Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Q2 2019 LabCorp Earnings Conference Call. . As a reminder, this conference call is being recorded for replay purposes. It is now my pleasure to hand the conference over to, Ms. Clarissa Willett, VP of Investor Relations. Ma'am, you may begin.

Good morning, and welcome to LabCorp Second Quarter 2019 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; and John Ratliff, CEO of Covance Drug Development. This morning in the Investor Relations section of our website at www.labcorp.com, we posted both our press release and Investor Relations' presentation with additional information on our business and operations, which include a reconciliation of the non-GAAP financial measures to the GAAP financial measures discussed during today's call. Additionally, we are making forward-looking statements. These forward-looking statements include, but are not limited to, statements with respect to estimated 2019 guidance and the related assumptions, the impact of various factors on operating and financial results, expected savings and synergies and the opportunities for future growth. Each of the forward-looking statements is based upon current expectations and is subject to change, based upon various factors that could affect our financial results. Some of these factors are set forth in detail in our 2018 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.

Thank you, Clarissa, and good morning. I'll begin by discussing financial highlights of the second quarter. Our results in the quarter were again driven by strong demand across both businesses and consistent execution of our strategy to deliver world-class diagnostics, bringing new medicines to patients faster and use technology to change the way care is delivered. We delivered another strong quarter across the enterprise, revenue of $2.9 billion was nominally an increase of 0.5% over last year, but this significantly understates the strength of our operational performance. Top line revenues from continuing operations grew 4%, decreased by 3 major nonoperational items, 1.9% of divestitures, 0.9% of PAMA impact and 0.7% of negative currency. We delivered excellent margin performance, given the impact from PAMA and adjusted EPS of $2.93. We also deployed $656 million for strategic acquisitions and $200 million to share repurchase. Our Diagnostics business again performed well as our team continue this outstanding work, retaining volume put at risk by managed care contract changes. Revenue per requisition in the quarter, excluding divestitures was very strong, growing at 2.5% excluding the impact of PAMA. Despite PAMA and other headwinds, our organic volume, revenue per requisition and Diagnostics LaunchPad 2 initiatives combined to deliver an impressive 19.6% adjusted operating margin.

Thank you, Dave. I'm going to start my comments with the review of our second quarter results, followed by discussion of our performance in each segment and conclude with an update on our 2019 guidance. Revenue for the quarter was $2.9 billion, an increase of 0.5% over last year. The increase was primarily due to organic revenue growth of 1.7% and acquisitions of 1.4%, partially offset by divestitures of 1.9% and foreign currency translation of 70 basis points. Excluding the negative impact from PAMA of 90 basis points, organic revenue grew 2.6%. Operating income for the quarter was $336 million or 11.6% of revenue compared to $369 million or 12.9% last year. During the quarter, we had $51 million of restructuring charges and special items, primarily related to Launchpad initiatives and acquisition integration. Adjusted operating income, which excludes amortization of $60 million as well as restructuring charges and special items, was $447 million or 15.5% of revenue compared to $464 million or 16.2% last year. The decline in adjusted operating income and margin was due to the impact from PAMA of $27 million, higher personal costs and cybersecurity expenses partially offset by organic demand and Launchpad savings. The tax rate for the quarter was 29.4% compared to 25.1% last year. The adjusted tax rate, excluding special charges and amortization, was 25.2% compared to 24.5% last year. The higher adjusted tax rate was primarily due to the mix of earnings. We continue to expect the company's adjusted tax rate for the full year to be between 25% and 26%. Net earnings for the quarter were $190 million or $1.93 per diluted share. Adjusted EPS, which exclude amortization, restructuring charges and other special items, were $2.93 in the quarter, down 2% compared to last year.

. Our first question will come from Jack Meehan with Barclays.

I wanted to maybe talk a little bit about the lab business in the quarter. And was hoping if you could break out for us within the 2.5%, what the impact in the quarter was from some of the managed care access changes versus the consumer genetics? And just given some of the noise on the consumer genetic side, just, what's built into the second half in terms of in and back and the comps in the fourth quarter?

