Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2014 Laboratory Corporation of America Holdings Earnings Conference Call. My name is Katrina, and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the presentation over to your host for today’s call, Mr. Stephen Anderson, Vice President of Investor Relations. Please proceed.

Good morning, and welcome to LabCorp's fourth quarter and full-year 2014 conference call. With me today are Dave King, Chairman and Chief Executive Officer; Glenn Eisenberg, Executive Vice President and Chief Financial Officer; Jay Boyle, Chief Executive Officer of LabCorp Diagnostics; Joe Herring, Chief Executive Officer of Covance Drug Development and Paul Surdez, Vice President of Investor Relations. This morning, we will recap our 2014 performance, discuss our 2015 priorities, provide an update on our Covance acquisition, introduce Project LaunchPad, our enterprise-wide business process improvement initiative and issue our 2015 guidance. Before we get started, I’d like to point out that there will be a replay of this conference call available via telephone and Internet. Please refer to today's press release for replay information. This morning, the Company filed a Form 8-K that included additional information on our business and operations. This information is also available on our Web site. Analysts and investors are directed to this 8-K and our Web site to review this supplemental information. Additionally, we refer you to today's press release, which is available on our Web site, for a reconciliation of non-GAAP financial measures discussed during today's call to GAAP. These non-GAAP measures include adjusted EPS, free cash flow and adjusted operating income. I’d also like to point out that we are making forward-looking statements during this conference 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 the Company's financial results. Some of these factors are set forth in detail in our 2013 10-K and in our subsequent filings with the SEC and will be included in our 2014 10-K and subsequent filings with the SEC. The Company has 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.

Thank you, Steve. I’ll start by recapping 2014. We delivered a strong operating performance, exceeding $6 billion in revenue and generating total volume growth including acquisitions of 5.3%. After a challenging first quarter due to extraordinary weather, our performance improved sequentially throughout the year. In the fourth quarter, revenue increased by 5.3% over the fourth quarter of 2013 and we posted year-over-year improvement in adjusted operating income, adjusted operating income margin, and adjusted EPS. We also achieved strong organic growth in the fourth quarter and for the year. We are very pleased with our 2014 performance. Late last year, we made a very important strategic movement, the Covance acquisition. This transaction is the culmination of years of thinking about how to best position our Company for the future and I’m very proud of our team for its dedication and tenacity in completing the acquisition. We have made a transformational move for our Company and over time the combined company will enhance drug development, laboratory diagnostics, and healthcare delivery. This merger creates a unique combination of capabilities that positions the new LabCorp to bring innovative and higher value solutions to clients of both predecessor companies. We close the Covance acquisition yesterday and we are off to a strong start on the integration of the businesses. Going forward, we will operate in two segments, LabCorp Diagnostics and Covance Drug Development, which we expect to be closely aligned in furthering our correlation of improving patient's lives by providing world-class diagnostics and knowledge services. Jay Boyle, who has been exceptional Chief Operating Officer of LabCorp over the last five years, is now Chief Executive Officer of LabCorp Diagnostics. Joe Herring, who has successfully led Covance for over a decade, and has been a great partner since we announced the transaction, is now Chief Executive…

Thank you, Dave. I'm going to start my comments with a review of our fourth quarter results and 2015 guidance, followed by an update on our Covance acquisition and Project LaunchPad initiative. Sales for the quarter were approximately $1.5 billion, an increase of 5.3% over last year. The increase in sales was the result of volume, measured by requisitions and acquisitions, partially offset by price mix and currency. The growth in sales was due to organic volume of 5.3%, partially offset by a decline in revenue for requisitions of 1.1% and negative impact of currency of 0.5%. In addition, acquisitions added 1.6% to sales. Total volume including acquisitions increased 6.4%. The decline in revenue per acquisition was primarily due to core support testing growth, outpacing esoteric testing growth and less revenue generated from uninsured patients. Gross profit for the quarter was $546 million or 36.1% of sales. This compares to gross profit of $526 million or 36.6% of sales last year. The increase in gross profit dollars was due to volume, productivity, and acquisitions, partially offset by price mix, cost inflation and depreciation. The decline in gross margin was primarily due to the changes in test and payer mix that I mentioned earlier. SG&A for the quarter was $310 million or 20.5% of sales compared to $286 million or 19.9% last year. During the quarter, we incurred $13 million of special charges in SG&A relating to Project LaunchPad and the Company’s acquisition of Covance. The remainder of the increase was primarily due to personnel costs, acquisitions and an increase in bad debt expense. While bad debt increased due to sales growth, the rate improved 10 basis points over the fourth quarter of 2013. We expect this rate to be lower in 2015. During the quarter, we had $2 million of…

Thank you, Glenn. I want to announce that after five years of leading LabCorp Investor Relations, Steve Anderson, will transition after this call to an operational role in our Food Safety business, one of the areas where we see great opportunity. Steve has been a terrific IR leader and has worked tirelessly to meet the needs of our analysts and shareholders. I will miss him greatly in this role, but I know he is moving into an area for which he has great and enduring passion. Paul Surdez, who has led Covance’s Investor Relations program since 2002, will serve as Vice President of Investor Relations for LabCorp. I greatly look forward to working with Paul, who is already recognized as one of the top IR leaders in healthcare services. Now, we’re ready to take questions.

Thank you. [Operator Instructions] Your first question comes from the line of Robert Willoughby representing Merrill Lynch. Please proceed.

