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Laboratory Corporation of America Holdings (LH)

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Laboratory Corp. of America Holdings (LH)

Q2 2018 Earnings Call

July 25, 2018 9:00 am ET

Executives

Scott Frommer - Laboratory Corp. of America Holdings

David P. King - Laboratory Corp. of America Holdings

Glenn Andrew Eisenberg - Laboratory Corp. of America Holdings

Gary M. Huff - Laboratory Corp. of America Holdings

John D. Ratliff - Laboratory Corp. of America Holdings

Analysts

Jack Meehan - Barclays Capital, Inc.

Lisa C. Gill - JPMorgan Securities LLC

Eric W. Coldwell - Robert W. Baird & Co., Inc.

Ross Muken - Evercore ISI

Erin Wilson Wright - Credit Suisse Securities (USA) LLC

Patrick Donnelly - Goldman Sachs & Co. LLC

Ralph Giacobbe - Citigroup Global Markets, Inc.

Dan Leonard - Deutsche Bank Securities, Inc.

Kevin Ellich - Craig-Hallum Capital Group LLC

Donald H. Hooker - KeyBanc Capital Markets, Inc.

William R. Quirk - Piper Jaffray & Co.

Max Smock - William Blair & Co. LLC

Ricky R. Goldwasser - Morgan Stanley & Co. LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to LabCorp's Second Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call maybe recorded.

I would now like to turn the conference over to Scott Frommer, Vice President of Investor Relations. You may begin.

Scott Frommer - Laboratory Corp. of America Holdings

Good morning, and welcome to LabCorp's second quarter 2018 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; Gary Huff, CEO of LabCorp Diagnostics; and John Ratliff, CEO of Covance Drug Development.

In addition to our press release, we also furnished Form 8-K this morning that includes additional financial information. Both are available in 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, but are not limited to, statements with respect to 2018 guidance and the related assumptions, the impact of various factors on operating and financial results, and the opportunities for future growth.

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 2017 Form 10-K and subsequent Forms 10-Q and in the company's other filings with the SEC. We have no obligation to provide any updates to these forward-looking statements, even if our expectations change.

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

David P. King - Laboratory Corp. of America Holdings

Thank you, Scott and good morning. LabCorp delivered another outstanding quarter across our integrated enterprise. The combination of strong organic revenue growth, acquisition contributions, our LaunchPad initiative and the benefits from tax reform powered top line growth of 13% and adjusted EPS growth of 23%. We created value as well through disciplined deployment of our robust free cash flow.

In the quarter, we enhanced Covance's offerings through the Sciformix acquisition, returned capital to shareholders through share repurchase, and reduced our leverage to its lowest level since 2015 through debt paydown.

In addition, we continue to enhance the focus of our portfolio by agreeing to divest our Food Solutions business at a very attractive valuation. This transaction is expected to close in the third quarter providing additional proceeds to support value creation. Our strong financial performance results from execution on our key strategic initiatives, which in turn leads to profitable growth and stable enterprise margins.

I will now update you on our progress on each. Our first strategic objective is to support our customer's transition to value based care. In the quarter, we announced significant multiyear agreements with UnitedHealthcare and Aetna. In both instances, our proven track record of delivering convenient, high quality and cost effective services translated into expanded opportunities and fair reimbursement rates.

Furthermore, these partnerships incorporated a broad range of innovative and value based arrangements. We have multiple initiatives underway with our customers to retain United business and capitalize on our growth opportunity with Aetna. As we have said, given the relative size of each company's insured population, we expect the net result to negatively impact revenue and profit next year. Nonetheless, these partnerships reinforce our strong competitive position in the fragmented clinical laboratory market. They also highlight LabCorp's increasingly important role in delivering targeted care to patients through our leadership in population health tools and personalized medicine capabilities.

In the quarter, we continued to expand those tools and capabilities through, among other activities, our digital pathology partnership with Philips and the commercial launch of OmniSeq Advance, a precision medicine tool that includes key immunotherapy biomarkers.

Our second strategic objective is to enhance the drug development process. We continue to deliver high quality performance on one of the largest backlogs in the industry, demonstrate the value of our differentiated beyond lab, beyond CRO offering to sponsors and invest in expanded solutions to increase trial efficiency and improve the patient experience.

During the quarter, we were selected by a top 40 biopharma sponsor with whom we have not collaborated in the past for a dual source strategic partnership. One of the primary reasons the sponsor selected Covance was our strong data and study feasibility solutions. We will provide clinical development and central laboratory services across all therapeutic areas for this customer.

Our early development business won a competitive process to become a primary provider strategic partner with a top 10 pharma sponsor. We expect toxicology awards from this sponsor to eventually double from current levels with new awards beginning at the end of this year. These partnerships will ramp over time; neither benefited net orders or book-to-bill in the quarter.

Read the rest of this transcript on seekingalpha.com