Laboratory of America Holdings Earnings Call Insights: Positive Drivers and Moratorium on Acquisitions
Laboratory Corporation of America Holdings (NYSE:LH) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.
Thomas Gallucci – Lazard Capital Markets: I guess I had two questions. The first one was sort of on the ’13 outlook obviously Medicare is a big negative, but wondering, what if you could highlight some of the positive drivers that overcome some of the pressures on the business as you look out. In the past you’ve talked about Genzyme and MEDTOX sort of ramping up is that still the case. So if you could just explore some of the positive versus the negative as we think about the ’13 moving parts?
William B. Hayes – EVP and CFO: I’d like to say couple of things to answer your question. One is obviously we face the Medicare cuts that we described and you referred to. Secondly, we have some offset of those cuts from increases in payment from other payer types that are non-government. So there’s one thing that helps to offset. We also have continued acquisition integration from Genzyme and some of the other acquisitions that we’ve done since that date that also helped to offset. Given the 2% to 3% top line revenue guidance, we still think of it as a low organic growth environment, which is what I think keeps some of the positives from offsetting the negative from the payment reduction.
David P. King – Chairman and CEO: Tom, it’s Dave. Just to add one further point. We’re encouraged that organic volume growth increased sequentially from 3Q to 4Q. So we have some cautious optimism that we’re going to see better organic volume growth as we go forward through 2013.
Thomas Gallucci – Lazard Capital Markets: In that 2% to 3% you mentioned, Brad, there are small acquisitions in there as you normally would maybe a 0.5% or 1% or so, or…?
William B. Hayes – EVP and CFO: Not really, just the annualized impact of MEDTOX and some of the smaller ones that we did 2012.
Thomas Gallucci – Lazard Capital Markets: So, nothing new or incremental that you haven’t done yet in terms of top line – that would add to the top line?
William B. Hayes – EVP and CFO: No.
Thomas Gallucci – Lazard Capital Markets: Then just I guess a big picture question; I don’t know if you want to take a stab at it Dave, but obviously for a lot of healthcare these days, thinking about healthcare reform in 2014 and beyond is become a lot of the focus for investors. So any updated thoughts on how reform will impact your company and your industry?
David P. King – Chairman and CEO: Tom, I think reform will be a net positive to us. There are a lot of moving parts and some of them, such as how will the exchanges actually work what will pricing be through the exchanges and how many states will actually participate in Medicaid expansion remain unclear at this point. But at a high level I think we will see volume growth offset to some extent by reduced pricing on the business that is coming through the Company now that is uninsured that will be subject to insurance rates and a net benefit from reduction in the bad debt rate. So, we view it as a net positive, but again lot of moving pieces and too early to try to even begin to quantify it.
Moratorium on Acquisitions
Robert Willoughby – Bank of America: Dave or Brad, does the larger share repurchase authorization suggest any kind of moratorium on acquisitions near-term or any kind of comment on deal pricing that you are seeing?
David P. King – Chairman and CEO: It’s Dave. It does not suggest a moratorium on acquisition activity. The pipeline remains quite active. The share repurchase commitment and the Board’s endorsement of the $1 billion in share repurchase authorization reflects more our continued commitment to using share repurchases a way to return capital to shareholders.
Robert Willoughby – Bank of America: And just another broader question, who are you talking to now with your greater kind of technology and electronic connectivity that you weren’t talking to previously? Is there somebody out there obviously more intrigued with your data on connectivity now?
David P. King – Chairman and CEO: Bob, it’s Dave. I would say the increasing prevalence of ACOs and mega-physician practice groups that are thinking about transitioning to an environment in which they, either share risk or take risk has made them a lot more interested in population health management and data analytics. Obviously a lot of people are working on population health management and data analytics one of the great benefits that we have is the enormous amount of information and data that we have on the unique patients that we see every year and the longitudinal database that we have on those same patients as they come back to see us over time. So, I think as we continue to see the development of ACOs, the consolidation of physician practices and even the consolidation of health systems the value of those data analytics will continue to increase.