Butitismyexpectationthatsomeofthatwillalsocomefromacquisition.

Iwouldsaythatnowourfocusisnotonanothersizabledeal.Ourfocusisoncomplementarycapabilities




thatareadditivetowhatwehave.Although,obviously,weevaluatealotofthings,andwe'regoingtolookatanythingthatlooksliketherightopportunityforusgivenpricemultiplesandlong-termreturnoninvestedcapital.So,that'showIwouldsummarizetheacquisitionstrategyaroundtheCovancebusiness.

Intermsoftheperformance,itishardtosingleoutanyparticularareabecausetheyalldidsowell.Thebusinessisclickingalongextremelywell.DebisdoingagreatjobasCEO,andontopofthat,theleadershipmovesthatshehasmadehavecreatedterrificstabilityandsenseofpurposeintheorganization.

SoIcomplementeverybodyatCovancefromearlydevelopmentinpreclinicalallthewaythroughclinicalforaverystrongperformanceinthequarter,justasIcomplementeverybodyonthediagnosticsidefromphlebotomisttoseniorexecutiveforaverystrongperformancethere.

Wejustdidreally--wereallyexecutedwellonthestrategicinitiatives,andweperformedwelloperationallyinthequarter.

LisaGill(Analyst-JPMorgan):

Iwouldagree.Congratulationsonthatnicequarter.

Operator :

JackMeehan,Barclays.

JackMeehan (Analyst-BarclaysCapital):

IwantedtostartwiththestrengthatCovance.IcaughtsomeofGlenn'scommentaryaroundcentrallab,butIwascuriousifyoustackedupearlydevelopmentandlate-stagehowtheyfaredrelativetothat,oriftheywerereallycloseintermsofthegrowthratesinthequarter?

DeborahKeller (Analyst-Covance):

Goodmorning.ThisisDeb.So,Icangiveyoualittlemorecoloronthat.Earlydevelopment,asDavesaid,hadanotherstrongquarter.Themarkethasbeenrecoveringoverthepast18to24months,andourdemandremainsstrong.Theutilizationinthemarketistightening,whichresultsinslightpriceincreases,andithasinthelastsixquarters.

Sowecontinuetomanageourcapacityveryefficientlyandeffectively.

Asfarascentrallabs,wehavehadfantasticgrowth.WehavehadstrongvolumesandstrongdemandthathasbeenfueledbythebreadthofassaysthatwehavebecauseofthecombinationofLabCorpandCovance.

Wehavealsoseenaniceconversionofthestudiesthatwehaveincentrallabs,sothat'sbeendrivingvolume.Andclinicaltrials,astheygetmoreandmorecomplex,thenumberofesotericassaysareincreasing,andthatallowsustobeaone-stopshopforourcustomers,whichtheytendtovaluethat.

Whenyoulookatclinical,thisisthelargestmarketthatweserveandoneofthelargestopportunitiesthatwehaveforgrowth,bothforCovanceaswellasforthecombinedentity.Wehadstrongresultsthisquarter,andwecontinuetoinvestintalentandtools.

InJanuaryweaddedanewsalesleaderwhowaspreviouslytheheadofsalesforbothcentrallabsandearlydevelopment,andthen,asyouknow,werecentlyannouncedthatJonathanZunghasjoined,andhebringsawealthofexperienceinclinicaldevelopment,aswellasaperspectivefromthevoiceoftheclient.




So,thesehires,plusourinvestmentininformatics,asDavehadtalkedaboutearlier,andthecombineddataisgoingtoallowustoaddressourclients'biggestpainpoints,whichisdecreasingthetimeforstudystartups,identifyingpatientsandsites.Sowewereverypleasedwiththeresultsthisquarter.

JackMeehan (Analyst-BarclaysCapital):

Great.That'sreallyhelpful.Andthenmaybejustonemoreonpersonnelcost.Itwasmentionedafewtimesinthepreparedremarks,justanareaofmodestpressure.Iwaswonderingifthatwasanythingincrementalthatyouareseeingandthenjustwhattheoutlookisfortherestoftheyear?Thankyou.