Yes, it's Dave. So in terms of the consumer genetics business, the volume for the second quarter was down about 1.1% versus last year. It's the first time we've actually seen a volume decline, but as we have for chatter free over the last couple of quarters, we had said, we expected consumer genetics volume to be flat to down or for the balance of '19, that is built into the guidance. In terms of the changes in managed care access, we've not broken that number specifically, but what I'd say was basically flat from first quarter to second quarter, and the typical thing that you'd be interested in United and Horizon volumes basically remain stable and at the volumes increase a little bit for us. So broadly the managed care book did increase overall in terms of revenue and volume, but those 3 key components basically remained stable for the quarter.

Great. Also had two quick follow-ups on Covance. Is there any color you can provide...

You set the precedence right here right now this morning. Use your...

Okay. So, appreciate Dave, also want to say congrats and see you in a few weeks.

Thank you, Jack.

And our next question will come from the line of Ross Muken with Evercore.

It's Suzie on for Ross. I guess just honing in on consumer genomics, what are your expectations for when those volumes could bounce back post 2019? And was the low demand a function of just 1 or 2 partners or the overall DTC genomics market?

First of all, Jack, you're still entitled to one follow-up, sorry, I didn't mean to cut you off completely, just to save one follow-up. In answer to the question on consumer genomics, we're not guiding into 2020, what we've set for the balance of 2019 as we expect consumer genetics volume to be flat to down. As you know, we have one primary partner in the consumer genetics business, which is 23andMe. So I think it's a fair inference that, that's where the volume decline is coming from. And in terms of what the future of the consumer genetics business looks like, our assumption is that it's going to be flat to down for the foreseeable future.

Got it. And as a follow-up, around 23andMe, is there any color you can provide around 23andMe post some promotional periods we just passed?

No. The only guidance I can give you on 23andMe is what I responded in the prior question, which is, last year, we were slightly up in the first quarter, this year, we're down in the second quarter, we expect volumes to be flat to down for the balance of the year.

And our next question will come from the line of Jack Meehan with Barclays.

I accept the follow-up question. Wanted to focus on Covance, just any color you can provide on how pass-throughs might have impacted revenue in the quarter? And a follow-up to the follow-up is, with patient direct, how broad of a patient for do you think you can now address with that?

On pass-throughs, Jack, this is John, it was -- pass-throughs were up this quarter and at the same time comparable to the organic growth that we stated in constant currency at 5.5% level. So we didn't have the anomaly that we had in first quarter.

And patient direct, Jack, it's Dave, the issue is where the sponsor comes to us with criteria that fit well within the items that we highlighted, which is geographic location, diagnosis codes and lab results. But the potential opportunity there is very significant because, part of what is a differentiator in terms of winning studies is that we have been -- Covance capabilities of protocol optimization combined with the ability to look at LabCorp data and see as you're optimizing the protocols, where your patients show most likely to be and where you're going to, so to speak, what ponds you're going to catch the most fishes. So we're excited about the patient direct and expect that it's going to continue to be a growing area. And as mentioned, we get compensated for each email that we send for the lab testing that we do and then for each patient that enrolls in the study.

And our next question will come from the line of Lisa Gill with JPMorgan.

Dave, I just want to talk about the competitive landscape and some recent news around shifts in some competitive capitated contracts, said, I would presume shifted to LabCorp from Quest. When I look at your revenue per req being up 2.5% versus last year, it doesn't seem to really dive with what we heard around pricing. So really just 2 questions there. One, how do we think about the competitive landscape today? And two, how do we think about the actual profitability of this piece of business that shifted?

Well, the competitive landscape is the same as it's always been, which is, Quest is an excellent competitor, I like to think of ourselves as an excellent competitors. There are other excellent competitors in the market as well. And of course, we have to build in competition of health systems, which have the ability to actually own providers in direct business internally, which is something that is not an option available to us. So the competitive landscape remains challenging, but it's no more challenging than it's been in my career. It's -- we're out there competing every single day. On the specific question about the contracts, I would just say, I think when you win the contract, it's always on quality and service, and when you lose a contract, it's always on price. So I would discount somewhat the observations around pricing and profitability and those things. And what I would point to is our revenue per requisition is up 1%, ex PAMA and 2.5%, including PAMA, our adjusted operating income was 19.6%, $27 million of the $31 million in decline in operating income versus last year was due to PAMA. That to me does not indicate aggressive price cutting, here at LabCorp, and we have been very disciplined around pricing. We continue to be disciplined around pricing, and I'm not going to comment on specific contracts, but I am going to say that, we don't go out and solicit and win business that is bad business or that is below our profitability or our price -- per revenue per requisition expectations. We haven't done it and we're not going to start doing it now.

