Welcome to the Q4 2019 Laboratory Corporation of America Holdings Earnings Conference Call. . I would now like to introduce the host for this conference call, Ms. Clarissa Willett, Vice President of Investor Relations. You may begin, ma'am.

Thank you, Clarissa, and good morning, everyone. It's a pleasure to speak with you today, and thank you for joining the call. For more than 50 years, LabCorp has grown and prospered by putting talented people behind a vital health care mission, improving health and improving lives. We deliver world-class diagnostic solutions, bring innovative medicines to patients faster and use technology to improve the delivery of care, that is unwavering. As I've begun to travel to meet colleagues from around the world, I see that we have dedicated employees at every level from phlebotomists to couriers to lab technicians, critical research associates and scientists, all of whom care deeply about the mission and the success of LabCorp. I am excited about the opportunities for LabCorp to achieve its mission and to drive profitable growth into the future.

Thank you, Adam. I'm going to start my comments with a review of our fourth quarter results, followed by a discussion of our performance in each segment and conclude with our 2020 guidance. Revenue for the quarter was $3 billion, an increase of 6% over last year, driven by the benefit of acquisitions net of divestitures of 3.9%, and organic growth of 2.3%, which includes a 90 basis point negative impact from PAMA. In addition, foreign currency translation negatively impacted revenue growth by 20 basis points. Operating income for the quarter was $336 million or 11.4% of revenue compared to $308 million or 11% last year. During the quarter, we had $21 million of restructuring charges and special items primarily related to Launchpad initiatives, acquisition integration and executive transition costs partially offset by an additional insurance reimbursement payment for costs related to the 2018 ransomware attack. Adjusted operating income in the quarter was $422 million or 14.3% of revenue compared to $395 million or 14.2% last year. The increase in adjusted operating income and margin was primarily due to Launchpad savings; organic growth and acquisitions, net of divestitures, partially offset by the impact from PAMA; higher personnel costs and cybersecurity investments.

. Our first question comes from Jack Meehan with Barclays.

Adam, as your first quarter as CEO, I was just curious if you could talk about maybe the go-to-market strategy at Covance given some of the leadership changes. Just how you feel, your ability to go and win business there? And one of your big customers talked about some pipeline reprioritizations at the end of the year. Just any cancellation activity or anything in the fourth quarter, or any expectations in the 2020 guidance related to that?

Sure, Jeff. As I look at our strategy, I think we're uniquely positioned to be successful in the marketplace. And it starts with the fact that we have so much data from our diagnostics. We do over 500 million tests per year. And when we use that data to try to help stratify disease or to develop companion diagnostics or develop assays, I think we're uniquely qualified to work with pharma, whether it be biotech or big pharma, to help them figure out which patients are most likely to respond to their medicines or vaccines. And then we can work with them through all phases of their clinical development and, ultimately, help with registration and then in-market capabilities that we have. So we have the full spectrum, strategically, of what I believe biotech and large pharma is looking for, and I truly believe we're unique in that manner. Right now, we're doing very well in early development. We continue to grow in the small to medium biotech area. I'd like to see us do even better with large pharma. Based upon recent announcements and stuff, we don't see any significant impact to our business as we go into 2020. And based upon the numbers in the guidance that we provided today, hopefully, you'll see that we continue to believe that we have real strength and momentum as we go into 2020. One of my strategic pillars is really maximizing the power of the combined, and I believe that disproportionately will help the Drug Development business because I believe that the diagnostic capabilities we have will be more helpful to the Drug Development business than the other way around.

Our next question comes from Lisa Gill with JPMorgan.

Adam, I appreciate your comments on the coronavirus, but I just want to follow up to understand if you have anything in your guidance for 2020. So you talked about the impact to the supply chain, also talked about exposure, having employees in the Asian market. Has there been disruption in any of the studies you're doing in the Asian market? How do we think about any potential impacts that might have on your 2020 guidance?