Jack,thisisGlenn.Onthepersonnelcosts,Ithinkwespoketojustobviouslythegrowthofthebusinessandthepeople,obviously,thatareneededtosupportthegrowth.Butwealsohavetheadditivepartofthehighermeritthatweprovidedlastyear,reflectiveoftheperformanceofthecompanythatwillannualizeinJuly.Butmorejustnormalgrowthinthebusinesssupportingthehighergrowthinourpersonnelcosts.

Operator :

RossMuken,EvercoreISI.

RossMuken (Analyst-EvercoreISI):

Youhighlightedthemomentumthathasbeenbuildingonthecross-sellopportunitywithutilizingthedatasetstocontinuetodrivereallynicenetordersatCovance.Iguessifyouthinkaboutcompaniesthatdothingsthatareoutsidethenormandaregroundbreaking,itusuallytakessometimeandnetworkeffectamongstthecustomerstogainmomentum.Howdoyoufeellikethattranslatedintoconversationsthataregoingonamongstyourdifferentcustomerbaseandunderstandingthevaluepropandhowyouaredifferentiatedandhowthatcanleadtoimprovedeitherenrollmenttimesorpatientqualityorwhathaveyouintermsofthemreallystartingtounderstandandseesomereferencestowhereyouarehavingmaybeadifferenteffectandapointofdifferentiationversusyourcompetitors?


Ross,thisisDave.IwillstartandthenaskDebifshehasanyfurthercomments.

Icantellyoufrommydirectinteractionswithseniorexecutivesatthebiopharmacompanies,Imeantheyinstinctivelyunderstandthevalueofthedata--andoftheLabCorpdataandthepatientdataandthepatientengagementandintimacythatwebring.

Aswesaid,thenumberonepainpointintermsofgettingtrialsstartedisfindingsites,findinggoodinvestigatorsandparticularlyfindingpatients,andyoulookatthestatisticsmosttrialsareunderenrolled.Alargemajorityoftrialsitesneverenrollapatient.Oncologytrials,inparticular,sufferfromalackofpatientenrollment,whichmakesithardtogetthedrugsapprovedandbroughttomarket.

So,myexperiencehasbeenthisisreadilyunderstood.Itissomethingthatourcustomersareveryenthusiasticabout,andwehavealotofdemand,notonlyforhelpusfindpatientsfortraditionaltrials,butalsohelpusfindpatientsforobservationalstudies,helpuscreateadatabaseofpatientsforregistrystudies.Ithinkthisisjustaterrificanduniquetool.


Yes,theonlyotherthingthatIwouldadd,Ross,isIthinkthiscombinationhasallowedustochangetheconversationwithclients.Ispentquiteabitoftimeontheroadmeetingwithclients,andtheyarevery




interestedaboutthedifferentcapabilitiesandsolutionsthatareuniquetoCovanceandLabCorp.AndIthinktheclientshave--Ithinkifyoulookatsomeoftheresearchthathasbeenoutthere,theyfeelthatwearemakingtherightinvestmentstomeetnotonlytheirneedstoday,buttheirneedsasclinicaltrialstransform.

RossMuken (Analyst-EvercoreISI):

Great.Thanks,guys.

Operator :

AmandaMurphy,WilliamBlair.

AmandaMurphy(Analyst-WilliamBlair):

Iactuallyjusthadafollow-uptoRoss'squestion.So,itseemslikeintermsoftheconsentdatabasethatthatisquiteavaluableassetandprobablyquitedifficulttoreplicatewithouthavingthediagnosticpiece.Butitalsoseemslikethat'saUSfocusedasset.SocanyoujusttalkthroughhowthecombinedLabCorpisworkingtoleveragetheincrementalpatientdatathatyouhaveoutsideoftheUStodelivervaluetopharma?


Yes,Amanda,goodmorning.ItisDave.Obviously,partofthechallengethere,particularlyinEurope,istheprivacyregulationsaremuch,muchmorecomplicated.So,weareworkingwithpartnerstoexpandcapabilitiesbeyondtheUSdatabase,aswellastoexpandengagementwithintheUSdatabasetootherpatientssets,andwewillcontinuetoexplorethatasawaytomakethisanevenmoreglobaltool.


Amanda,theonlyotherthingIwouldaddisstillamajorityoftheclinicaltrialsaredoneintheUnitedStates,soitdoesgiveusanadvantageforourclients.