That's very helpful. And then just my follow up would be, Glenn, you talked about cash flow, acquisitions, share repurchase, paying down debt. Do you have specific things in the pipeline around acquisitions that we should be thinking about for the back half of the year? Or is that just kind of the general language of these are the kind of three things that we look at?

I think it's, yes, on both if you will, I mean, we have generated the bulk of our free cash flow in the second half of the year. We did lever up a little bit, obviously, with the Envigo acquisition, so part of our free cash flow will be used to pay down debt in the second half. But we don't have obviously a lot of financial flexibility to continue to pursue tuck-in acquisitions as well as be in the market repurchasing share. So the acquisition pipeline continues to be good across both businesses as we evaluate opportunities. And I think it's fair to assume that without, obviously, saying that, we will do transactions but that part of that capital in the second half could go to tuck-in acquisitions as well.

And our next question will come from the line of Eric Coldwell with Baird.

I just had a technical question on the calendar. I think this is the third quarter in the row where you've talked about calendar headwinds, revenue day headwinds. Can you tell us what exactly is going on there? And how does the calendar shake out for the rest of this year? And maybe I could allow the future request that we get revenue days or calendar day so analysts can be more thoughtful about modeling this going forward?

Yes, Eric, it's Dave. So when we calculate the calendar, obviously, there's the same number of days every year, but what's important to us is the strength of days. So Mondays are not strong days, Saturdays are not strong days, Tuesdays and Wednesdays are stronger days, and obviously then there's the impact of holidays and three holiday days. So it's not quite as simple as saying there's so many days in this month and so many days in that month. It's how many Tuesdays and Wednesdays fall in a particular month versus Sundays and Mondays. That said, every year, we look at the calendar and we calculate the strength of the total revenue days across the year. In the first quarter of this year, we were about a half a day below the first quarter of 2018. In this quarter, we're about a half a day below the second quarter of 2018. In the third quarter, the number of days will be identical year-over-year and the fourth quarter, we'll have the benefit of one more revenue day. So that is the calendar for the balance of the year, and we will consider your request to give you more insight earlier in the year on the strength of the calendar and come back to you on that.

And our next question will come from the line of Kevin Caliendo with UBS.

I wanted to talk about the Diagnostic margin, it was a lot better than what we had modeled. You called out LaunchPad, can you talk specifically about the incremental savings that you got from LaunchPad in the quarter? And how we should be thinking about the diagnostic margin going forward?

Yes, I'll let Glenn start on that, then I'll add any comments that I might have.

Sure. Yes. Kevin, what we actually talk about is the total Launchpad initiative over the three years and the $200 million that we expect to realize, and we basically said, use a pro rata for each of the 3 years of the program. But the reality is as we do ramp up as we go throughout the program. So we don't quantify how much impact it has in any particular quarter, but clearly, when we talk about the headwinds that we had and how well Diagnostics performed, one of the key drivers to the performance was all the Launchpad initiatives that will continue to benefit. As we think about the Diagnostics margins for the year, what we said was that, if you will, the second -- the decline in margins year-on-year is there, given the significant impact of PAMA. But that we expect to see less of a year-over-year decline as the year progresses because LaunchPad's ramping up. So even though margins will be down in the second half year-over-year, they will be down less than they were in the first half year-on-year, and obviously, yes, improvements expected as we get into 2020.

And I would just say, agree with everything Glenn said. I think it's also important to recognize that a lot of what LaunchPad is about is more than just near-term savings. So the business transformation from the digitization of the business and the streamlining of workflows is an ongoing savings for our business out in 2021 and beyond because we're able to do more without adding new heads, because we we're able to redeploy the people that we have for customer facing position. So there's a pretty profound element of business transformation here that I don't want to lose sight of and that has greater long-term benefits than just the near-term cost savings.

Got it. And just a quick follow-up on Envigo. I know it was only in for a short period of time. But was there any impact on bookings, book-to-bill? Any of that kind of stuff as you brought it on?

Kevin, this is John. So it was only in there for one month, so a nominal effect. So as you know, in the early development area that has a quicker burn on the revenue side, a little bit lower book-to-bill but have nominal effect on the quarter.

And our next question comes from the line of Rivka Goldwasser with Morgan Stanley.

So Dave, you seemed more positive today on the opportunity from United preferred lab network. So when you think about the restrictions that United put in place that requires providers to do certain things to go out of network. Is this came out better than what you expected? And how should we think about that opportunity for next year?