Hi, Dave. I guess Steve Anderson and food safety doesn’t really jive with his biscuit bill focus, but I defer to you on that decision. But you’ve mentioned substantial savings from the Project LaunchPad initiatives. Can you speak to any -- there seemed to be a reference to the bad debt coming down, but what are the working capital opportunities? Can we see receivable balances shrink meaningfully there? And any kind of CapEx savings we might expect over the next few years to add to whatever you’re doing from an income statement perspective?

Yes. Bob, good morning. From a CapEx perspective, the focus of the LaunchPad initiatives will largely be around improving our systems and operations through technological investments. So although I wouldn't expect to see extraordinary CapEx investments, I would expect to see transitioning some of our ongoing infrastructure CapEx into a more streamlined and efficient processes and systems over time. And some of that will also be reflected as I mentioned in labor efficiency. I’d like Glenn to take the working capital part of the question.

Sure. To your point, working capital has been, call it a use of cash for us, but primarily due to the strong growth that we have experienced in the Company. When you reference kind of our receivables on the absolute level, we actually feel we’ve been managing it quite well. It stayed at roughly 49 days overall. Having said that, a big part of LaunchPad initiative is our working capital improvement, inclusive of a bad debt, but effectively we're looking at really a redesign. So we are going to step back and look at what processes can we put in place that would be preferred, and then as Dave said the put systems to enable that to happen is opposed to just kind of a marginal improvement in that. So from our perspective, we expect to see improved working capital management. We expect to see also a reduction in our bad debt expense, in particularly, our bad debt rate, which we saw some favorable movement already, but we expect to see much greater improvement as we go through the rest of 2015.

But Glenn, you quantified the savings though -- from an income statement, can you quantify any potential free cash flow run rate that we might benefit from or its just too early to put a number around the CapEx and working capital opportunity?

Well again, we wouldn’t necessarily do it as part of those programs, its part of -- it’s embedded in the overall result or the guidance that we’ve given. So when you look at our cash flow number for 2015, when you take the midpoint of the guidance, we’re looking at as a combined company of around $750 million and we talked about the fact that, that’s already been burdened by around $90 million of one-time costs. So you can see the strong improvement in our free cash flow is in part due to the synergies of the acquisition, in part due to the improvement in working capital because of LaunchPad and because of the improved reduction in bad debt expense relating to that LaunchPad initiative as well. So that’s all encompassed in that number.

And Bob, it’s Dave. I would just also say over time, what we like to see is the investments that we make in systems now allowing us to reduce CapEx in the out years. So I do expect some positive benefit to the overall level of CapEx as a result of LaunchPad.

Right. Okay. Thank you.

Your next question comes from the line of Bill Bonello representing Craig-Hallum. Please proceed.

Hey, good morning guys. Just two quick questions. One is just a simple numbers question. You talked about currency reducing revenue by about a 160 basis points in 2015. How should we think about the hit to EPS?

Obviously, reflected in the guidance that we have as well. The biggest hit -- currency headwinds, if you will, obviously with Covance having over half of their business overseas, that's where we see it. And so, when we provided the guidance range of Covance kind of year-over-year as if we would have them for both years, you can see it was around 3.3 points. So that would get you to call it in the mid $70 million, if you will, of headwind on sales. Historically, Covance is leveraged at around -- call it around a 20% degradational to their mark -- to their earnings. So again, as part of LabCorp, that translates to around call it 1.5% of headwind on the top line and again if you use that roughly 20% margin degradation, you would probably get a good proxy for the earnings impact, which again is reflected in the guidance that we provided.

Okay, perfect. Great. And then, just on the recent contract that you talked about being awarded, and Covance talked about this as well. Dave, I’m wondering if you can just give us a little bit more color about sort of the process. So you mentioned that you are going to use lab data to identify patients, but maybe you could just elaborate a little bit on how does that actually play out and how beneficial that can be? Because I think it's an area where there is still some skepticism about how that really can drive improvement in patient recruitment?

Okay. So I'm going to -- I'll start and then I’m going to ask Joe to comment as well. In this specific case, the Biopharma client was looking for a very specific -- a set of patients with a very specific characteristic to test a personalized oncology drug in their trial. We went into our data of the testing that we had done, I believe over the last couple of years and looked at the number of patients that we had seen that met those very specific criteria and we showed the client that this is a built-in recruitment set where we know who these patients are and we know where they are. And I want to be clear, Bill, that that was part of the client's decision. The Covance team had positioned us to be in great shape. At the final stages, I think it was down to two CROs that they were considering. So this was part of the calculation. It was not a last minute Hail Mary pass into the end zone that brought us back from the brink of not being involved. We were very well positioned. This was incrementally something that was considered to be a value. How we would then execute this is, for those patients who we have a direct relationship with, who have consented to be re-contacted for whatever reason, we would be able to re-contact them. For those patients who have not consented to be re-contacted or who we don't have a direct relationship with, we would go to the physician, indicate to the physician that they have X number of patients who they are treating, who would be eligible for this very important study and leave it to the physician to recruit the patients or to seek the patients whether the patients are interested in being recruited. So that's kind of how it works in practice. Joe, further comments?