Sure. Thank you for the question, Lisa. And as we look at the coronavirus and where we stand today, we believe that everything would be covered within the ranges that we've provided to you. And we've seen some minimal impact, particularly in China with people coming back to work a bit later. When the coronavirus first came out, there was a little bit less people coming to work, but we believe that it's all manageable within the year. We'll have to watch quarter-by-quarter if there's any minor impacts. But over the year period of time, we think that we'll be fine based upon what we know today. Obviously, if things change with the coronavirus and it becomes more of a global issue or if it impacts China for an extended period of time, things may change. But based upon everything that we know today and based upon the guidance that we've provided, we believe that it covers what we foresee could happen based upon today's knowledge of the coronavirus.

Your next question comes from Michael Newshel with Evercore.

Can you just give an update on the lab M&A environment? Looks like you can continue to do some more tuck-ins, and maybe just talk to the pace you're expecting there. And maybe just like even broader, just what your capital allocation plans are for 2020? Or the mix of share repo and M&A that's embedded in your guidance?

Yes. Sure. First of all, I would say we feel good about our ability to grow based upon what we have today in our Diagnostics and our Drug Development business. I don't see any major things that we're missing in order for us to be successful and compete successfully in environments that we compete within. But when I think about capital allocation specifically around acquisitions, here's the way I think about it: first is the regional and local labs or hospital labs acquisitions that you can do. I think those are great use of capital. They can be accretive in the first year. They typically return their cost of capital within 2 or so years. And we know how to integrate those, and we know how to make this happen very quickly. The environment right now continues to be building, I would say. They take longer than what I would have expected for them to take. We have a long list of potential tuck-in acquisitions, and we continue to work through those. There's no break in our step from our capabilities to do that, it's more how quickly we can get the customers in the regional or local labs to consider moving forward. I believe, as people have seen the impact of PAMA and they've seen some of the pricing that's occurred that they're more open today to have those discussions than they have been in the past. Next, I'd look at whether there's strategic needs that we have. For example, do we need to look at building our presence in Japan or China? And if we have to do those things in order to be successful, they're typically very small in nature. I'd look to see if we can build them ourselves. If not, and there's a small acquisition, we would consider those. And then, of course, we look at everything that's out there. But as I said, I don't see the need, as I sit here today, for any type of large-scale acquisition or change because I believe we have what we need to be successful as we go into 2020. We'll, of course, look at everything, but that's how I think about the allocations. And then we use share repurchases if there are not as many acquisitions as we may like within the cash flow that we generate each year.

Yes. Mike, the only thing I'd add to that is, as you know, we've discussed that from our guidance standpoint, we are assuming that the full usage of our free cash flow will be deployed, as Adam said, to both M&A and share repurchases. Obviously, we don't break that out as far as an outlook, but just from a modeling purposes, assume that, that is reflected into our ranges that we provided.

Our next question comes from Kevin Caliendo with UBS.

I just want to talk a little bit about your diagnostic revenue outlook. You can break it down between organic growth and sort of what you expect organic growth, M&A contribution, revenue per rec, any sort of guidance around those metrics? And also maybe what you're expecting incrementally with regards headwinds or from market access changes?

Sure. I'll start, and then Glenn can add, Kevin. So as I look at the Diagnostic business, I first think about what's the underlying growth that you see in volume. And if you go back, for many years, you'd typically see the underlying growth between 1% to 2%. And I don't see any reason that, that's going to change as we look forward to the future. I believe that, that growth will continue to be in the future what it's been in the past. So then I think about what can we do to try to increase our growth rate versus the underlying growth rate. The first thing is I mentioned the tuck-in acquisitions. I think that those are very beneficial and a good use of capital. I don't put a specific number into the plan for those because it really depends on what's available, how many are willing to move in any given year and whether or not they all make good financial sense because we have a really strong financial fiscal acumen that we apply to any acquisition. So I don't build into the plan that we have to do a certain amount of volume based upon those acquisitions. The second thing you can do is try to shift share. And when I think about shifting share, I think about things like the PLN that United is launching. I don't assume that there'll be a significant shift in 2020 because they're rolling it out as we speak. But if successful, in the future, I believe that, that could benefit a lab like us where we have very high-quality at lower cost. And as I think about the future, if it works for United, I think that other organizations may see this as an opportunity to help them reduce their laboratory costs by moving over business to a lab like ours. So I believe that we will, over time, be able to shift some share, which will help us to grow our volume faster than the underlying market growth. I don't anticipate that this year, but I anticipate, if it's successful, it would happen in future years. So that's kind of how I think about the underlying dynamics within the marketplace.