As I said in my prepared remarks, I think that impact this -- we're not expecting or factoring into guidance any significant impact from the PLN in 2019, just because of the start up and the times it's going to take providers to become adjusted to the restrictions. I think the requirements that United has at least talk about for what they would ask providers to do before they go out of network are positive. For those of us who are in the network, I think, as we said for long-term, the real long-term opportunity is in benefit design and it's also in creating appropriate incentives for patients and for positions to use the more efficient lower cost providers versus referring either out of network or to higher cost providers who are in the network. So I'm pleased with the initiative that United is taking. I'm pleased with the collaborative way, which they are talking to us and to the industry about how we can use the PLN as a device to improve quality and reduce cost of lab services. And I'm hopeful that in 2020, we're going to see some nice benefit from it.

Okay. And then my follow-up is in an earlier comment, you said that the volumes from United and Horizon kind of like, stabilized 1Q to 2Q. I think that in the first quarter, you mentioned that the impact -- the negative impact was about 70 basis points on volume growth. So should we assume 70 basis points this quarter as well?

I would say, approximately, I mean, we're not going to give the basis point by basis point. But it was in that ballpark of the 70 basis points and not materially different from what we saw in the first quarter. As we said, Ricky, we expected the major impact to be in the first quarter and that's how it's played out for us.

Ricky, another way to kind of get to the number a little bit, if you will is we talked about the three big headwinds on the volume accounted for roughly 2.5% headwind. We quantify the daily impact of 60 basis points in our opening remarks, Dave, commented about consumer genetics being around 1%. So you can get to the managed care impact of the comp around 1% as well a little bit below.

And our next question will come from the line of Dan Leonard with Deutsche Bank.

May be a quick clarification on that last point, Glenn. What was consumer genetics volume down 1%? Or was the headwind from the consumer genetics volume decline 1%, meaning that the business was down a lot more than that?

No, the consumer genetics volume was down 1.1% versus last year.

Okay. And I want to spend my follow-up on that. So I have a quick follow-up here. Dave, you mentioned in your prepared remarks that you had important contract wins in key markets, can you elaborate? Or are these contracts with managed care companies, contracts with physician networks or hospitals, fee-for-service were capitated, any elaboration would be helpful?

Yes, they were a couple of managed care contracts, and yes, I'm not going to go into the detail of every contract, but the reason we felt they were in key markets was that they were in markets where we probably felt that our exposure from the contract changes with United and Horizon were greater. So they helped to reinforce the strength of the business there. There were also a couple of health system transactions and as well the expansion of the Mount Sinai, a partnership to sort of another line of growth with the artificial intelligence of the digital pathology collaboration.

And our next question will come from the line of Erin Wright with Crédit Suisse.

Before we do this, I just -- I want to correct a misstatement that I made just moments ago which is the 1.1% negative for consumer genetics was negative to volume for the business. It was not the consumer genetics year-over-year. I want to make sure I'm saying this right. So when we look at the organic volume being down, right, it was 60 basis points for the year-over-year comparison of days, 1.1% for consumer genetics and the balance being the managed care, so about 0.8% on the managed care, right? So that's how we got to the down number. So it wasn't the delta just within consumer genetics, that was the drag on the overall volume for the business, I'm sorry, I misstated that.

Okay, thanks, that's helpful, this is Erin. At Covance -- switching gears to the Covance, I guess, what inning would you say that we're in, in terms of better leveraging the data asset, the cost of CRO platform and then cost of Diagnostics platform. I guess, it's still relatively early. But you did highlight several examples in the prepared remarks. And I'm just curious if you could quantify or characterize with those, how the win rate is improving? How you're leveraging kind of some of the diagnostic you feel these data assets in? And also kind of, are you winning customers that you haven't worked with before on the CRO side?

Yes, Erin, this is John. From the standpoint of any what inning, we'll call it in the -- right in the game, it is fourth inning, let's say, and from the beginning point of -- data is mandated in every deal that we do. And so when we win, that is based on, yes, data. But it's also based on the quality of the team, so quality of the medics, project management, et cetera. So there's multiple factors of why you win. From the standpoint of -- we potentially are going to be continuing to be in the middle of the game, only because we're looking at more data, more -- we're -- world data, more international data, looking at very specifically additional data. When you get into the oncology areas, you need additional data and that being the majority of our portfolio. So the strength of our data is a myth. You have the worldwide nature of the central lab data and then the very specific capabilities of the Diagnostics data, and having that $2.5 million assessments of week, that we can analog. So the data is tremendous. We feel capabilities have increased and continue to increase and we'll be looking at additional data to enable the business wins that we have had, but we'll have in the future.