Well, I think Dave has done a pretty good job describing that. I was actually met with the CEO of this client during the JP Morgan conference and as Dave said, this is a highly specialized personalized medicine drug in non-small cell lung cancer and the CEO was very concerned about finding patients for the study. And we have talked about the historic sort of Covance approach to this and he seems pretty comfortable, but a competitor have an equally compelling sort of an offer. But when he understood the generic -- genetic marker he was looking for, we said let us see if we can look into the LabCorp database and give you an idea how to find the patients for this study and we’re looking for about little over a 100 patients, and he said this trial has to be recruited. He said we are going to make a decision next week and I’d be happy to hear what you say about the LabCorp data. I had our Chief Medical Officer with us, he worked with LabCorp and 12 hours later we assured the client and said there are over a 1,000 patients in the LabCorp database that fit the inclusion, exclusion and genetic marker for this study. And they call the next day and awarded a $45 million study. I would say there was less than -- roughly 50-50 percent chance we were going to win, and a week later to get it that next morning was pretty awesome. And we have about five other clients right now that we are working with on a similar basis. So I guess as of today we are one for one utilizing the combination of LabCorp data and Covance clinical talents.

That was as good of an explanation as I could have possibly hoped for. Thank you.

Your next question comes from the line of Lisa Gill representing JP Morgan. Please proceed.

Congrats and good morning. Steve, I really enjoyed working with you and I appreciate all your help over the last few years. So my question really is first, Dave, when you talked about these unique opportunities in the $300 million revenue opportunity by 2018 and clearly Joe just talked about this most recent one at $45 million. Can you maybe give us an indication of how you expect that $300 million over the next couple of years? Are you expecting anything in 2015?

Well, Lisa, good morning and thanks for the nice comments about Steve and obviously I know many analysts and shareholders have enjoyed working with him. I have enjoyed working with him and the team as well. He is not disappearing, he is just going over to Food Safety and we’re thrilled to have Paul to step in. And I think you will really enjoy working with Paul. So with that said, what we anticipate for 2015 is built into the guidance and as you know we don't break the guidance out into specific parts and pieces. I would expect this to be as Joe said, we are one for one. We are going to have to prove the case that not only can we marshal the data, but then it actually increases the speed of recruiting -- of patient recruitment. So I would expect this to start relatively slowly and then if we are right, we would expect it to build in 2016 and 2017 and come out at 2018 as we’ve identified $300 million as the target for all three of the initiatives combined. But I think that that the opportunity there is real and if we prove the case it’s significant.

And then my second question is really around your core lab business and the guidance that you gave for next year, talking about this year, the offsets was price mix, currency et cetera. But as we think about 2015, can you maybe just talk about what you're seeing right now from reimbursement environment, especially in the commercial market? Do you have anything that was of size [ph] that was up for renewal and generally speaking what are you seeing from a reimbursement perspective?

I would say Lisa in terms of year-over-year reimbursement, what we are assuming in the guidance is that MoPath remains about the same that we have some incremental opportunity with BRCA particularly. I think everybody knows that the uncertainty now is around reimbursement for the clinical toxicology, so the Palmetto limited coverage decision which has been delayed until April, but it's still I would -- I think it's fair to say being vigorously debated between the lab industry and the payer community and then how that will ripple through with managed care combined with the impact of new toxicology codes, many of which still have not been loaded into payer system. So generally the reimbursement environment looks better than it has in the last couple of years, but as always we are in a rapidly changing regulatory and reimbursement environment and we need to take that into account and how we think about the business.

And just so that I understand that so, should we assume that within the guidance rage there is varying assumptions as to how these things will play out in 2015?

Yes, the guidance contemplates a wide range of outcomes and we have attempted to incorporate these various potential outcomes into the range that we’ve given.

Perfect. Thank you.

Your next question comes from the line of Gary Lieberman representing Wells Fargo. Please proceed.

Good morning. Thanks for taking the question. Steve, thank you for all the help over the years, it’s been great working with you. I guess my first question is around the LaunchPad, $150 million in savings that equals about 175 basis points of margin expansion. So, would you expect to see that margin expansion or should we consider that there might continue to be some headwinds that would offset at least part of that?

Well, this is Glenn, let me take it first, and Dave may want to chime in as well. When we talk about the initiative, we talk about it on a net savings basis. And while we say that they’re onetime costs, if you back that out we’ve looked at the initiative, we’ve looked at what it would take to effectively take that kind of cost out of the company net of the cost that we need to support it. So, if you looked at it in isolation obviously that’s a benefit that will occlude to the company. So, as we go forward though our goal is to continue to drive our top line, to continue to manage the business to drive operating improvement as we go forward and LaunchPad is clearly one of the initiatives that we have that will help to drive that income and margin improvement.

Gary, its Dave, just -- I think the only thing I would add to that is, we’re very focused on margin improvement. And LaunchPad is a significant opportunity for us to improve margins over time. The thing that obviously we cannot predict is going back to Lisa’s question, what's the reimbursement environment two years out, three years out? And so all of the things being equal, yes, I would expect LaunchPad to translate to margin improvement, but we can't guide to where we are going to be based on factors that we don’t know about yet.

Okay, that’s helpful. And then maybe just update us on the reception of the deal, and closing the deal by the Covance employees, you characterized it previously to sort of being almost transparent to them and do you still view it that way?

Yes, I have spent a lot of time with both the Covance executive team and with the employees at town halls and in meetings and then getting to know them and, my perception is the reception has been terrific. People are very enthusiastic. They seek the opportunity here. They see the long-term potential for both, for our combined company to excel. And I would say, my sense is that’s exactly the same reception on the LabCorp side. People are very enthusiastic about this deal. Joe, any further color?

