Laboratory of America : Q4 2018 Earnings Press Release

FOR IMMEDIATE RELEASE

Contact: Scott Frommer (investors) - 336-436-5076

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Pattie Kushner (media) - 336-436-8263

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LABCORP ANNOUNCES

2018 FOURTH QUARTER AND FULL YEAR RESULTS

AND PROVIDES 2019 GUIDANCE

•  Revenue: Q4 of $2.8 billion, up 2% over 2017; Full year of $11.3 billion, up 10% over 2017

•  Diluted EPS: Q4 of $1.56; Full year of $8.61

•  Adjusted EPS: Q4 of $2.52, up 11% over 2017; Full year of $11.02, up 20% over 2017

•  2019 Adjusted EPS guidance of $11.00 to $11.40

•  2019 Free Cash Flow guidance of $950 million to $1.05 billion

•  Commenced phase II of LabCorp Diagnostics' LaunchPad business process improvement initiative, expected to generate $200 million of additional net savings over the next three years

•  Board replaced the Company's existing share repurchase plan with a new plan authorizing repurchase of up to $1.25 billion of stock

BURLINGTON, N.C., Feb. 7, 2019 -LabCorp® (or the Company) (NYSE: LH) today announced results for the fourth quarter and year ended Dec. 31, 2018, and provided 2019 guidance.

"LabCorp delivered another strong year in 2018, highlighted by 10% revenue growth and 20% adjusted EPS growth," said David P. King, chairman and chief executive officer. "Our fourth quarter results included an excellent performance by Covance, with a strong 1.34 book to bill, constant currency organic revenue growth of over 9%, and margin expansion of approximately 300 basis points. Non-operational items constrained our Diagnostics business, but excluding those items, the fundamental revenue, margin and cash flow generation characteristics of the business remained strong, and we delivered organic volume growth and favorable mix. Both businesses continued to benefit from differentiated, data-driven solutions and growth opportunities derived from our competitive advantages in data and analytics, patient engagement, scientific innovation, and therapeutic expertise. The power of our Diagnostic-Drug Development combination is translating into unique solutions for patients, customers, and partners, positioning us to deliver growth and shareholder value in the years ahead."

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Effective Jan. 1, 2018, the Company adopted the FASB-issued converged standard on revenue recognition

(ASC 606), using the full retrospective method. Unless otherwise indicated, all financial results in 2017 and comparisons to financial results in 2017 have been restated in this press release as if the Company had adopted ASC 606 on Jan. 1, 2017.

Consolidated Results

Fourth Quarter Results

Revenue for the quarter was $2.79 billion, an increase of 1.6% compared to $2.74 billion in the fourth quarter of 2017. The increase in revenue was primarily due to organic growth of 2.9% and acquisitions of 0.7%, partially offset by the negative impact from the disposition of businesses of 1.6%, and foreign currency translation of approximately 40 basis points.

Operating income for the quarter was $307.7 million, or 11.0% of revenue, compared to $330.6 million, or 12.0%, in the fourth quarter of 2017. The decrease in operating income and margin were primarily due to lower pricing as a result of the implementation of PAMA, the disposition of businesses, and higher personnel costs, partially offset by increased demand, the Company's LaunchPad business process improvement initiative, acquisitions, and fewer restructuring charges and special items. The Company recorded restructuring charges, special items, and amortization, which together totaled $87.2 million in the quarter, compared to $102.0 million during the same period in 2017. Adjusted operating income (excluding amortization, restructuring charges, and special items) for the quarter was $394.9 million, or 14.2% of revenue, compared to $432.7 million, or 15.8%, in the fourth quarter of 2017.

Net earnings in the quarter were $157.9 million, compared to $687.8 million in the fourth quarter of 2017. Diluted EPS were $1.56 in the quarter compared to $6.63 in the same period in 2017. During the quarter, the Company recorded a $24.5 million loss on the disposition of its U.S. forensics laboratory testing business, a non-cash $7.5 million settlement charge recorded on one of its legacy pension plans, and a write-off of an investment in its venture fund of $5.2 million (all charges recorded in other income

(expense)). In addition, the Company recorded $7.7 million in deferred income tax expense resulting from a revaluation of its deferred tax liabilities after merging Chiltern International, Inc. into Covance, Inc. These charges reduced net earnings and diluted EPS by $29.5 million and $0.29, respectively. In the fourth quarter of 2017, the Company recorded a net benefit of $519.0 million in net earnings, or $5.00 per diluted share, due to the implementation of the Tax Cuts and Jobs Act of 2017 (TCJA), which resulted in a favorable re-valuation of deferred taxes, partially offset by the deemed repatriation tax.

Adjusted EPS (excluding amortization, restructuring charges, and special items) were $2.52 in the quarter, an increase of 11.0% compared to $2.27 in the fourth quarter of 2017. The Company's adjusted earnings in the quarter were negatively impacted by approximately $0.04 per diluted share due to lower volume caused by the impact from adverse weather.

Operating cash flow and free cash flow (operating cash flow less capital expenditures) for the quarter were $486.4 million and $364.2 million, respectively, each of which was reduced by the net tax payment of approximately $105 million related to the disposition of businesses. Excluding these non-recurring items, operating cash flow would have been $591.4 million, compared to $565.0 million in the fourth quarter of 2017, as the benefit from higher cash earnings was partially offset by increased working capital. Capital expenditures totaled $122.2 million, compared to $96.1 million a year ago. As a result, free cash flow in the quarter would have been $469.2 million excluding the tax payment on the disposition of businesses, compared to $468.9 million in the fourth quarter of 2017.