Okay, thanks. And a quick follow-up. I guess, just digging to underlying test mix dynamics. What meaningfully influence kind of that revenue per req in the quarter?

Erin, it's Dave. So we have strength in the non-consumer genetics. So genetics broadly not noninvasive prenatal testing. We have strength in allergy and we have strength in oncology, which was a nice trend over what previously has been sort of a flat business, the oncology business is trending up, a lot of that having to do with the companion diagnostics capabilities. We had strength in women's health and we had some strength in medical growth monitoring. So broadly, the Esoteric Testing base performed very well and that benefited us in terms of our mix.

And our next question will come from the line of Patrick Donnelly with Goldman Sachs.

Maybe just one for John, on the Covance side, just looking at the back half ramp, can you just talk to the moving pieces there? I mean, obviously, Envigo rolls in, but in order to get to maybe the midpoint or even top ends, obviously, digging in some pretty nice growth in the back half. Can you just talk through confidence level there in the moving pieces?

Yes. Confidence is there, Patrick. It's the combination of organic demand, yes, to your point acquisitions, but it's also that you have less currency headwinds in the second half of the year. So it's really enabled by those three things, the backlog of $10 billion, as Glenn stated, the 40% of the backlog in terms of line of sight tactically. And then clearly, the acquisitions kick in as well as then the currency based on today's currencies, you wouldn't see as much headwinds as you've seen in the first half.

Okay. And then maybe just one for Glenn, just on the margin cadence, staying on the Covance business, again Envigo coming in there. Can you just talk through the back half, how we should expect the margins to trend, obviously, the cost savings initiatives are really taking hold. But maybe just talk through again the moving pieces there with the M&A coming in and how we should expect it to trend?

Yes. Now you kind of hit on the points, we expect to see a nice improvement in margins in the second half of the year driven off of the organic growth in the business and the Launchpad initiatives that are kicking in. The acquisition of Envigo will mix up our margin as well as we have a full second half of the year with it.

And our next question will come from the line of Ralph Giacobbe with Citi.

Dave, those contract win that you mentioned, can you just give us a sense of when they were won, and was there an impact to volume in the second quarter? And or is that more of a back half story?

I believe one of them, Ralph, took effect February 1, and one on the March 1, there was a little bit of impact at the end of the first, but I would say most of the impact started in the second quarter. So it's going to continue to ramp throughout the year, but it's in the numbers.

Okay. And any, I mean, I guess is there any sense of the size of those, I mean, is there capitative contracts? I guess, the argument is there's a lot more, sort of, volume not as sort of revenue per req? Or any more insights there?

Well, I think you guys are referring that the contracts that our competitors have talked about the contracts that we won, and I honestly, don't know the answer to that question because they didn't specify the contracts. But what I will say is, if you look at the revenue per requisitions number for the quarter and you look at the volume number for the quarter, it doesn't suggest to me that there is anything that's going to have a significant impact one way or the other for the balance of the year either on the volume or on the price.

Fair enough. And then obviously there's been the opening of the Aetna and United contracts and sort of this all you mean a see change. But then we hear about sort of the competitiveness of the market. So are the United and Aetna contracts more of, sort of the one-off nationals doing this but more sort of a status quo within regional contracts where there's just more exclusivity and that's just the way it's going to be?

I think it's hard to generalize because, for example, Horizon, which is a regional contract opened up on the other hand before the blue contract, it's still exclusive and we're not participating in it. So I think, the regional plans because of the concentration of where the patients are located and because of the not having a need for a broad national network probably have more openness to exclusive contracts. But I would also say, I think the trend is -- the trend increasingly is how do we optimize the network to get the highest quality for our patients at a favorable price point.

And our next question will come from the line of Derik De Bruin with Bank of America Merrill Lynch.

This is on for Derik today. Just wanted to ask, what's the updated outlook for early-stage versus late-stage growth on the CRO side overall as an industry trend?