Yes, I would characterize it as overwhelmingly for Covance employees, its business as usual certainly in the short-term. But with very exciting strategic prospects, the LabCorp assets made Covance a stronger and more resourceful competitor which makes us a better company. So, if you think about our central lab, now all of a sudden we have more than a $100 million in revenue from LabCorp, and largely esoteric tests that make our business stronger. And the combination makes us the most resourceful, most capable companion diagnostics company in the health care industry. And our employees who want to improve patient care see that as a nice opportunity. For clinical, there is no overlap with LabCorp, so its business as usual, except now you have access to a longitudinal database of $70 million patients, and we already talked about that. In Covance market access, where our number one issue is how to keep post -- patients in post marketing studies on study to achieve the results. The 1,700 centers in the U.S. for LabCorp will make it much easier for those patients to complete their therapy and complete the study. For food service, this is going to be a disruptive offer and just incredibly exciting, and you’ll hear more about that in the future. And then in early development, we pick up a very nice bioanalytical business in terms of tandem, and make us a much stronger biomarker development company. So, there is not a lot of overlap, so this is not terribly disruptive. But where there is overlap, there is exciting strategic advantage. And I guess, what I would close with is just a comment about Dave. Dave, and I have traveled around the world with Covance, have been in front of 1000s of employees in multiple sites as well as small working groups. And I think I can represent the Covance employees saying that they love to see Dave’s passion around improving patient care and health care. They are excited to see how comfortable he is in a lab environment. And finally, I think his interpersonal approach has been very well received by Covance employees around the world. I personally held a town hall meeting yesterday in Princeton with about a 1000 employees, and I can tell you the atmosphere was electric.

Great. A final quick question, in the example you gave where you said you could go to the physician and say that they had X number of patients that met their criteria. Can you actually give the physician the name of the specific patients?

I’m going to differ that to legal consideration. I believe that yes, we can because I believe it fits within the hip a [ph] exception for health care treatment. But obviously before we would do that, and by the way, this has been done in situations in the past before we would do that, we would make sure that we had legal approval to actually provide the patient names.

Okay, great. Thanks very much.

I was just going to say, the good news in this is as I walked away from this exciting win, I keep scratching my head thinking, what other organization on the planet can bring this resources? And it’s hard to come up with one, and I like our chances.

Thank you.

Your next question comes from the line of Michael Cherny representing Evercore ISI. Please proceed.

Good morning, everyone. Steve, first of all good luck in the new role, and Paul looking forward to continuing to work together, so happy to see that transition. In terms of thinking about the combination, I know this is still early days and then, given that the deal just closed yesterday, but maybe a question for Joe. You talked about the employee reaction, you talked about the new deal you won which is great to see. How has been the rest of the customer reaction to this deal? In terms of have you spend time with them over the last few months as you’ve gone through some of the renewal or sale processes, obviously Covance delivered very strong 4Q results, a good book to bill. Can you talk a little bit qualitatively about what the pharma sponsors have been telling you guys relative to the power of this deal outside of the one customer that you did win?

I guess two words comes to mind, the first is intrigued. This is a combination that dirty people had thought of, and initially its where did this come from? But when they think about the combination they start asking us questions. Can you help us with adherence programs? Can you help us with companion diagnostics? It seems like you guys have very unique assets. So, I think intrigued, and I think the second point is comforted. Because what we can say is, there’s not a lot of overlap here. So you can have the same project manager. You are going to have the same study director. It’s going to be the same bill, its going to still say Covance. And so, there’s no disruption here. And if a competitor tries to show up and say, boy this is going to be really disruptive. We pre-trained our clients to say, what do mean disruptive? I have got the same study director, the same sales person, the same everything. And frankly they’ve got some pretty exciting new things to talk about. So, I like our chances.

Thanks, Joe. And then, one quick question I guess, for Glenn and maybe Dave as well. When you first announced the deal, I think you had talked about the capital deployment. Obviously your focus has been debt pay down, but that wouldn’t stop you or preclude you in any way from doing any small tuck-ins that may come across that are a nice fit to either side of the business. Is that correct? I just want to make sure I understand the capital deployment priorities.

Yes, Michael, it’s Dave. I agree as I think we indicated a couple of places in our prepared remarks, we intend to deploy our capital towards pay down of debt and tuck-in acquisitions. So you’re exactly right.

Probably I missed the tuck-in thing, so thank you.

[Operator Instructions] Your next question comes from the line of Gary Taylor representing Citi. Please proceed.

I would go to the one question right before I get to go, I see …

You got one follow-up.

Okay, I’ll stretch for the follow-up. I do have a follow-up that’s related. I just want to walk through -- kind of walk through the guidance and get your response to something, just see something about it correctly. So, basically the cash earnings guidance $735 million to $770 million, Covance accretion is $0.35 to $0.40 that gets you to kind of $7 or $7.30. LaunchPad is supposed to be 50 million bucks, that’s about $0.30. So it kind of put the core lab business to kind of $6.70 to $7 versus $6.80 this year. Obviously there is no share repurchase included in that. So, it feels relatively flattish for the core lab business but obviously volumes -- organic volume and revenue has picked up. And as you said, you’re lapping some of the largest Medicare reimbursement cut. So, am I thinking about that correctly and if so, why such a conservative take kind of on the core earnings power in the lab business?

