UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
April 25, 2017
(Date of earliest event reported)
LABORATORY CORPORATION OF
AMERICA HOLDINGS
(Exact Name of Registrant as Specified in its Charter)
Delaware | 1-11353 | 13-3757370 | ||
(State or other jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||
358 South Main Street, | ||||
Burlington, North Carolina | 27215 | 336-229-1127 | ||
(Address of principal executive offices) | (Zip Code) | (Registrant’s telephone number including area code) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] | Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
[ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
[ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
[ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |
Indicate by check mark whether registrant is an emerging growth company as defined in Rule 405 of Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. [ ]
Item 7.01 | Regulation FD Disclosure | |
Summary information of the Company dated April 25, 2017.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
LABORATORY CORPORATION OF AMERICA HOLDINGS
Registrant
By: | /s/ F. SAMUEL EBERTS III | |
F. Samuel Eberts III | ||
Chief Legal Officer and Secretary | ||
April 25, 2017
8-K FILED APRIL 25, 2017
FIRST QUARTER 2017
SUPPLEMENTAL FINANCIAL INFORMATION
1
FORWARD LOOKING STATEMENT
This presentation contains forward-looking statements which are subject to change
based on various important factors, including without limitation, competitive
actions in the marketplace, and adverse actions of governmental and other third-
party payers.
Actual results could differ materially from those suggested by these forward-
looking statements. Further information on potential factors that could affect the
operating and financial results of Laboratory Corporation of America Holdings (the
“Company”) is included in the Company’s Form 10-K for the year ended December
31, 2016, and subsequent Forms 10-Q, including in each case under the heading
risk factors, and in the Company’s other filings with the SEC. The Company has no
obligation to provide any updates to these forward-looking statements even if its
expectations change.
2
USE OF ADJUSTED MEASURES
The Company has provided in this presentation “adjusted” financial information
that has not been prepared in accordance with GAAP, including Adjusted EPS,
Adjusted Operating Income, Free Cash Flow, and certain segment information. The
Company believes these adjusted measures are useful to investors as a
supplement to, but not as a substitute for, GAAP measures, in evaluating the
Company’s operational performance. The Company further believes that the use of
these non-GAAP financial measures provides an additional tool for investors in
evaluating operating results and trends, and growth and shareholder returns, as
well as in comparing the Company’s financial results with the financial results of
other companies. However, the Company notes that these adjusted measures may
be different from and not directly comparable to the measures presented by other
companies. Reconciliations of these non-GAAP measures to the most comparable
GAAP measures are included in the tables accompanying this presentation.
3
LabCorp Diagnostics
The LabCorp Diagnostics segment includes historical LabCorp business units,
excluding its Clinical Trials operations (which are part of the Covance Drug
Development segment), and including the Nutritional Chemistry and Food Safety
operations acquired as part of the Covance acquisition.
Covance Drug Development
The Covance Drug Development segment includes historical Covance business
units, excluding its Nutritional Chemistry and Food Safety operations (which are
part of the LabCorp Diagnostics segment), and including the LabCorp Clinical Trials
operations.
