LabCorp sees Q1 revenue rise slightly as Covance growth downgraded for FY15

By Zachary Brennan contact

- Last updated on GMT

LabCorp sees Q1 revenue rise slightly as Covance growth downgraded for FY15

Related tags: Revenue, Covance

Just two months after Covance shareholders signed off on LabCorp acquiring the company, and all seems to be going according to plan, though financial expectations for the rest of the year were slightly lowered by the diagnostics company.

Net revenue for the quarter was $1.77bn, an increase of 23.9% over last year’s $1.43 bn, though much of that growth comes thanks to Covance. Since the acquisition, Covance contributed $267.2m from the closing of the acquisition in February, driving 18.7% year over year net revenue growth.

The remainder of the increase from last year’s Q1, according to LabCorp, was due to strong organic volume growth in the clinical laboratory business, acquisitions, but was partially offset by price, mix and the strength of the US dollar. During the quarter, net orders (gross orders less cancellations and reductions) were $855m, representing a net book-to-bill of 1.37.

LabCorp also recorded restructuring charges and special items of $138.7 million during Q1, which dwarfs last year’s $7.6m in restructuring charges, though $113.4m of that is related to costs associated with acquiring Covance.  

Reduced Guidance

But as far as guidance for the rest of the year, LabCorp shied away from previous estimates. The range for total net revenue growth shifted down from 40-44% growth to 39-42% growth, while Covance’s drug development revenue’s expected growth may not be as high as LabCorp once thought.

Evercore analyst Michael Cherny, however, remained positive on the results, dismissing those reductions, noting, “While Covance revenue guidance was reduced vs. previous expectations, this was already factored into our models (and likely buyside consensus) and the increased synergy capture, combined with the new order rate, should offset any disappointment that might create​.”

Joe Herring, CEO of Covance, noted that the “relative softness​” is “overwhelmingly related to central laboratories​” and it’s frustrating, he said, because record numbers of central lab kits are going out, but not as “many kits have come in so far​.”

Despite the reduced expectations for revenue, LabCorp raised its expectations for earnings per share growth slightly, which Cherny said “provides increased comfort in the earnings power opportunity that the combined company has over the next 2-3 years​.”

Dave King, chairman and CEO of LabCorp, noted on Monday’s conference call that Q1’s operating performance demonstrates why the company wanted to buy Covance.

Direct-to-Patient Lab Tests

King also highlighted LabCorp’s new service of direct-to-patient lab tests, which means that patients can bypass their doctors and order various tests – from cholesterol readings to bloodwork -- online.

King noted that going directly to patients could also help Covance recruit patients for trials. “One of the ways we support trial recruitment is for patients we have a direct relationship with, we can go directly to them​,” he said.

Joe Herring, CEO of Covance, also noted that the current company “is directly connected to 50% of all clinical trial patients in the world​” and by querying both companies’ extensive databases, they can show sponsors where the patients are and to either contact them contact them directly or through a physician. Herring also noted that since the acquisition, Covance has earned a “couple of wins in a short amount of tim​e,” and that it’s highly motivated to automate that direct-to-patient capability to help sponsors get patients into trials at a faster rate.

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