Gotit.AndthenjustonBeacon,alsocuriousaboutyourperspectivelonger-termintermsofexpandingtoadditionalpayersandthenalsoshiftingthepricingmodelawayfrompass-throughtomaybeincorporateinsomefashionthevalue-addthatyouareproviding?Justwaslookingforyourthoughtslonger-termthere?


Yes,IthinkthefirstthingtorememberaboutBeaconisthisissomethingthatwasinvented.ImeanliterallyinventedandbuiltbytheBeaconteam.Theyhavedoneafantasticjobbringingthevisiontomarket,andIthinkweshouldbe--weshouldunderstandandappreciatehowharditistostartsomethinglikethisupfromscratch,buildit,buildthesoftwaretools,getclientadoption.

So,we'rethrilledwithwhereBeaconistoday.AndIthinkit'sveryimportantaswecontinuetobuildadditionaltoolslikegeneticandmolecularcapabilities,furtherdecision-supporttoolsforphysiciansthatweexpandthescopeofBeacontoincludemorecapabilities.

IremainveryoptimisticthattherewillbeadditionalmarketopportunitiesforBeacon,andmyhopeisthatwewillhavesomepositivedevelopmentsonthatintheyear.

AndtheotherthingIwouldsayintermsoftheprofitabilityisIdoexpectBeacontobeprofitableinthe




nearertermasopposedtojustpassthrough,howeverrecognizingthatitwillnotbeasprofitableeverasthecorebusinessbecauseitisjustabusinessofadifferentnature.


Gotit.Thanksverymuch.

Operator :

NicholasJansen,RaymondJames.

NicholasJansen (Analyst-RaymondJames):

Nicejobinthequarter.JustwantedtogetabettersenseoftheCovancerevenuesynergies.Ithinkyoumentionedover190millionordersasitpertainstothat$150millionbucketthatyoupreviouslycommunicated.

So,whatdoesthatordertranslateintorevenuedollars,sowegetabettersenseofwhereweareonthatfront,andsittinghere12monthsposttransaction,howcomfortableareyouwiththeotherphasesoftherevenuesynergies?Wehaven'theardtoomanyspecificupdatesontheotherpieces?Thanks.


Morning,Nick.It'sDave.So,obviouslytherateatwhichtheorderstranslatetorevenuedependsontheprogresswiththepharmacompaniesintermsofwhentheyreachfinalityonwhattheywantthedrugtobedevelopedandwhatthestudyparameterslooklike.So,that'sprobablya12-to18-monthtimeframetoactuallygetthoseorderstranslatingintorevenue,andwedon'tintendtoupdatethedollarsthataretranslatingintorevenue.Wewilljustkeepyouadvised,notspecificorderbyorder,butgenerallyagainstthe$150milliontarget.

Onthe$100millionthatwetalkedaboutforcompaniondiagnostics,ImeanIthinkwehavebeenveryclearthatwehavedoneextremelywell,andIthinkweinalllikelihood,ifIhadtohandicapitnow,Ithinkwewillexceedthat$100millionoverthethree-yearperiod,justbecausethatbusinesshasbeenthrivingwiththecombinedtools,andIcommentedonthatIthinkatsomelengthinthepreparedremarks.

Ithinkonwhatwehadidentifiedasthelast$50million,whichisthereal-worldevidence,thatisprobablyalonger-termimpactjustbecauseofthenumberofareasinwhichreal-worldevidenceislikelytobeapplicable.ButnetnetIfeelveryconfidentthatwhatweidentifiedasthe$300millioninrevenuesynergiesby2018willbeaccomplished.


Thanks.Andthenjuston--maybeforGlennonthebaddebtside,wehaveseenyourpeeralsocalloutbaddebtfromanaccelerationfromayear-over-yearperspective,andIknowyouguysareworkinghardonLaunchPadtooffsetsomeofthat.Butjustmaybegointowhatwewereseeingfromapatientcollectabilityfrontandhowweshouldbethinkingaboutbaddebtoverthenext12to18months?Thanks.