Yes. Kevin, I'll just add a little bit of color to that. So to your point that when you look at our guidance range for Diagnostics, next year, we have around 0.5% to 2.5%. We did comment on kind of the unusual, if you will, headwinds and tailwinds that we expected for 2020, another year of the impact of PAMA, plus just the annualization of the Beacon contract, but also Diagnostics benefiting from an extra revenue day, slight favorability with currency. So when you take out those 4 kind of items that are around a constraint of around 1.7%, you can kind of get to see that we're looking at north of a 3% growth rate with everything else, which is effectively the annualization of acquisitions already completed, plus organic growth. And to Adam's point, from a forecast standpoint, we talk about normalized organic revenue growth of 2% to 3%. And in fact, this past year, we were at the upper end of that range from, again, a normalized basis, taking out those impacts. And within the guidance range, that's a fair assumption. So organically, again, the 2% to 3% continues to be an expectation within the range, plus the addition of those annualized acquisitions and then the net impact of those headwinds.

Your next question comes from Dan Leonard with Wells Fargo.

Maybe on Covance for the 2020 outlook, can you be specific about what you expect the pass-through headwind to look like in 2020 and maybe offer what it was in 2019? And then on the margin side, how much of margin expansion do you expect you could achieve in Covance in 2020?

Dan, so as I look at Covance, I first want to say that we're pleased with the performance. And I think that our revenue growth and our book-to-bill continues to be strong. I'll start with the margins. If you look at the margins, we had expansion in the fourth quarter of 130 basis points. As we look at margins next year, we expect to have an improvement in margins once again, albeit not as much as what we saw in 2019. We announced our Launchpad initiative across the enterprise is $350 million. For the Drug Development, it's $150 million, and we're on track to achieve that. As we look forward to the future, I think we're going to have to continue to push cost across all of the businesses, even above and beyond what we have in Launchpad. It just has to be a mindset going into the future in terms of continued increased productivity. So if you look at the full year, we grew at about 6.8% ex pass-throughs, and I would say that's probably a pretty good read for what next year should look like -- 2020 should look like.

Yes. Dan, just the other thing I'd add is that when you think about 2019, pass-throughs were down, call it, around 10%. So given the volatility of that in a particular quarter, and it was primarily in the first, but it did impact each quarter a bit, but in the first, it was the most. We've kind of called it out a bit and talked about that our organic revenue excluding pass-throughs would be within the guidance range of the 5.5% to 7.5% last year. And in fact, again, our organic growth was probably a little bit north -- or was a little bit north of the center of the range. So we felt good with the overall organic performance of the business, taking out that volatility of pass-throughs, and really good performance across the spectrum of our businesses. Really doesn't change our outlook for 2020 much other than for, again, forecasting purposes, we've assumed that normal increase in pass-throughs commensurate with the business growth that we have of which pass-throughs are more aligned to it. So that -- again, thinking about mid- to high single-digit growth rate, think about it as organic revenue within that range both with and without pass-throughs. Each quarter, to the extent that we see volatility in that, we'll again call it out just to focus on, obviously, the big driver, which is the revenue without pass-throughs. But hopefully, it'll align better in 2020.

Our next question comes from Ralph Giacobbe with Citi.

If I look at revenue distribution, Covance is about 40% of revenue. And if I calc on earnings, it's about 35%. I guess the question is, given the faster top line and margin expansion within Covance and the somewhat more muted revenue growth from the lab side and some margin contraction there on top of sort of maybe the M&A opportunities and fragmentation certainly within the CRO space, I guess, how quickly do you see the business moving closer to more of a maybe 50-50 type split? And/or do you have a target as you think about sort of the split of the 2 businesses going forward?