Yes, Gary, this is Glenn; let me at least start off to your point. When you back out the mid points of the accretion that we expect to get from Covance you kind of get to that 7.15’ish number for what would have been our base business compared to $6.80. So kind of growing at around 5% kind of consistent with what we said kind of the top line growth. So from our perspective as we go into ’15 with our base business, we are looking at good top line growth organically. We are looking at an improvement in operating income. We are looking at an improvement in our operating margins. And again to your point we’re driving that 15% or a 5% EPS growth which again is faster growth than just the top line without any capital redeployment. So the significant amount of free cash flow that we have that would normally have gone into our share repurchases obviously have gone into the acquisition of Covance, that’s adding that call it 35% to 40% of accretion. So from our perspective LaunchPad is an integral part just of the ongoing continuous improvement initiative of our business, but it should be viewed as part of our base business and we think actually the improvement in our profitability as well as the improvement in our cash flow in ’15 on the base business is quite strong.

Now, that’s fair. I understand its part of the base business, but it is new and fairly material and highlighted and a very material portion of the growth in the lab business year-over-year …

Yes, Garry, it’s Dave. I think the other thing to mention, and I just want to be clear, we’re not going to break down every bit and piece of the guidance because there are many, many moving pieces. We talked about currency earlier. But also remember that within the $6.80 this year we had $0.11 onetime gain from the share, the sale of some shares of a company that we owned. So, there are many, many things that are incorporate into the number that we turned in and the guidance that we produced. And I just -- I want to be cautious about trying to back out every piece of it and figure out what's up, what's down and what's not changing.

Yes, that’s fair. I just kind of big picture what you think of lab. My one follow-up would be, when you announced the Covance deal you suggested $100 million in cost synergies over three years. I know you didn’t carve that out today. But would you be willing to say, what's kind of embedded for ’15 in terms of cost synergies?

Gary, this is Glenn. We actually did break it out. We had talked about in excess of $100 million of synergy savings over the three-year period, so consistent with what we’ve said when we announced the transaction. When we have added further is that we expect that the 2015 piece of it would generate around $35 million of net savings while incurring around onetime cost of around $20 million. And the main components again consistent with what we would have shared at the time of the announcement was a combination of synergies through the lab consolidation, through the taking out the redundant public company cost as well as leveraging the purchasing power of the combined company.

Okay. I’m sorry I missed that. Thank you.

Your next question comes from the line of Amanda Murphy representing William Blair. Please proceed.

Hey, thanks. Good morning, guys. Just actually a follow-up to Lisa’s question on the revenue synergy numbers that you guys have put together. Just curious if you can give a little more detail around, I know it’s early but the methodology you went through to get to those numbers. I’m just trying to think through what the risk might be there other than just obviously the ramp, and then also, you’re not to get greedy but where we might potentially see some upside to those numbers given the greater the ensign [ph] that you had included there?

Amanda, its Dave. The methodology was that we went through the three opportunities we looked at what we thought based on historical trends and how we size the opportunities was an appropriate breakdown. And then we said, we think number one is the largest. We think number two is in the middle, and we think number three is the smallest. And the numbers that approximately around that are 150, 150 and you add those together then they are 300. Obviously we wouldn’t have put the greater sign if we didn’t feel that there was upside to those 300. But we’ve given a number that we think is very realistic. We have given a breakdown of how we think those revenue opportunities would materialize, and where we think the greater opportunities are. And we did it all with financial analysis of past results of our company, and Covance and market size and market share and opportunities for gain. So, I don’t really know how to break it down in much more detail than that. But I hope that answers the question.

Yes, thank you. And then just one more here, it’s a little more specific I guess, but obviously LabCorp has had an increased growth in opportunity and through Next-Gen Sequencing based test et cetera. Just curious, I know that there is some efforts to set some reimbursement there via Medicare. Have you guys saw through there what the risk might be just obviously given some of the issues with MoPath codes a year-ago or so, is there a risk to the reimbursement for Next-Gen? I know it’s early and we’re setting the infrastructure now, but just curious of your thoughts there.

I think it’s very early to comment on that. There are a lot of discussions going on with Medicare, with Palmetto specifically about Next-Gen Sequencing and appropriate reimbursement for Next-Gen Sequencing, and we’re very much engaged in those discussions as are, by the way a lot of other companies that have a significant interest in how Next-Gen Sequencing will be reimbursed. Next-Gen Sequencing provides revolutionary opportunities to deliver greater knowledge to physicians and patients and to improve patient care. And it would be a shame if we shortsightedly set reimbursement in such a way that we discourage patients and physicians from using the best tools available to deliver optimal outcomes.

Okay. Thanks very much.

[Operator Instructions] Your next question comes from the line of Nicholas Jansen representing Raymond James & Associates. Please proceed.

Hey guys, nice quarter and good guidance. I just wanted to get your thoughts on the regulatory outlook. We haven’t heard anything much on kind of the timing of the 2017 regs coming out also with LDT regulation and with the doc segs [ph] upcoming. I just wanted to get your broader thoughts on the macro from a Medicare perspective. Thanks.