Yes,again,someofitisjustseasonal.Wealwaysseeourhigherbaddebtrateinthefirstquarterandthentaperoffthroughouttherestoftheyear.Butwhatwasuniqueforthisfirstquarterwasthatonayear-over-yearbasis,insteadofseeingtheprogressthatwehavebeenexperiencing,weactuallysawtherategoupforthefirsttime.So,similarto,again,anindustryissuewherewehavehigherpatientresponsibility,higherdeductibleplans,earlieronintheyear,aswelookgoingforwardwhileitisstill




expectedtobeachallenge,wedoexpecttheratetocomedown.Wethinkitwillbemorecomparablewhatweexperiencedyearoveryear,sowedon'texpectittobeaoverallconstraintonthemargins.ButdrivenbythesuccessthatweareexperiencingonourLaunchPadinitiatives,thatwillonlycontinuetoaccruefavorablygoingforward.

So,anissueinthequarter,don'texpectittobeonegoingforward,butwereitnotfortheLaunchPadcouldbe.


And,Nick,it'sDave.Justaddalittlecolortothat.Obviously,weareseeingmoreandmorepatientsinhighdeductibleplans,whetherthroughexchangesorthroughcommercialandemployerplans.So,morepatientsinhighdeductibleplansmeansmoredollarsoutofpocketbeforethereisanyinsurancepaymentwhatsoever.

Whatthatmeansiswithhigherdeductibles,higherpatientresponsibilityattheonsetoftheyear,andthenwe'realsoseeingplanswithhigherco-paysandwithagreaterincidenceofnoncoveredservices.So,betweenthosethreefactors,youareseeingmoredollarsofexposureflowingtopatient.Andalthoughourpatientcollectionrateisgenerallyverygood,itstillhasmoredollarsflowingtopatientsandjustputsmorepressureoncollectingtheoverall--thatoverallcomponent.

And,asGlennsaid,someupwardmovementinthequarter,butwestillfeelconfidentthatfortheyearwewillbeinthesamerangeaswewerelastyear.


Thanksforthecolor.

Operator :

(OperatorInstructions).WillQuirk,PiperJaffray.

WillQuirk(Analyst-PiperJaffray):

Firstquestionhere,onBeacon,Dave,aswethinkabouttheexpansionoftheprogram,doyouthinkthatwe'regoingtoendupgoingthroughtrialingperiodsasthisexpandsbeyondFlorida,ordoyouthinkthatyoucantakealloftheexperienceslearnedfromtheinitialrolloutandthetrialingprogramthereandputafullprograminforcewhenyouexpandit?


Morning,Bill.IthinkBeaconisreadilyscalable,andIthinktherehavebeensomeverygoodlessonslearnedforusinFlorida,astherealwaysiswhenyoudosomethingnew.

So,Idon'tanticipatealotofdifficultyinscalingtheprogramtonewmarketsortwonewpayers.Remember,itisasoft--itisbasicallyasoftwaretool,andsothewholeideaofBeaconwasbuildoneandusemanytimes,nothavetobuildabunchofcustomizablesolutions,andIthinkwehavedoneaverynicejobachievingthat.


Gotit.Andthenasafollow-up,justthinkingalittlebitaboutacoupleofthemacrotopics.ObviouslyalothasbeensaidabouttheFDAregulationofLDTs,butcanyoutalkalittlebitabout--kindoftwistingthisalittlebit--ImeantheremightbeapotentialopportunityhereforCovance.Haveyouguysthoughtaboutthat,andifso,isthereanywaytosizethatpotentialmarket?Thanks.





Well,Ithink--IguessIwouldsayaswethinkaboutFDAregulationofLDTs,ourpositionhasbeenprettyclear.TheremaybesomeopportunityforCovancethere,although,again,rememberthatincompaniondiagnosticsdevelopment,wehavesupportedbothLDTlaunchesandkitsdependingonthepreferenceofthepharmaceuticalpartnerandwhattheywanttheoutcometobe.

So,Idon'tthinkofitas--Ithinkofitasthereisaverylargeincrementalmarketforcompaniondiagnostics,butIdon'tknowthatthatwouldtranslateintoLDTsversus--Iwouldn'tbreakitdownLDTsversuskits.Iwouldjustthinkaboutitaswhatdoestheglobalcompaniondiagnosticsopportunitylooklike,andasweknow,that'svery,veryrobust.


Gotit.Thanks,Dave.

Operator :

RickyGoldwasser,MorganStanley.