I think from the standpoint of -- this is John, the late-stage versus early-stage, most analysts have the early-stage in and around the 4.5% to 5% growth, with the later-stage the industry growth is a little bit higher than that in 5% to 7% range. We see just based on the RP flows, proposal flows, actually nice growth in both areas as well as even on our central labs. So we see pipeline strong.

That's very helpful, John. Just as follow-up also on the Covance side. Wanted to see what's the net book-to-bill for the quarter? And if there's any pass-through impact on revenues and bookings?

The bookings regularly shift between the quarters so we're focused on trailing 12-month period versus the quarterly. We expect to continue to deliver, and we did that in terms of 1.26x. What I will say is that we've been remarkably consistent raising from around 1.24x to 1.26x over the last 4 quarters. And our service may seem to a little bit more heavily to the faster burning business than some of our competitors. So clearly, a slow burning work can provide a boost to bill and it won't take out the revenue generation. But we've been, as I said before, consistent with that 1.24x to 1.26x over the last four quarters.

And our next question will come from the line of Kevin Ellich with Craig-Hallum.

Dave. Two quick question. So first, you guys announced the Mount Sinai digital pathology in AI deal and then you also recently announced the path AI strategic investment. Just, could you give us a little bit more color on how big that opportunity is? And how much you think that could add to the growth over time? And then the second question is about Pixel and how big that is for you guys now and also where do see that going?

Sure, Kevin. I'll start with the artificial intelligence. So this is -- the digital pathology is a long-term, I think significant opportunity in terms of both the improvement of the quality of care and the optimization of our pathology resources. I don't think we're going to see any material near-term impact, the idea with Mount Sinai is to introduce digital pathology, do side-by-side comparisons with actual pathologist, see how we optimize the use of digital pathology in routine pathology and are able to direct the pathologist towards the more complex and difficult cases. So I would say, long-term, I do see digital pathology expanding broadly across the laboratory business. But I -- and there is a significant opportunity to better allocate and deploy resources, I don't see any major impact in the near term and in terms of path AI, we continue to be very interested in all forms of artificial intelligence and machine learning that will help with diagnosis, if I remember was more than 10 years ago when we introduced image-guided path, which, in those days, was thought to be and was, I mean, a very dynamic change in the market from the traditional way of looking at path sphere. So it takes time for these innovations to take hold and to transform the business, but they are transformational over time. On Pixel, it's not material right now. The self-collection devices, we continue to refine our abilities around the self-collection device. We view this self-collection device over time as a very important tool for our health system partners, for care of patients in the home. But the big initiative this quarter was to get the Pixel offering into the patient service centers where consumers can go, they can self-direct testing, they can get the results in a separate secure website, they can do as they choose with those results. So if there is a health and wellness component. There are multiple reasons why people may want to get their testing done that doesn't come back through their primary care physician or through their insurance company. And what we're trying to do is, as we've said, we're a number of years now -- we're trying to meet the consumer where they want to be met and serve them in the way that they want to be served. I think the long-term opportunity with the consumer direct testing is quite significant for us.

And our next question will come from the line of Brian Tanquilut with Jefferies.

This is Bryan Ross on for Brian. Maybe sticking with the consumer side. I want your thoughts on the Walgreens retail strategy and maybe pressing out on the centers side. What's the thought process on the pace of center development and where those ultimately end up being located, if that more just for consumers may not have easy access to lap concurrently? Or the other regions such as may be aligned to certain peer population and as a follow-up, you discussed on the other areas where you can collaborative with Walgreens. So just want to hear your thoughts there and if anything's progressed on that front over the last couple months?

Sure. As I said, Ron, we're on track for 200 stores by the end of 2020 and 600 over time. The goal is, again, meet the consumer where the consumer wants to be met. And so part of the rationale for Walgreens centers is places where we feel that we don't have the density of patient service centers, the density of access points or the convenience that we would like to have. Part of it is our ability to draw patients who are -- who have other needs and then we do market research on the patients in the stores, we find that I think, the numbers about a quarter of them buying something else at Walgreens or fill up prescription at Walgreens so that's an important reason why they may choose Walgreens versus a standalone patient service center. And we have a great partnership with Walgreens. We are -- we and talk with them regularly. We have senior executive meeting just this week and talked about the opportunities ahead. As I highlighted in the prepared remarks, the integration of our digital and mobile experiences, and the integration of LabCorp capabilities into Walgreens Find Care now, we think is great step forward and gives us yet more opportunity for exposure and for patients being aware of the collaboration opportunity there. And then on the next-generation CRO, we have some very specific things that we're working on that I'm quite enthusiastic about it, and will have more to talk about with those in the next couple of quarters ahead.