Back in my legal days I would have objected to that as a three part question, one question, but I’ll answer it. Good morning, Nicholas. How you’re doing? It’s Dave. Okay, Palma still very much engaged with CMS on how the surveys will be done. I think we’ve made some constructive progress with them on thinking about how the surveys will be done. The inclusion of hospitals in the survey data don’t have any update on the timing of when we might expect that to come out. I think to their credit, CMS is recognized the complexity of the task, and is working very hard to try to device a fair process. Lab Developed Tests, we continue to have the same view that we previously articulated that we do not believe that FDA has legal authority to regulate LDTs as medical devices. We don’t believe they are medical devices. We think they are extremely important to the practice of medicine and to meeting patient needs, and we think that what FDA has proposed would be contrary not only to the public interest in the language of the statute, but also to sound public policy. FDA has had a listening meeting. I think there were a wide variety of views expressed about the LDT guidance. And I think it continues to be an area of high interest and high focus for the clinical lab industry. And it continues to be something that we at LabCorp feel very, very strongly about. So, those are the two major regulatory issues that I think we have on the table in front of us, and I hope that responds efficiently to your question.

Thank you, Dave.

Your next question comes from the line of Whit Mayo representing Robert Baird. Please proceed.

Hey, thanks. Good morning. I wanted to just go back to the synergy topic for a second and looking at Covance’s filings, it looks like they historically had north of $40 million alone in just stock comp expense before thinking about other public company cost, and then you’re guiding to only $35 million and I know that not all of the stock comp goes away as you lock down some of the key Covance employees. So that’s not a bucket where everything goes to zero, but nonetheless $35 million sounds a little bit on the conservative side when we look at some of the opportunities out there. So could you maybe give us a sense of where the majority of the $35 million comes from this year?

Sorry, Whit this is Glenn. And I think the key point that you said this year, we’re looking at synergy savings on the cost side of around in excess of a $100 as we go through the process and that doesn’t include any of the revenue synergies that Dave and Joe had already spoke to. When you look at the -- we gave the first year piece of it so, and frankly it will probably trend to be call it roughly around a third year as we get over that $100 million number. But in the current year, as you would imagine that the biggest piece of those cost savings will come from the redundant public company cost that we have, because we can take that out right away. We will get some benefit from leveraging of the purchasing power of our combined company as well as with the lab consolidation we’ll get some. But the later two, the purchasing, the lab consolidation are benefits that will obviously accrue and take a little bit longer to achieve over the nest couple of years. So, we view that overall the synergies of the combination are good on the cost side, the revenue side, let alone the expected growth in both of our businesses.

And Whit, it’s Dave. Just to follow-up on that, I think you’re right that the stock comp expense is in area that we continue to look at. Obviously all of the stock comp is not going to go away, but there are likely to be some changes in stock comp issuance for this year. I just want to remind everybody that is a non-cash saving. So, it doesn’t translate into cash flow and it doesn’t translate into cash flow guidance. But it’s still a savings in terms of overall expense nonetheless.

Is there a number to think about for what the new stock comp expense should be for the entire company?

We don’t guide the stock comp expense and so, no there’s no number to think about there.

Okay. Now that’s fair. Thanks.

Your next question comes from the line of Glen Santangelo representing Credit Suisse. Please proceed.

Thanks for the question. Glenn, I just want to follow-up on some of the comments you just made earlier about FX, because if we look at the top line guidance for Covance, you obviously called out specifically how big that was. But sort of given the many moving parts and geographic locations for Covance, could you help us think about the operating profit growth particularly as it relates to any FX, headwinds or tailwinds within that number? And obviously there is a piece of the Sanofi deal that’s going away late in the fourth quarter. So I’m just trying to directionally think about that operating profit growth relative to the revenue number you provided. Thanks.

Sure, Glen. And again, I think we may have already addressed that in an earlier question. We did give you kind of the top line impact from the currency headwinds, and Covance has three principal areas of currency exposure. Obviously they are in 60 countries, but between the Euro zone, the Swiss and UK if you will it’s primarily where that exposure comes in. So we talked about it roughly call it 330 basis points of negative impact give or take that’s in the mid 70s if you will at the revenue line negatively impacting what we believe Covance will see in sales, is if the currency level stay at basically the current levels today and we’ve talked about that the impact on operating income at least historically for them would be plus or minus around GP a little bit lower than that. So we saw 20% is probably a good proxy where you would want to model that.

Okay.

Your next question comes from the line of Ricky Goldwasser representing Morgan Stanley. Please proceed.

Hi, good morning, and Steve congratulations on the new role, its really well deserved, and Paul congratulations for you as well. So the question and I’ll have a follow-up as well. Dave, can you just talk to us a little bit about kind of like your -- kind of when you think about kind of like the top line guidance for LabCorp standalone. How do you think about kind of like the utilization environment in 2015, and kind of like that price to volume makes it, that’s embedded in the guidance?

I think the utilization environment just based on the numbers that we saw sequentially in 2014 Ricky has improved, obviously very pleased with 5% plus top line volume growth in the fourth quarter. How do we think about price volume next year? I think we think about relatively similar volume numbers, maybe to be realistic we obviously had very strong year-over-year performance. So, while we don’t guide specifically to price and volume I would think a reasonable assumption is volume growth stays about where it is and pricing is relatively flat and maybe down a little bit just depending on the fact so we can identify which are core testing in the fourth quarter outpacing esoteric and movement from uninsured -- the uninsured patient bucket into insured or exchange bucket. So I don’t think next year would look a lot different from this year in summary although there maybe a little bit kind of up and down between volume and price.

Okay. And I’ll use my follow-up question with a question to, Joe. Joe, when you think about the patient recruitment timeline in the new contract that you signed. How long will it take before you can come back to kind of like, your clients and back to us, with some proof of concept data points that will show how much time you saved your clients in the enrolment process?