RickyGoldwasser (Analyst-MorganStanley):

Goodmorningandcongratsonaverygoodquarter.Ihavetwofollow-upquestions.One,onthevolumeside,inthepreparedremarks,youtalkedabout3.4%increaseinorganicvolumewithsomemovingpartsaroundtheweatherandleapyearandobviouslyEaster.

So,canyouhelpjustquantifyforuswhatwereorganicvolumeexcludingthosemovingparts?


Hi,Ricky.ThisisGlenn.That'sright.Fromanorganicvolumestandpoint,the3.4%includedthenetbenefitsofthosethreeitemsthatwewouldsaywouldberoughly,callit,1.5%to2%benefitoutofthat3.4%.


Okay,great.Soweareactuallyseeingvolumecontinuetobeinlinewithwhattheywerelastyearonanorganicbasis,itseems.


That'sright.


Okay.So,thenmynextjustfollow-uprelatestoCovance.So,itseemsthatCovance'smarginhasexpandednicelybyabout[280]basispointsinthequarteronayear-over-yearbasis.So,howdoesthat14.7%marginforCovancecomparetoyourinternalgoals,andwhatisyourlong-termmargintargetforthesegment?


Ricky,thisisGlenn.IwillstartandDebmaywanttoprovidesomecoloraswell.Butobviouslyfirst200wewouldsayitwasup280,sowewanttogivethemfullcreditforaverystrongquarterinmarginimprovement,drivenoffofobviouslyaverystrongtop-linegrowthfortheCompany.




Thereisseasonalityintherate,sowewouldalwaysexpectthefirstquarterrateforthesegmenttobelowinthefirstquarterandthenpickupfortheyear.So,fromourperspective,itiscontinuedgrowthinmarginyearoveryear.Giventhestrongdemand,giventheproductivity,giventhesynergiesthatwearestillcapturing,wedoexpectanotherstrongmarginimprovementyear,andIwouldberemissifDebdidn'tcomebackandsayherexpectationisalwaystocontinuetodrivethosemarginsgoingforward.But,Deb,youmaywanttoaddsomecolor.


TheonlycolorIwouldadd,Ricky,isthatwehadstronggrowthinbothcentrallabsandearlydevelopmentdemand,andbothofthosehavenicedropthroughonanincremental,andtheywerethebiggestdriverofourOMexpansionandthatcoupledwithourcostsynergies.

Andusuallyfirstquartertendstobeasofterquarter,butwedidwell.Sowecontinuetoexpectthefull-yearmarginstoimprove.


So,wasthereanypullforwardinthequarter,orshouldwejustexpectthebusinessfortheremainderoftheyeartocontinueatkindofthatpace?


Thereisnothingpullforward,Ricky.Thesynergyplanisobviouslyclearlylaidoutinternally,andwedidn'tpullanythingforward.


Okay.Great.Thankyou.

Operator :

IsaacRo,GoldmanSachs.

IsaacRo (Analyst-GoldmanSachs):

Aquestiononfreecashflow.YouguysraisedguidanceforrevenueandEPS,andIwaswonderingifyoucouldmaybebreakdownsomeofthekeymovingpartsthatwouldexplainwhythefreecashguidanceisnotalsogoingup?


Hi,Isaac.ThisisGlenn.First,obviously,theguidancewehavemaintainedatthecallit$900millionto$950million.Whenyoulookattheimprovementintheearnings-per-shareguidance,whichwehavetakenupto$0.10,wecommentedaround$0.05ofthatwasfromthegainonthesaleofsecuritiesfromourventurefund.Whilewedidpickupplusorminusaround$15millionincashfromthesaleofthosesecurities,thatdoesnotshowupinfreecashflow.Itisbelowtheoperatingline,sothatcashwouldnotbeincluded.

So,it'sreallyjusttheoperatingimprovementimpactingEPSthatwouldbecashrelated.Givenwhereweareintheyearandwehavea$50millionspreadbetweenthe$900millionand$950millionandthefactthatthefirstquarterisseasonallylow--wedidaround$52millionofourfreecashversusour$900millionplusfortheyear--wefeltitappropriatetomaintainthecurrentlevelofourguidance,andthenobviouslyafterthesecondquarterwithsixmonthsremaining,wewillgoaheadandrevisitit.