OPERATING SEGMENT OVERVIEW
4
FIRST QUARTER CONSOLIDATED RESULTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(1) Adjusted Operating Income and Adjusted EPS exclude amortization, restructuring charges and special items
(2) See Reconciliation of non-GAAP Financial Measures on slides 13 – 16
1Q17 1Q16 % Change
Net Revenue $2,408.1 $2,295.2 4.9%
Adjusted Operating Income(1) (2) $391.3 $373.1 4.9%
Adjusted Operating Margin 16.2% 16.3% (10 bps)
Adjusted EPS(1) (2) $2.22 $2.05 8.3%
Operating Cash Flow $233.8 $127.6 83.2%
Less: Capital Expenditures ($ 72.2) ($ 71.4) (1.1%)
Free Cash Flow $161.6 $ 56.2 187.5%
5
FIRST QUARTER PRO FORMA SEGMENT RESULTS(1)
(DOLLARS IN MILLIONS)
(1) The consolidated net revenue and adjusted operating income are presented net of inter-segment transaction eliminations
(2) Covance Drug Development’s results exclude the impact from the wind-down of operations relating to a committed minimum volume
contract that expired on October 31, 2015
(3) Adjusted Operating Income excludes amortization, restructuring charges and special items
(4) See Reconciliation of non-GAAP Financial Measures on slides 13 – 16
1Q17 1Q16 % Change
Net Revenue
LabCorp Diagnostics $1,717.9 $1,590.6 8.0%
Covance Drug Development(2) $690.3 $703.1 (1.8%)
Total Net Revenue(2) $2,408.1 $2,293.6 4.9%
Adjusted Operating Income(3) (4)
LabCorp Diagnostics $341.0 $308.0 10.7%
Adjusted Operating Margin 19.9% 19.4% 50 bps
Covance Drug Development $83.5 $103.2 (19.1%)
Adjusted Operating Margin 12.1% 14.7% (260 bps)
Unallocated Corporate Expense ($33.2) ($38.0) 12.6%
Total Adjusted Operating Income $391.3 $373.1 4.9%
Total Adjusted Operating Margin 16.2% 16.3% (10 bps)
6
SELECT FINANCIAL METRICS
(DOLLARS IN MILLIONS)
1Q16 2Q16 3Q16 4Q16 1Q17
Total Depreciation $75.9 $77.9 $78.0 $79.3 $78.4
Total Amortization(1) $44.3 $45.3 $41.1 $48.8 $47.6
Total Adjusted EBITDA(2) $450.8 $505.4 $485.0 $469.3 $472.2
Total Debt to Last Twelve Months Adjusted EBITDA(2) 3.5x 3.3x 3.3x 3.1x 3.1x
Total Net Debt to Last Twelve Months Adjusted EBITDA(2) 3.1x 2.9x 3.0x 2.9x 2.9x
(1) Excludes amortization of deferred financing fees
(2) Adjusted EBITDA excludes restructuring charges and special items. See reconciliation on slide 12.
7
COVANCE DRUG DEVELOPMENT: SELECT FINANCIAL METRICS(1)
Trailing Twelve Month (TTM) Results
Net Orders Net Book-to-Bill
TTM Ending March 31, 2017 $3.2 billion 1.15x
TTM Ending December 31, 2016 $3.1 billion 1.11x
Backlog
Estimated revenue expected to convert
from backlog in the next twelve months
As of March 31, 2017 $5.2 billion $2.1 billion
As of December 31, 2016 $4.9 billion $2.0 billion
(1) Beginning with the fourth quarter of 2016, the Company began reporting net orders, net book-to-bill and backlog based upon fully-executed
contracted awards. The Company believes this methodology is a more conservative and objective practice, providing greater visibility into its
revenue conversion from the backlog. Results shown include the impact from cancellations and foreign currency translation.
8
(1) Revenues recognized in over 30 currencies; the largest foreign currency accounts for less than 10% of total net revenue
Segment Distribution
LabCorp
Diagnostics
71.3%
Covance
Drug Development
28.7%
USA
81.3%
Geographic Distribution
Rest of
World(1)
18.7%
FIRST QUARTER 2017 NET REVENUE DISTRIBUTION
9
FIRST QUARTER 2017 FOREIGN EXCHANGE IMPACT TO NET REVENUE
(DOLLARS IN MILLIONS)
Year over Year
Dollars % Growth
Consolidated
Net Revenue, as Reported $2,408 4.9%
Foreign Exchange Impact $9 0.4%
Net Revenue, Constant Currency $2,417 5.3%
LabCorp Diagnostics
Net Revenue, as Reported $1,718 8.0%
Foreign Exchange Impact ($1) (0.1%)
Net Revenue, Constant Currency $1,717 7.9%
Covance Drug Development
Net Revenue, as Reported $690 (1.8%)
Foreign Exchange Impact $11 1.5%
Net Revenue, Constant Currency $701 (0.3%)
10
2017 FINANCIAL GUIDANCE
Prior Guidance
(assumes foreign exchange
rates effective as of
December 31, 2016)
Current Guidance
(assumes foreign exchange
rates effective as of
March 31, 2017)
Total net revenue growth: 4.5% – 6.5%(2) 3.5% – 5.5%(3)
LabCorp Diagnostics net revenue growth: 4.5% – 6.5%(4) 5.0% – 7.0%(5)
Covance Drug Development net revenue growth: 3.5% – 5.5%(6) 0.0% – 2.0%(7)
Adjusted EPS (1): $9.35 – $9.75 $9.20 – $9.60
Free cash flow: $925 Million – $975 Million $925 Million – $975 Million
(1) Excludes the impact from amortization, restructuring charges and special items.