Yes. Sure. Thanks, Ralph. So first of all, I don't have a target for the percent of the businesses moving forward. And if you noticed, I used the words Diagnostics and Drug Discovery because I don't think of it as just LabCorp and Covance, I think of it as a spectrum of offerings that we have for our customers that are linked together in order to make us successful. Obviously, the clinical trial business continues to grow at a faster rate in terms of -- Drug Development grows at a faster rate. And therefore, if you look at the way in which you look at it, over time, I would expect that, that becomes a larger part of our total percent of revenue. But I think a big reason that, that will grow faster is because of our capabilities that we have within the diagnostic area. So to me, they're intricately linked. When we look at the acquisitions that I spoke about before, the tuck-ins in the Diagnostic area in local lab and regional labs as well as hospital labs, I think, are a good use of our capital. So you'll continue to see some acceleration through those acquisitions. If the PLN works in which the way we think it might, I believe that we'll see additional growth there. So to me, it's really about making sure that we have good fiscal discipline, that we put our money behind the opportunities that give us the best growth, but it's a complete continuum of offerings that we have versus just looking at it one segment versus the other.

Our next question comes from Rivka Goldwasser Morgan Stanley.

So some follow-up questions here. First of all, Glenn, on Kevin's question regarding the pricing, it seems that in the fourth quarter, pricing was really strong even when you normalize for PAMA and the Beacon headwinds, 1.6 in acceleration. So maybe you can help us parse the benefit from the tuck-in acquisition that you did in the quarter and how they contributed to it? And should we think about that 1.6 as the right run rate for 2020? And then on the CRO side, Adam, for you, if you can give us maybe some more color on what's Covance win rate? And what's a realistic goal that you think about longer-term as you continue to better align the capabilities of the Diagnostic and Drug Discovery business?

Sure. I'll start with the second question, and then we can have Glenn work on the first one. With regard to our Covance business, as I said before, in early development, I look at share in addition to win rate. As I look at early development, I think we do really well, and we disproportionately win in early development. As we start to look at how we do in the small- to medium-sized biotech, I think we do very well there also, and a lot of growth has come from that segment over time. Where I'd like to see us do better is in the big pharma segment. And I believe we will be able to do that for several reasons. One is, one of our key pillars is to win in oncology. And I think we have a very unique set of capabilities in oncology from our ability to develop companion diagnostics and assays, all the way through doing the clinical trials, identifying the patients most likely to respond, but also helping to find the patients based upon our large amount of data that we have in the diagnostic area. And I also believe that, that's the fastest-growing largest area for pharma. If you look at the number of compounds as a percent in oncology, it's very significant. So when we win there, I think we'll be able to show that we can also do well in other areas, such as specialty, neurology and other areas. So to me, winning in oncology is important because it allows us to be successful in other areas over time. So that's an area that I want to see continued growth in large pharma, in oncology, and I'd like to see us disproportionately win share in that segment.

Okay. Ricky, on the -- with regard to revenue per acquisition, so the 1.6 for the quarter was a strong number for us, but we commented that it was acquisition driven. And as you think about our organic pricing, we did talk about, obviously, the headwinds coming from PAMA and Beacon combined of around the 3% headwind. So as we think about the quarter, firstly, going back to, call it, normalized, backing up those unusual items, and from an organic standpoint, again, the 2% to 3% organic revenue growth, the quarter would have come in at the upper end of that range, as we did for the full year. So if we think about a normal environment, and that, I think, started the conversation, we're saying kind of organic volume of 1% to 2%, and then, let's say, we pick up volume on price to get to the 2% to 3% range. As we think about our outlook, that's normally the way we gauge. Each quarter, we may see a little bit of fluctuation from quarter-to-quarter. But again, as we think about 2020, we still have within our guidance range, call it, that organic normalized growth of that 2% to 3% with a pretty normal 1% to 2% volume and the rest being price.

And our next question comes from Brian Tanquilut.

Just to follow up on Kevin's question earlier, Glenn, how are you thinking about market share shift within the contract? I mean should we expect more network access changes impacting organic growth? And I guess, a follow-up on that last comment you guys made on the lab -- on the acquisition from hospital. I think, Adam, you talked about the pace being slower than you expected. So is there anything you guys see in the horizon that will accelerate that? Or anything that LabCorp and proactively do to get the deals -- the larger deals going?