Sure.Thatmakesense.Appreciatethat.Andthenafollow-upontheone-timegains,couldyoumaybewalkusthroughtheprocessthatyoutypicallygothroughtodeterminewhenyoumonetizethoseinvestments,andtowhatextentmightwewanttokeepinmindthepossibilityformoreofthattocomethisyear?Thankyou.


Isaac,it'sDave.Wehaveafundthatmakesventureinvestments,andthoseinvestmentsaretypicallyinareasthatwethinkareofeitherlong-termopportunityorthingswewouldliketoknowmoreaboutorthingsthatmightbeadditivetoourbusinessordisruptivetoourbusiness.Andanytime--so,forexample,oneofourearlierinvestmentswentpublic.Wearenotinthebusinessofowningpublicsharesinpubliccompanies,andsoatthatpoint,wemadethedecisiontomonetizeit.

Welookatourreturn,thecontinuedvalueofourinvestmentoverthelong-term,whetherwearebeingaskedtoinvestmoreatthetimethatwechoosetomonetize,andeachoneonacase-by-casebasis,wemakeadeterminationofwhatmakessense.

So,thereisnowaytopredictwhentheseeventswilloccur,andperiodicallywehavesomelosersaswellassomewinners,andit'snotsomethingwecanreallybuildintoanymodel.


Gotit.Understand.Thanks,Dave.

Operator :

WhitMayo,RobertBaird.

WhitMayo (Analyst-R.W.Baird):

Ihavereallyjustgotonequestion.IjustwantedtogobacktotheCovancecostsynergies.Justcuriouswhereyouarefindingmostoftheopportunities?Isthismostlyprocurementsavingsandwhetherornotyouhaveconsolidatedanythingonthecentrallabatthispointandifthatisanopportunitygoingforward?


WehaveconsolidatedtheSingaporecentrallabs,andwe'reintheprocessobviouslyofevaluatingotherappropriatefacilityconsolidations.SomeofthesavingsthisquartercomefromconsolidationofdatacentersofCovancedatacentersintoLabCorpcapabilities.

Ithinkitisverybroadlybasedacrosspubliccompanycosts,procurementcosts,personnelcosts,duplicativecapabilitiesthatcanbestreamlined.So,thereisn'tanysingleareatopointout,otherthantosaythatwecontinuetoevaluatenotonlytheCovancebusiness,buttheintegratedbusinessesandthecorporateinfrastructuretoidentifyadditionalopportunities.

WhitMayo (Analyst-R.W.Baird):

Great.Thanksalot.

Operator :

(OperatorInstructions).GaryLieberman,WellsFargo.




RyanHalsted (Analyst-WellsFargoSecurities):

ThisisRyanHalstedinforGary.Justmyonequestion.Ontherevenueguidanceupdate,excludingthecurrencyimpact,Covancerevenueguidanceisforabout--increasedby250basispoints.Iwaswonderingifyoucouldcalloutwhereyouexpecttoseethemajorityofthatgrowth?Isitprimarilyfromthecentrallab,orhowshouldwethinkaboutthat?Thanks.


Ryan,thisisGlenn.Iwillatleaststartwiththecommentthat--andIthinkitwasalludedtoinopeningremarksaswell--thatwehavebeenverypleasedwiththebroad-basedviewofhowCovanceisperformingacrossallthemajorbusinesslines.Whenyoulookattheimpliedguidancefortherestoftheyearthatare,callit,around6%growth,webelieveitisbroadbasedandconsistentwithwhatDavecategorizedbeforeasnormal,callit,historicalgrowthwithinthesegment.


AnditisDave.We'renotgoingtoproviderevenueguidancebysegmentwithinsegment,soIagreewithGlenn.Thinkofitasjust--itisbroadbasedacrosstheentirebusiness.

Operator :

A.J.Rice,UBS.

A.J.Rice (Analyst-UBS):

Justtwopricing-relatedquestions.IfI'vegotmycalculationright,yourrevenueperrequisitioninthequartersteppedupfromthefourth-quarterratetoabout50basispointsto2.7%yeartoyear.Isthatmix,oristhereunderlyingpricetrendandhowmuchyoufactorthatintotheupdatedguidance?

AndthenIguesslonger-termpricing,anyupdateontheclinicallabfeescheduleresetandyourdiscussionswithCMSandCongress?