(2) Included the impact from approximately 60 basis points of negative currency.
(3) Includes the impact from approximately 40 basis points of negative currency.
(4) Included the impact from approximately 10 basis points of negative currency.
(5) Includes the impact from approximately 10 basis points of negative currency.
(6) Included the impact from approximately 180 basis points of negative currency.
(7) Includes the impact from approximately 130 basis points of negative currency.
11
2016
1Q 2Q 3Q 4Q Full-Year
LabCorp Diagnostics
Net Revenue $1,590.6 $1,659.7 $1,671.8 $1,671.8 $6,593.9
Adjusted Operating Income (2) $308.0 $355.3 $341.8 $317.8 $1,322.9
Adjusted Operating Margin (2) 19.4% 21.4% 20.4% 19.0% 20.1%
Covance Drug Development
Net Revenue $703.1 $722.4 $701.1 $715.6 $2,842.2
Adjusted Operating Income (2) $103.2 $107.5 $95.5 $106.5 $412.7
Adjusted Operating Margin (2) 14.7% 14.9% 13.6% 14.9% 14.5%
Consolidated
Net Revenue $2,293.6 $2,382.0 $2,372.7 $2,387.3 $9,435.6
Adjusted Segment Operating Income (2) $411.1 $462.8 $437.3 $424.3 $1,735.6
Unallocated Corporate Expenses ($38.0) ($37.6) ($33.3) ($36.5) ($145.4)
Consolidated Adjusted Operating Income (2) $373.1 $425.2 $404.0 $387.8 $1,590.1
Adjusted Operating Margin (2) 16.3% 17.9% 17.0% 16.2% 16.9%
Adjusted EPS (3) $2.05 $2.37 $2.25 $2.15 $8.83
2016 QUARTERLY RESULTS(1)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(1) The consolidated net revenue and adjusted operating income are presented net of inter-segment transaction eliminations. Reconciliations of
non-GAAP financial measures were filed with the SEC on April 25, 2016, July 27, 2016, October 26, 2016 and February 16, 2017
(2) Adjusted Operating Income and Margin exclude amortization, restructuring charges and special items. In addition, during the third quarter of
2016, the Company reclassified certain gross receipts taxes from its provision for income taxes to selling, general and administrative
expenses. This revision impacts Adjusted Operating Income and Margin and was made for all periods presented, as shown. These
adjustments had no impact on reported net income or EPS.
(3) Adjusted EPS exclude amortization, restructuring charges and special items. In addition, Adjusted EPS exclude amortization, restructuring
charges and special items. In the third quarter of 2016, the Company adopted the provision of the new FASB Accounting Standard on
Share-Based Payment Accounting. The standard requires that companies recognize all income tax impacts of share-based payments in their
provision for income taxes. Before adoption, this impact had been recorded as an adjustment of the Company's income tax liabi lity and
additional paid-in capital. The new standard also eliminates the use of estimated income tax impacts in the calculation of common stock
equivalents in determining dilutive shares outstanding. Per the guidance in the new standard, the Company applied the standard retroactively
to the beginning of 2016.