Yes. Brian, this is Adam. First of all, when you look at the environment and market share, particularly if you look at managed care, we've kind of overlapped the markets -- or the managed care losses that we had in last year as we go through the first quarter of this year. So the first quarter of this year should be the last quarter where you see that overlapping occur. So therefore, for the majority of the year, I don't see any additional significant downside based upon the managed care contract changes that occurred last year. As I look at 2020, I don't see any significant managed care shifts, such as United or Horizon, that we saw last year. So I don't see that type of volatility. As I look at the hospital tuck-in acquisitions, what I can tell you is our list is long. There are many discussions that we're having around the country with both local and regional labs and hospitals. It's not a lack of resources that we're putting behind it, we'll put resources that we need to, to be successful there, it's the discussions that we're having with our customers. I believe, over time, it will begin to accelerate, particularly as they feel the continued impact for PAMA. And if you look at what we're expecting from PAMA, we expect this year's impact to be about the same as last year. So '19 was about $100 million. This year will be about another $100 million. And I think 2021, barring any change to legislation or legal, we'll be about the same. These regional local labs are feeling that as well. And I think that, that pressure will continue to want to make them evaluate us working with them or buying their labs as we move forward.

Our next question comes from Donald Hooker with KeyBanc.

One of the maybe a smaller area of focus for you guys, maybe, but in terms of your investments and the accelerate informatics functionalities that you guys have developed over the years at Covance, I was curious kind of -- at a high level, kind of where you're seeing success there in terms of using IT to drive trials. You have a number of tools there. Just would love to hear an update on that part of Covance.

Sure. You saw one of the pillars of the strategy is to utilize data, analytics, artificial intelligence and basically everything that we do, including our ability at Covance. I also mentioned some of the new offerings that we have, and one of which was the virtual trials and the hybrid trials. A lot of that is based upon our ability to use information, to use technology in a better, different way than we've done in the past than we do today. We will continue to ensure that we're at the leading edge of understanding the hybrid and virtual trials, that we invest in the technology necessary to be successful in those areas. And I believe that as we move forward and we use the power of our combined organization, the ability to use data and analytics in our 500 million data points that we get every year from diagnostics and understand how to use that in Drug Development to help identify patients better, enroll trials faster, is going to be more and more important. So that's why it's 1 of our top 5 pillars of our strategy.

Your next question comes from Derik De Bruin with Bank of America.

A couple of questions. I guess the first one, can you talk a little bit about the operating margin in lab? It was a little bit lower than we thought in the fourth quarter. Can you talk about some of the personnel costs and things there? And sort of how should we think about the operating margin for lab? And then the Covance question, which is the backlog conversion was down to 37% this quarter. I mean you've been averaging in the 40s last year and 39% most of this year. Can you talk about sort of why the backlog conversion is dipping? And sort of like what -- how should we sort of think about that in tune of 2020?

Sure. I'll start with how I think about margins, and I'll talk more broadly and then I'll answer the question specifically. As an enterprise, we expect our margins this year to be relatively flat. We're going to see an increase in our margins in Drug Development, albeit maybe a little bit less than what we saw in 2019, and we're going to continue to see the Diagnostic margins. And we expect those to be continued under pressure, and they'll be slightly down in 2020 versus 2019. But net-net, we believe it will be relatively flat this year versus last year with the 2 puts that we have. If you look at what we've been able to do, and I'll use the third quarter as the example, I mean PAMA had an impact of 130 basis points and our margin was down 70 basis points. So we were able to make up a good portion of the PAMA impact. As we move into this year, I think we can do a bit better or similarly because of the Launchpad initiatives that we've put in place. And we will continue to push hard on reducing costs where we can in the Diagnostic business. We have a $200 million Launchpad commitment, and we're going to meet that commitment, and then we'll continue to see if there's additional opportunities and ways to even bring down costs further. Only other thing I'd say with regard to Covance and backlog, the Covance book of business is doing well, continues to build. And I think that we have a real opportunity moving forward. Quarter-by-quarter, I'd be a little bit careful looking too closely because there is a lot of variability in numbers across the segments. I'd look more towards our yearly guidance, and that's why we give the guidance on a year-long time period.