A.J.,Iwillstartwithjustthepricemixcomment.Itisprimarilymixrelated.Obviously,webenefitedfromacquisitionsthathavemixedusup.Plus,wetalkedaboutinthemixwithinourtestgroup.Pricinghasbeenrelativelystable,whichisapositive.WealsodohavesomeLaunchPadinitiativesthataretargetedtothepricingside,butoverallwewouldsaythattheincreasethatyousawwithinthepricemixisprimarilymixrelated.


AndA.J.,itisDave.OnPAMA,asyouprobablysawthisweek,the--anoticewasfiledintheFederalRegisterindicatingthatthefinalrulehasgoneovertoOMBforreview.

SothereobviouslyhasbeenastepforwardbyCMS.Wedon'thaveinsightintowhatisinthefinalrule,buthopefullyithasaddressedacoupleofthemajorissueswiththedefinitionofapplicablelabsandsomeoftheotherthingsthatwehighlighted.

WecontinuetoworkwithCMSandobviouslywithalloftheconstituenciesinCongressonboththedefinitionalandthetimelineforimplementationand,again,highlighttheletterfromSenatorHatchandSenatorWyden,aswellastheletterfrom26,Ibelieve,membersoftheHouseandothermembersoftheSenate,indicatingthataJanuary2017implementationdatewas--isnotpractical.Wefullyagreewiththat,andwehopeandexpectthatCMSwillbetakingapracticalandreasonableapproach.




A.J.Rice (Analyst-UBS):

Okay.Thanks.

Operator :

BrianTanquilut,Jefferies.

BrianT anquilut (Analyst-Jefferies):

Thanksfortakingthequestion.Glenn,justreallyquickonG&A,ittickedupquiteabitsequentially.Howshouldwethinkaboutthatoverthecourseoftheyear?


Justtoyourpoint,itisobviouslygoingtofluctuatequartertoquarter,butasyouthinkaboutitforthefullyear,wedoexpecttoseeleveragefromG&A.Webenefitedonaproformabasisyearoveryear,eveninthefirstquarter,butfairlynominally.Sowedidseeatick-upinunallocatedcorporateexpenses,whichwasoneoftheconstraints,ifyouwill.Butaswetarget,callit,theroughly1.5%ofourrevenuesforthatcategory,wewerehighforthequarter,butforthefullyear,weexpecttobeatthat,callit,plusorminus1.5%level.

BrianT anquilut (Analyst-Jefferies):

Gotit.Thanks.

Operator :

DonaldHooker,KeyBanc.

DonaldHooker (Analyst-KeyBancCapitalMarkets):

Great.MaybejustonegeneralquestionwhilewehaveDebhere.Whenyoulookat--whenyoutalkaboutmobiledevicesinclinicaltrialsandregulatoryissuesaroundthat,whereexactlyareweinusing--broadlyspeaking,usingmobiledevicesindifferentwaysinclinicaltrialsandmaybeoneortwoareaswhereyouthinkwouldbethebiggestsourceofupsideusingtheseinternet-enabledmobiledevices?


Well,that'saverybroadquestion,soIwillgiveyouacouplespecificanswers.One,theyareusedinclinicaltrialsmainlyaroundpatientcentricity,makingiteasierforapatienttoparticipateandadheretotheprotocolandtodosomemonitoring.Butrightnowwhatweareworkingwithclientsistodevelopthat,becausethedatahastocomeinfromthesedifferentdevicesandthenbeputintoasystem,whichthencouldpotentiallygointoafiling.So,that'swhatweareworkingonvalidatingforourclients.

So,therearealotofopportunities,butIwouldsaythefirstpriorityisprobablyaroundpatientcentricity.


AnditisDave.IfullyagreewithDeb.Ithinkalsoaswethinkaboutthemobilesuitethatwelaunched,oneofthecriticalcomponentsistomakesurethatthedevicesthatarebeingusedarevalidatedandaccuratebecausethere'snothingworsethanpatientsusingmobiledevicesandprovidinginformationobviouslythatiseithernotvalidatedorthatvariesfromdevicetodevice.So,that'sgoingtobeanimportantcomponentofuseofmobiledevicesinclinicaltrialsaswegoforward,andwearepleasedthatwehavelaunchedthetoolstobeabletohelpourclientswiththat.