12
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES – ADJUSTED EBITDA
(DOLLARS IN MILLIONS)
1Q16 2Q16 3Q16 4Q16 1Q17
LabCorp Operating Income $299.5 $365.5 $324.0 $323.4 $332.7
Add:
Restructuring and other special charges $19.2 $6.6 $22.8 $9.8 $3.9
Other special charges(1) $10.1 $7.9 $16.1 $5.8 $7.1
Depreciation $75.9 $77.9 $77.9 $79.3 $78.4
Amortization $44.3 $45.3 $41.1 $48.8 $47.6
Equity method income, net $1.4 $1.9 $2.6 $2.0 $2.3
Depreciation and amortization of equity method investments $0.4 $0.3 $0.5 $0.2 $0.2
Adjusted EBITDA $450.8 $505.4 $485.0 $469.3 $472.2
(1) Other special charges as disclosed by the Company in its quarterly earnings releases
13
Adjusted Operating Income 2017 2016
Operating Income 332.7$ 299.5$
Acquisition-related costs 4.4 2.9
Restructuring and other special charges 3.9 19.2
Consulting fees and executive transition expenses - 4.1
Wind-down of minimum volume contract operations - 1.6
LaunchPad system implementation costs 2.7 1.5
Amortization of intangibles and other assets 47.6 44.3
Adjusted operating income 391.3$ 373.1$
Adjusted EPS
Diluted earnings per common share 1.84$ 1.58$
Restructuring and special items 0.07 0.18
Amortization expense 0.31 0.29
Adjusted EPS 2.22$ 2.05$
Three Months Ended
March 31,
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data)
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
14
Free Cash Flow: 2017 2016
Net cash provided by operating activities 233.8$ 127.6$
Less: Capital expenditures (72.2) (71.4)
Free cash flow 161.6$ 56.2$
LABORATORY CORPORATION OF AMERICA HOLDINGS
Reconciliation of Non-GAAP Financial Measures
(in millions, except per share data)
Three Months Ended
March 31,
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
15
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES - FOOTNOTES
1) During the first quarter of 2017, the Company recorded net restructuring and other special charges of $3.9 million.
The charges included $2.7 million in severance and other personnel costs along with $1.6 million in costs associated
with facility closures and general integration initiatives. The Company reversed previously established reserves of
$0.4 million in unused severance reserves.
The Company incurred legal and other costs of $0.9 million relating to the recently completed acquisitions. The
Company also recorded $2.6 million in consulting expenses relating to fees incurred as part of its Covance
integration costs and compensation analysis, along with $0.9 million in short-term equity retention arrangements
relating to the acquisition of Covance. In addition, the Company incurred $2.7 million of non-capitalized costs
associated with the implementation of a major system as part of its LaunchPad business process improvement
initiative (all recorded in selling, general and administrative expenses).
The after tax impact of these charges decreased net earnings for the quarter ended March 31, 2017, by $6.9 million
and diluted earnings per share by $0.07 ($6.9 million divided by 104.3 million shares).
16
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES - FOOTNOTES
2) During the first quarter of 2016, the Company recorded net restructuring and other special charges of $19.2
million. The charges included $4.5 million in severance and other personnel costs along with $17.0 million in costs
associated with facility closures and general integration initiatives. A substantial portion of these costs relate to the
planned closure of duplicative data center operations. The Company reversed previously established reserves of
$2.3 million in unused severance reserves primarily as the result of selling one of its minimum volume contract
facilities to a third party.
The Company incurred additional legal and other costs of $1.6 million relating to the wind-down of its minimum
volume contract operations. The Company also recorded $1.7 million in consulting expenses relating to fees
incurred as part of its Covance integration costs and compensation analysis, along with $1.2 million in short-term
equity retention arrangements relating to the acquisition of Covance and $4.1 million of accelerated equity
compensation relating to the announced retirement of a Company executive. In addition, the Company incurred
$1.5 million of non-capitalized costs associated with the implementation of a major system as part of its LaunchPad
business process improvement initiative (all recorded in selling, general and administrative expenses).
The after tax impact of these charges decreased net earnings for the quarter ended March 31, 2016, by $19.0
million and diluted earnings per share by $0.18 ($19.0 million divided by 103.6 million shares).
3) The Company continues to grow the business through acquisitions and uses Adjusted EPS Excluding
Amortization as a measure of operational performance, growth and shareholder returns. The Company believes
adjusting EPS for amortization provides investors with better insight into the operating performance of the business.
For the quarters ended March 31, 2017 and 2016, intangible amortization was $47.6 million and $44.3 million,
respectively ($32.4 million and $30.1 million net of tax, respectively) and decreased EPS by $0.31 ($32.4 million
divided by 104.3 million shares) and $0.29 ($30.1 million divided by 103.8 million shares), respectively.