Yes. Derik, I'd just add to that, maybe first with the backlog question. So a lot of things come into play. Obviously, the business mix that we have, the therapeutic mix, the stage of where the trials are, again, we have kind of the end-to-end business, if you will. Historically, plus or minus, we've been around 40% of backlog conversion. As Adam said, it's good to look at it on a kind of an annual basis because there's fluctuations. So we did see it drop down a little bit to the 37% from the quarter, but again, still in line. But as a general rule, maybe for modeling, if you will, we tend to say around 40% of conversion to revenues in the next 12 months, and that would represent roughly around 85% of the revenues for the next month. So another 15% comes in with, obviously, new business that's transacted during the year. On the Diagnostics margin standpoint, Adam really hit it well from the standpoint, while margins were down, again, excluding PAMA, we would have had nice margin appreciation. And in fact, the fourth quarter margins were down the least amount that they were all year, so as Launchpad is kicking in, as the growth of our underlying business is kicking in. And so while we still expect to see margins down next year -- slightly down because of another year of PAMA, we also similarly say we're -- not for PAMA, we'd actually be seeing nice margin appreciation. Our goal is to continue to manage our cost structure to do that. When we talk about higher personnel costs, that's kind of our way of every year saying personnel costs are our biggest cost. And so that does increase with normal inflation, and obviously, depending upon the markets that we serve. And so nothing, if you will, unusual about it other than that's just the biggest cost that we have to overcome.

Our next question comes from Erin Wright with Crédit Suisse.

On the fundamentals in the CRO business, can you just speak to RFP flow pricing dynamics? Is this a relatively rational pricing environment out there? And could you parse out for us a little bit on the central lab business, in particular? How big that business is for you today? And then what that's growing at? Has it been exceeding your expectations on that front? And then could you also just comment on the direct-to-consumer kind of genetic testing market, kind of where -- what your guidance now implies for that segment?

Okay. So I'll start with the genetic testing market. You saw a significant decline in 2019 versus 2018. It's now a very small amount of our total volume and of our total revenue and operating income. So although it may go down again in 2020, it should not have any real significant impact to our fundamentals or financials. With regard to our central labs, it's a strength, and we continue to do very well in our central labs. And I think with the acquisitions that we've done and our capabilities in early development in general, including central laboratories, it continues to be a real strength for us, and I don't see that changing over time. And then lastly, with regard to the environment, I believe that biotechnology and pharmaceutical is really doing well when it comes to new molecules and new chemical entities and the number of products in development. And the environment itself, I think, feeds well into our ability to continue to grow our Drug Development business. Pricing will always be competitive in every market in health care. I don't see any fundamental shift or trend other than it continues to be a competitive environment, and we can compete very well within that environment.

Your next question comes from Matt Larew with William Blair.

Adam, I wanted to go back to your comments on the preferred lab network. It seems that both patients and providers will have pretty meaningful incentives over time to move volume into the PLN. Is there anything you can do to proactively work with United or even other payers in terms of accelerating the transition of some of that volume given that it seems that longer term, the incentives for all parties involved are aligned?

Yes. So Matt, I agree with you that it's -- rationally, it makes a lot of sense. And the good news is when you have a lab like we have where you have really high-quality and you have a lower-cost price structure, it's something that can actually help reduce overall health care costs. And every part of the health care system in the United States and around the world, frankly, is struggling with health care costs. And I believe that we can be part of the solution with the quality that we bring at the cost that we bring it. We work very closely with United. Obviously, we will continue to work with them. We will do whatever we can within the regulatory legal environment to work with them to make sure that this is successful for both them and for the patients that they and we serve together. So we're glad to work with them, and we'll continue to do so.

Our next question comes from Stephen Baxter with Wolfe Research.

I wanted to ask about the fourth quarter in the lab business. I appreciate the color you gave on the organic volume and the moving parts there. It looks like when you adjust for those parts and also the capitated contract wins that you had from your largest competitor, it looks like the underlying organic growth is maybe a little bit weaker than the past couple of quarters. I was wondering if there's any specific drivers we should think about for the quarter. And then also how to think about volume seasonality during 2020 given the annualization of managed care network changes and the calendar shift?