Itisaniceadjacencytoourcorecompetencyofclinicaltrials,so,andwedosomanyvalidations.Sowehavetheregulatoryexpertise,aswellasthevalidationexperience.So,ithasbeenaniceofferingforus.

DonaldHooker (Analyst-KeyBancCapitalMarkets):

Thankyou.

Operator :

MarkMassaro,Canaccord.

MarkMassaro (Analyst-CanaccordGenuity):

Thanksforthequestion.AquestionforDave,howdoyouprioritizeM&Abetweendiagnosticanddrugdevelopments?Andthenmorespecifically,asyouthinkaboutyourcorediagnosticsbusiness,recentlyyouhadadealinthewomen'shealthspace,butagainhowdoyouprioritizewomen'shealthoveroncologyorNGS?Andthenmaybeafinalcommentonmultipleswouldbegreat.Thanks.


Well,wehavearigorousprocessforlookingatacquisitions,anditdoesn'tcenteronwhetheritisadiagnosticsoradrugdevelopmentacquisition.Itcenterson,firstofall,doesitfitoneofourthreestrategicpriorities,whichiswehavetalkedaboutisbeingtheworld'sleadingproviderofdiagnosticsolutions,numberone;numbertwo,bringingnovelmedicinestopatientsfaster;andnumberthree,usingtechnologyandtoolstotransformthewaythatcareisdelivered?

So,anythingwedohastofitwithinthosethreebasicparameters.Thenextthingwelookatis,doesitenhanceourcapabilitiesinameaningfulway,whetherthoseareexistingcapabilities,whethertheyareadd-oncapabilitiesthatweneedtobebetteratthebusiness.Andthenisit--orgeographiccapabilities.So,itcouldbefootprint.Itcouldbetestmenu.Itcouldbeincrementalcapabilitiesthatsupportoneortheotherofthebusinesses.

Thenwelookatprice,multiples,returnoninvestedcapital,IRR,discountedcashflows,allthebasicacquisitionmetrics.And,so,thequestionwhatareweprioritizing,thenicethingaboutourpositionnowisthattherearemany,manyopportunitiestodeploycapitaltowardsacquisitions,andyetourbusinessesareperformingextremelywell.Andsothereisnomajorgapthatweneedtofill.

And,so,Idon'tthinkIcananswerthequestion,whatisthehighestpriority.Thehighestpriorityishighvalue,highreturndealsthataregoingtofitourstrategicframework.

MarkMassaro (Analyst-CanaccordGenuity):

Thankyou.

Operator :

Thatconcludesourquestionandanswersessionfortoday.IwouldliketoturntheconferencebackovertoMr.Kingforclosingremarks.


Thankyou,all.Asyouareaware,JayBoylerecentlyretiredasExecutiveVicePresidentandCEOofLabCorpDiagnostics.IwouldliketosayafewwordsinappreciationofJay'smanycontributionstoLabCorp'ssuccessesoverthepastdecade.




IhaveknownandworkedwithJayformorethan15years.Hehasbeenanexceptionallawyerandcolleague,butalsoatrustedadvisor.JayservedwithgreatdistinctioninallofhisrolesatLabCorp,includinglegal,managedcare,ChiefOperatingOfficer,andmostrecentlyCEOofLabCorpDiagnostics.AmongJay'smanyachievementswashisinstrumentalroleinnegotiatingourindustry-changingcontractwithUnitedHealthcare,whichwasacriticalstepforusinbecomingthelargestlaboratorycompanyintheworld.

UnderJay'ssteadyleadership,LabCorpexecutedbrilliantlyonourstrategicprioritiesofgrowingthebusiness,establishingdeeperpartnershipswithmanagedcareandimprovingcustomerservice.Asoutstandinganexecutiveashehasbeen,Jayisatthesametimeanexceptionalperson.TherearelegionsofLabCorpemployees,includingme,whohavebenefitedfromJay'swisecounsel,hisextraordinarygenerosityandhisbigheart.

Onbehalfofallofour50,000employeesaroundtheglobe,IwouldliketothankJayforhiscontributionstoLabCorpandwishhimwellinhisretirement.Andwiththat,wethankyouforjoiningourcallthismorningandwishyouagreatday.

Operator :

Ladiesandgentlemen,thankyouforparticipatingintoday'sconference.

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