And our next question will come from the line of Matt Larew with William Blair.

I wanted to ask about capital deployment, last quarter, John mentioned that following the Envigo transaction, you felt good about the capabilities on the Covance side and then obviously, alluded to some nice new contract wins this quarter, the leverages capabilities so in light of those comments, just wondering how you're viewing your pipeline both on the Covance side as well as on the diagnostic side, and where you think you can use that capabilities across the enterprise?

Yes, as Glenn mentioned, the pipeline is robust. When we think about adding capabilities, we've said many times, we always look at the strategic bit, that's the number one thing and then we look at the financial criteria. To me there's no area in which we are significantly deficient in terms of the market. We always look on the diagnostics side as where we can increase our critical mass, are there tests out there? Or capabilities out there, the MNG acquisition, for example, small deal but very significant for us because it significantly increased our capabilities around nextgen sequencing and our ability to bring nextgen sequencing and genetic testing to market rapidly. So and on the Covance side, John, would say, always looking at building strength in Asia Pac and gaining more critical mass there but there's no area -- we're gonna look at every opportunity as, does it fit strategically, is it financially attractive, does it give us the appropriate returns and we'll choose among a very robust pipeline in that way.

. Our next question will come from the line of Mark Massaro with Canaccord Genuity.

Dave, you talked about the oncology offerings showing growth. Can you provide some examples of where you're seeing the strongest growth? I asked given that there seems to be a renaissance in the precision medicine, liquid biopsy space, on the cancer monitoring and the MRD detection side, and I'm curious to see to what extent LabCorp's looking to drive innovation in this space relative to some other really strong lab companies moving the needle?

Yes, we've been very involved, Mark, in liquid biopsy actually for a number of years going back to the Covance, you've seen us using them in the Covance business as innovative ways of looking at cancer trials. I think a lot of the strength that we're showing is in commercialization of companion diagnostics, again that are developed for Covance trials, or developed across the Covance business and then commercialized. And then what I would describe is, sort of more traditional oncology flow cytometry. I think, it's really important to recognize that the genetics of cancer becoming -- are becoming much better understood and so we're seeing genetic testing around tumors, we're seeing testing around sequencing of tumors, all is well. So it's a nice broad base of growth area that highlights the combined capabilities of LabCorp Covance as well as the ones stop shop it can be obtained by doing business with LabCorp because of our capabilities due to the oncology, due to genetics, due to routine blood counts and other tests that are required as part of the oncology treatment, and also look at recurrence and look at tumor burden and other aspects of the continuing course of patient care.

And then my related question, going back to direct to consumer genetic testing, some people that we've talked to have a view that DTC was great for ancestry testing, but has limitations for health given perhaps the lack of utility around array genotyping. Do you have a view about how this space potentially -- how this market could evolve and perhaps, whether it's a technology transfer more to sequencing?

My view is that the consumer genetics market is a market that consumers are very interested in. As you say, there's been a -- there was a lot of interest in sort of the ancestry side of it or the genealogy side of it. It is more complex with health. I think some of the consumer genetics companies have done a very impressive job in getting the FDA to approve health based claims and to be able to educate consumers on those health based claims. I think, the real question is, to what extent our consumer's going to -- our consumer's going to adopt direct consumer genetic testing for health based as opposed to genealogy based purposes and I think that's a question that remains to be answered. I do agree obviously, that the -- that there would be benefits from moving more from array analysis to sequencing, but the other side of that is, when you do a sequence, there are so many things that are not known and so much opportunity for that confusion or uncertainty that I think it's just going to really be years before we know what the long-term future of the consumer genetics movement is. Operator, I think we're out of question.

Yes sir, we are. You may proceed with your closing remarks.

Very well. Well, thank you for joining us this morning again. Very pleased with the strong performance this quarter and particularly, I want to highlight that we have more and more proof of points about the power of the combined enterprise in the way in which LabCorp and Covance are delivering unique solutions. And we're attracting new partners and new opportunities every day as a result of the capabilities that we bring to the market together. So I thank our 60,000 colleagues around the world for the outstanding effort this quarter, and wish you all a great day. Thank you.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program. And we may all disconnect. Everybody, have a wonderful day.