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Laboratory Corporation of America Holdings (LH)

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Laboratory Corp. of America Holdings (LH)

Q1 2017 Earnings Call

April 25, 2017 9:00 am ET

Executives

Scott Frommer - Laboratory Corp. of America Holdings

David P. King - Laboratory Corp. of America Holdings

Glenn A. Eisenberg - Laboratory Corp. of America Holdings

John D. Ratliff - Laboratory Corp. of America Holdings

Analysts

Lisa Gill - JPMorgan Chase & Co.

Jack Meehan - Barclays Capital, Inc.

Nicholas M. Jansen - Raymond James & Associates, Inc.

Amanda Louise Murphy - William Blair & Co. LLC

Luke Sergott - Evercore ISI

Dan Leonard - Deutsche Bank Securities, Inc.

Steven J. Valiquette - Bank of America Merrill Lynch

Ralph Giacobbe - Citigroup Global Markets, Inc.

Alexander D. Nowak - Piper Jaffray & Co.

Gary Lieberman - Wells Fargo Securities LLC

Ricky R. Goldwasser - Morgan Stanley & Co. LLC

Brian Gil Tanquilut - Jefferies LLC

Isaac Ro - Goldman Sachs & Co.

Presentation

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to your Q1 2017 LabCorp Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will follow at that time.

As a reminder, this conference is being recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. Scott Frommer, Vice President of Investor Relations. Sir, please proceed.

Scott Frommer - Laboratory Corp. of America Holdings

Good morning, and welcome to LabCorp's first quarter 2017 conference call. As detailed in today's press release, there will be a replay of this conference call available via telephone and Internet. With me today are: Dave King, Chairman and Chief Executive Officer; Glenn Eisenberg, Executive Vice President and Chief Financial Officer; and Jon Ratliff, CEO of Covance Drug Development. In addition to our press release, we also filed a Form 8-K this morning that includes additional financial information; both are available on the Investor Relations section of our website at www.labcorp.com and include a reconciliation of non-GAAP financial measures discussed during today's call to GAAP.

Finally, we are making forward-looking statements during today's call. These forward-looking statements include, among others, statements about our expected financial results, the implementation of our business strategy, and the ongoing benefits from acquisitions. These statements are based upon current expectations and are subject to change based upon various factors that could affect our financial results. Some of these factors are set forth in detail in our 2016 Form 10-K. We have no obligation to provide any updates to these forward-looking statements, even if our expectations change.

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

David P. King - Laboratory Corp. of America Holdings

Thank you, Scott, and good morning. LabCorp delivered another solid quarter to start 2017 with -over-year revenue growth of 5%, adjusted EPS growth of 8%, and excellent free cash flow, and we returned $150 million to shareholders through share repurchases. We made strong progress on our enterprise-wide initiatives and turned in an outstanding performance in the Diagnostics business.

Customers continued to embrace our integrated solutions, as evidenced by two major health system partnerships, a record number of study wins based on combined data, and strong growth in companion diagnostics. In Diagnostics, which represents 70% of our total revenue, we had excellent top line growth with significant increases in total and organic volume, and in revenue per requisition, leading to a 50-basis-point expansion of our industry-leading margins. Our Diagnostics business is the backbone for our strong free cash flow, which we deployed judiciously in the quarter toward investing in the business, returning capital to shareholders, and growing through acquisitions.

In Drug Development, our results were mixed. Although we are disappointed of our first quarter financial performance, we had some bright spots in the quarter. Notably, strong net orders, an improved book-to-bill, and better performance in the clinical business. These are all leading indicators that give us continuing optimism about the long-term growth characteristics of our company in 2018 and beyond.

We continue to invest in the future of the Drug Development business. In the quarter, we again strengthened the leadership team and decided to expand LaunchPad to right-size the business in the near term and create a more scalable technology-enabled business for the future.

As I mentioned a moment ago, the strong growth in areas of strategic focus for the combined business demonstrates that customers are embracing our differentiated offering. I would like to update you on major developments during the quarter that highlight the unmatched value proposition of the combination of LabCorp Diagnostics and Covance Drug Development.

We stated at the outset of the year that we are focused on the delivery of comprehensive, integrated solutions to our customers' needs. Among the customers who need solutions in today's rapidly-changing healthcare environment are health systems, and this quarter brought two important successes there. We announced an important transaction with Mount Sinai earlier this year that strengthens our position in the New York Metro market, and we agreed on a significant partnership with PAML, a market-leading reference and outreach laboratory based in the Pacific Northwest. Through PAML, we aligned ourselves with two innovative, fast-growing health systems and strengthened our relationships with over ten community-based health systems across multiple states.

Our offering to health systems and large provider groups is unique and extends beyond our multifaceted, lab testing, operational, analytical, and clinical decision support expertise. The integration of our Drug Development solutions is a fundamental component of these relationships, enabling our partners to become research hubs. Patients gain greater access to high-quality care through clinical trials, providers will realize increased revenue tied to patient enrollment, and our biopharma customers will benefit from faster site activation and recruitment capabilities. The level of interest in our combined set of solutions from leading health systems has increased significantly and we continue to be pleased at the very robust set of opportunities.

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