Yes, well I mean, Ricky keep in mind, we just closed yesterday, and we have to be careful -- have been very careful with things like gun jumping and getting ahead of ourselves. But as you know clinical trials from the time you went until it starts to ramp up to revenue is 6 to 9 to 12 to as much as 18 months. So, we will be talking about this in the future and giving you an idea of how we’re doing. But right now it’s largely manual again. So it will only get too far ahead of ourselves, but ultimately we want to make this industrial strength and bring this as sort of an unparallel offering and a differentiator for our business. So again, we’re one for one right now.

We have about -- we have about six more questions in the queue, and we have about 10 more minutes. So let’s try -- and we’re going to try to manage to finish at about 10:15 please.

Your next question comes from the line of AJ. Rice representing UBS. Please proceed.

Sure. Hello everybody. Maybe I’ll just focus in on this year’s layout of numbers. I know you don’t guide to the quarters. But as we think about the normal seasonal pattern, can you give us anything we should keep in mind as we lay it out, whether its weather in the first quarter or the progression of synergies over the course of the year, anything along those lines?

AJ, its Dave. Yes, weather in the first quarter -- obviously the first quarter from the LabCorp diagnostics perspective tends to be a lower quarter, the second and third quarters being stronger. But we don’t guide quarter-by-quarter, and so your best -- your best way you could gain insight into that is to look at prior years and see how the quarters have shaped up.

Okay. All right. I just was thinking in terms of, I mean because this is a corporate synergy for example, do you think you’ll -- that $35 million lays out pretty evenly across the year, and you got that pretty much upfront or is there any help on the non-traditional seasonal things that you would give us?

Yes, this is Glenn, AJ. And I can almost a little bit echo Dave’s comment. If you look at both companies or the combined company we’re today inclusive -- if you'd expect to see a ramp up in the savings over time. So it's not going to be necessarily pro rata, but when you look at the totality of our revenue, when you look at the totality of our earnings, you're going to see the same pattern, if you will, which again is the strength more of a -- more or less in the second and third being stronger than the first and the fourth. But even so, it is again not material, but if you want to model that closely obviously you'd go lighter in the first and the fourth and a little heavier in the second and the third to follow historical patterns partially offset maybe by a ramp up in the cost coming in, but again that’s I’m going to drive the numbers that much from a magnitude standpoint.

Okay.

And clearly the synergies are going to -- the synergies will accelerate as we go through the year. We are not going to have a ton on day one, but they will accelerate as we get into the later quarters.

All right. This is Paul. Just real quick on the Covance side, the first quarter does have some seasonality in our early development business, so just make a note of that.

Okay. Thanks a lot.

Your next question comes from the line of David Clair representing Piper Jaffray. Please proceed.

Hi. Good morning, everybody. Thanks for letting me in the queue here. Just curious Dave, you mentioned that core testing actually grew faster than esoteric. Just kind of curious what the -- why that happened in the quarter?

Well, it's a little bit of tough question why it happened, but …

Well, yes, but what slowdown in esoteric I guess?

Well, nothing has slowdown in esoteric. Core testing outpaced esoteric is what we’ve said. So esoteric grew consistent with the overall growth of the business, core testing grew faster than the growth of the business and there are probably many thesis about why that happened, but we have people coming in through the exchanges, we have people coming in through Medicaid, we have patients who are previously been uninsured having coverage. The likelihood is that there are initial encounters with physicians and with being covered lives that they're going to run a hepatic panel or lipid profile, and things that we characterize as being in the core as opposed to being in esoteric. So that would be my best assessment of why the core grew faster, but again I don't want to leave the implication that the esoteric didn’t grow. The esoteric grew nicely, the core just outgrew it.

Okay, thanks. And just a real quick follow-up in terms of Covance. It sounds like the feedback from the existing customers is pretty solid there, but is there anything baked in the guidance in terms of customer attrition?

The guidance incorporates a wide range of outcomes, and so you can assume that we have thought about that and incorporated into our thinking.

Okay. Thank you.

Your next question comes from the line of Isaac Ro representing Goldman Sachs. Please proceed.

Good morning guys. Thanks. On the guidance for Covance, I think you called for 46% growth this year and if I wind back the clock to when the deal was announced we talked about I think longer-term growth in that 7% to 8% range. I just want to kind of get a sense of what you guys think it will take for that sort of acceleration to happen? Is there a sort of a timeframe here that you think over several years or could it be something that sort of hockey sticks into the year two, year three post the deal? Trying to get a sense of how you look at accelerating growth? Thank you.

Isaac, its Dave. 46% burdened by 330 basis points of negative currency, which if I add 3.3 to 4, I get 7.3 to 9.3. So it's exactly what we said at the time that we did the deal in terms of the growth perspective and we think that opportunity is there for the long-term.

Okay. And then, in terms of pricing for this year across the Company, could you maybe give us a sense given your context on the core business for lab, the total?

No, as we said before, we guide to revenue, we don't guide to volume or price.

Thanks.

Your next question comes from the line of Darren Lehrich representing Deutsche Bank. Please proceed.

Thanks. Good morning, everybody and congrats to Steve. I may actually go back to eating chicken now. My question is for Dave, and it just relates to ACA and I just wanted to get a quick thought from you Dave, about how you think reform impacted 2014 and then as you think about the 2015 outlook is reform a tailwind, is it neutral? Can you just give us an updated thought or two there?