Yes. Stephen, this is Glenn. At least I'll start. I'd say from an organic revenue growth within Diagnostics in the fourth quarter, again, normalizing for the headwinds that we'll go through, we were at the upper end of our expectations, if you will, from the, call it, 2% to 3% normalized organic revenue growth, so consistent as we've had in the full year. I think on an earlier question, there was a little bit of a difference in the mix between normalized organic volume versus our revenue per acquisition. But when you look back, again, from what's driving the organic business, we did benefit from an extra day that was timing related to kind of a headwind from days in the first half of the year. But we still had, obviously, the impact from managed care contract changes as well as some lower consumer genetics demand. Similarly, we had the big ones, which was PAMA and the impact of Beacon's contract. So when you net all those out, again, we would say kind of a normalized organic revenue growth in the quarter would have been a little bit north of that 2% to 3% range.

Our next question comes from Bill Quirk with Piper Sandler.

So a couple of questions. So first off, how much, if any, of the supply chain for the -- is manufactured in China? And obviously, is there any risk to that given the current situation? And then another one on the PLN. When do you think we might see other payers follow United's lead here? Could we see something happen in 2020? Or do you think they want to actually assess some of the results before they go ahead and roll their own plan out?

Sure. Bill, I'll start with the second question. I think that the PLN is going to take a little bit of time to actually show the benefit of the PLN and show that it can actually be executed and implemented well. So I would expect -- although I don't know for certain, but I would expect other managed care organizations to wait to see the impact. And as they start to see early impact, there's a timing where if you don't hit July, it's hard to implement in the next year. So if they don't do it this July, it would probably happen in 2021, and it's too early to tell what the other managed care organizations may or may not do. But what I've built into the plan is no upside to PLN based upon this year. And we've not built anything for other managed care organizations as we look into this year or into the future. With regard to the coronavirus, I mean, obviously, we do have some of our supply chain that goes through China. Our team is working to ensure that we have consistent supply. I think we're in good shape as we sit here today. We'll have to watch it closely depending on how long or if it gets worse in China or has a global impact. But if it gets to that point, it would be significant across many different areas within the health care system. And I don't think it would be anything specific to our business or to what we do that is overly concerning. As I sit here today, I don't see an impact. It would only be if something got really worse that's unanticipated at the moment.

. Our next question comes from Jack Meehan with Barclays.

Glenn, I just had one follow-up. I wanted to make sure we were setting expectations right for the first quarter on the lab side for earnings because I think you have a couple of headwinds. One is -- obviously, you PAMA, you also have Beacon, and then finally, I think you have an extra wage day. So maybe just talk about kind of the pacing of earnings throughout the year on the lab side. And just any overall commentary on 1Q would be helpful.

Yes. When you think about just the timing and the -- I guess, first, I'd say just overall that the 2 businesses, as you know, have a little bit different seasonality patterns, if you will. So the Drug Development side really strength more so in the second half than first. But similarly, on the Diagnostics side, a stronger first half to second. So it kind of levels off at an enterprise level. And so when you look at our performance overall, especially in -- driving even down to the earnings per share, you can kind of take a look at each quarter relative to the total to get a reasonable proxy of where it will be. To your point, within Diagnostics, we do have the issue of an extra day. And again, if you look on our website, you'll notice that we pick up around a half a day benefit on revenue in the first quarter and in the third, that's just how it falls out, while there's the extra payroll day that will be in the first quarter. So as a proxy, a revenue day for us is around $25 million of revenue. And on the cost side for a payroll day, it's around $10 million, if you will. So I think that will give you at least a sense of how -- if you wanted to tweak a little bit for that. But to your point, on the Beacon renewal, so obviously, that still has the impact in the first half of the year until it annualizes. Obviously, PAMA is going to stay on for the full year. And then finally, just with the managed care contract changes, again, there'll still be a little bit of a headwind as that annualizes. But it will be through the first quarter, and then the rest of the year will be flat. But hopefully, that gives you a little bit of some color into the quarter.

I was going to just let you know that I didn't see any more questions in the queue.

Yes. Thank you very much, Kevin. What I'd like to do is close the call now. First of all, thank you all for joining the call today. As we look ahead, we're well positioned for another year of strong, profitable growth. The work that we do, it matters to customers, it matters to patients around the world every single day. And our ethics, our integrity, our pursuit of scientific excellence are strong and a steadfast foundation for every single thing that we do. We're helping to save and improve lives, and we are poised to play an even greater role in the future by helping solve some of the most pressing global health care issues. So we appreciate your time today, and hope you have a good rest of the day. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.