I think the impact Darren, from -- for ’14 was it helped volume and if I think back to what we said when we initially gave guidance, it helped volume by more than we thought it was going to. It was a drag on price, both because of the things that we mentioned, the core testing growing faster than the esoteric, the patients moving from uninsured into covered categories and [technical difficulty] exchanges and the growth which you saw in the first half of managed Medicaid. So net-net positive for volume, slightly negative for price. 2015 I saw the statistics that there has been some growth in enrollment and re-enrollment for health plans. I don't think there is anything that is going to be material in there. There are some states s that are talking about Medicaid expansion that hadn’t expanded Medicaid previously, that would likely be net positive to volume and negative to price for the reasons that we’ve spoken about. There is obviously some overhang with the Supreme Court taking up the King versus Burwell case that if that were decided adversely to the government position, there would be significant impact on patients receiving subsidies and we would hope that there would be a constructive political response to that as opposed to sort of chaos for people who had insurance one day and don't have at the next. But that at a high level it's probably how we think about the ACA for ’14 and ’15.

Okay. But just to be clear, I can hear what you are saying volume and price, was it more or less a push on EBIT? Is that what you're trying to say?

No, I think it was probably slightly positive.

Okay, great. Thanks very much.

Your next question comes from the line of Bryan Brokmeier representing Maxim Group. Please proceed.

Hi, good morning. Thanks for taking the question. To follow-up on Gary's question from quite a while ago on the core business, you generally drive efficiency improvements and take costs out of the LabCorp business and that’s you’ve normally included in your guidance. Are there other margin expansion opportunities included with -- in the guidance or should we think of those as being lumped in with the LaunchPad, though a much smaller piece in that $0.30?

Yes, this is -- Bryan, Glenn. To make sure I understand your question, first of all, we will agree that the normal course of operations as we have continuous improvement, so we are always looking at leveraging and managing our cost structure. When we talk about LaunchPad, you have to think about it a little bit more than that. It's just not kind of the annual improvement to drive cost out and the leverage, but how can we reengineer processes and deploy systems to enable that to happen where you can't do that on the margin. So as we think about taking out around a $150 million plus of cost over the next three years, we have the impact of $50 million arguably would be greater than what would have been the normal reductions in our cost focus in a particular one-year period, so we’re getting the additional benefit of it. But part of what we’re doing is would be also considered the normal course than more structural changes in what we do obviously will accrue as we go to the out years. But we are looking at taking costs out, we are looking at improving our bad debt experience, collections getting paid for tests that we are performing, that we might not have been in the past, and then the more traditional thing such as outsourcing, labor efficiency, so it's all packed in there, but that’s why you see probably a greater impact in ’15 than in the normal ordinary course of just our continuous improvement.

And Bryan, it’s Dave. I think if I understood the question, it is -- it was are there other margin opportunities that are outside -- margin improvement opportunities that are outside the guidance mean the guidance contemplates the operation of the business similar to the way the business operated last year. We had significant growth in esoteric over and above the growth in core, obviously that’s a margin improvement opportunity. So that's why we give a range of guidance is that there are many things embedded in it that can move one way or another.

Right. My question was just on the -- when the question was about the core business being flat, I was looking at as if more, it's not flat though margin expansion opportunities that normally we see every year are what included in that $0.30?

Yes, that actually -- again, as we think through the $50 million of savings in the first year, that’s correct. We are looking at the total program, some initiatives would have been done without calling it LaunchPad, but that is part of our what we are calling a LaunchPad is our -- call it improvement initiative. But the bigger part of it is that as you think through the three-year total, you start to see more of a structural changes, but it's all-inclusive.

And we don't agree that the core business is flat. I don't think that's an accurate characterization.

Okay, great. Thanks.

The next question comes from the line of Brian Tanquilut representing Jefferies. Please proceed.

Hey, good morning guys. I promise I will just do one question. So Dave, did volume performance 5% organic, so if you don’t mind just giving us your views right on the market share dynamics and how the hospital market share shift is playing out and what your strategy is and what you guys are doing for that, as you look at to the next three to five years?

I don’t spend a lot of time talking about market share. I think it's a hard thing to characterize. Our operational team has performed exceptionally well in terms of generating organic volume growth whether that's through contract wins, whether that's through sales, whether that's through service improvements, every day I get e-mails from customers, letters from customers about how LabCorp people go above and beyond to do the things that need to be done to serve the customers and for patient care. That’s we’re going to continue to focus on as part of what LaunchPad is about is, we do a great job today, but there are things that we can do better for the patients, for the physicians, for the payer, so look I think we’re doing a great job operationally. I'm very proud of what we've done operationally and we are going to continue to execute on the operational opportunities that are ahead of us.

All right. Thanks.

Thank you.

With no further questions at this time, I’d now like to turn the call back to Dave King for any closing remarks. End of Q&A

Thank you. In closing, I'd like to say, we appreciate your time and your questions this morning and your interest. And just would sum up by saying, as we’ve said many times, the healthcare system is demanding better outcomes at lower costs and we’re now the world’s leading healthcare diagnostics company and we have unmatched capabilities to serve every stakeholder in the healthcare system. We have a unique and complete set of tool to deliver what the system needs. It’s an exciting time for LabCorp and we look forward to updating you on our progress as we carryout our key 2015 priorities. Thank you and good day.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.