At the end of the quarter, the Company's cash balance and total debt were $426.8 million and $6.1 billion, respectively. During the quarter, the Company repurchased $400.0 million of stock representing approximately 2.5 million shares, paid down $400.0 million of debt, and invested $38.7 million in acquisitions. On Feb. 6, 2019, the board replaced the Company's existing share repurchase plan with a new plan authorizing repurchase of up to $1.25 billion in the Company's shares.

Full Year Results

Revenue was $11.33 billion, an increase of 9.9% over last year's $10.31 billion. The increase in revenue was due to acquisitions of 7.6%, organic growth of 2.7%, and the benefit from foreign currency translation of approximately 30 basis points, partially offset by the impact from the disposition of businesses of 0.7%.

Operating income was $1,325.7 million, or 11.7% of revenue, compared to $1,305.2 million, or 12.7%, in 2017. The increase in operating income was primarily due to acquisitions, organic revenue growth, and the

Company's LaunchPad initiatives, partially offset by the implementation of PAMA, personnel costs, and higher restructuring charges and special items. The decline in operating margin was primarily due to the implementation of PAMA, higher personnel costs, as well as the mix impact from the acquisition of Chiltern. The Company recorded restructuring charges, special items, and amortization which together totaled $397.6 million, compared to $367.2 million during the same period in 2017. This increase was due to higher amortization expense, and the payment of a one-time bonus to non-bonus-eligible employeesfollowing the implementation of the TCJA. Adjusted operating income (excluding amortization, restructuring charges, and special items) was $1.72 billion, or 15.2% of revenue, compared to $1.67 billion, or 16.2%, last year.

Net earnings in 2018 were $883.7 million, or $8.61 per diluted share, compared to $1,227.1 million, or $11.81 per diluted share, last year. Net earnings and diluted EPS in 2018 benefitted from the net gain on disposition of businesses of $112.9 million and $1.10 per diluted share, respectively. In addition, the Company recorded a non-cash $7.5 million settlement charge on one of its legacy pension plans, and a write-off of an investment in its venture fund of $5.2 million. The Company also recorded $7.7 million in income tax expense resulting from a revaluation of its deferred tax liabilities after merging Chiltern

International, Inc. into Covance, Inc. Due to the implementation of the TCJA, the Company recorded a charge of $45.0 million, or $0.44 per diluted share in 2018, and a net benefit of $519.0 million in net earnings, or $5.00 per diluted share in 2017. The net impact from these items increased net earnings and diluted EPS in 2018 by $50.8 million and $0.50 per diluted share, respectively.

Adjusted EPS (excluding amortization, restructuring charges, and special items) were $11.02, an increase of 19.8% compared to $9.20 in 2017.

Operating cash flow and free cash flow (operating cash flow less capital expenditures) were $1,305.4

million and $925.6 million, respectively, each of which was reduced by the net tax payment of approximately $105 million related to the disposition of businesses (the Company realized gross proceeds from the disposition of businesses of $658.2 million in cash reflected in Cash Flows from Investing Activities). Excluding these non-recurring items, operating cash flow would have been $1,410.4 million, compared to $1,498.1 million in 2017, as the benefit of higher cash earnings was more than offset by an increase in working capital. Capital expenditures totaled $379.8 million, compared to $312.9 million in 2017. As a result, free cash flow would have been $1,030.6 million excluding the tax payment on the disposition of businesses, compared to $1,185.2 million in 2017.

During the year, the Company repurchased $700.0 million of stock representing approximately 4.3 million shares, paid down $695.0 million of debt, and invested $117.8 million in acquisitions.

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The following segment results reflect the Company's retrospective adoption of ASC 606 on Jan. 1, 2017, and exclude amortization, restructuring charges, special items and unallocated corporate expenses.

Fourth Quarter Segment Results

LabCorp Diagnostics

Revenue for the quarter was $1.69 billion, a decrease of 2.8% from $1.74 billion in the fourth quarter of 2017. Revenue benefitted from acquisitions of 0.4% and favorable mix of 0.7%, which were more than offset by the negative impact from the disposition of businesses of 2.6%, the implementation of PAMA of 1.0%, and foreign currency translation of approximately 0.2%. Excluding the impact from PAMA, foreign currency translation, adverse weather of approximately 0.4%, as well as the year on year impact from the calendar of approximately 0.8%, organic revenue for the quarter would have increased by approximately 1.8%.

Excluding the disposition of businesses, revenue per requisition decreased by 0.4%, driven by the negative impact from PAMA of 1.0%. Total volume (measured by requisitions) excluding the disposition of businesses increased by 0.3%, as acquisition volume contributed 0.4% and organic volume declined by 0.1%. Excluding the impact from adverse weather and the year on year impact from the calendar, organic volume would have increased approximately 1.1%.

Adjusted operating income (excluding amortization, restructuring charges and special items) for the quarter was $279.3 million, or 16.5% of revenue, compared to $357.0 million, or 20.5%, in the fourth quarter of 2017. Operating income and margin declined primarily due to the impact from PAMA of approximately $18 million or 80 basis points, the year on year impact from the calendar of approximately $20 million or 100 basis points, adverse weather, the disposition of businesses, and personnel costs, partially offset by cost reductions and acquisitions. Excluding the disposition of businesses, impact from PAMA, adverse weather, as well as the year on year impact from the calendar, adjusted operating income and margin would have been approximately $328.6 million and 18.5%, respectively.

In addition, the Company has started phase II of LabCorp Diagnostics' LaunchPad initiative. The Company is focused on eliminating manual processes, digitizing the business, using technology to improve quality, operations and service, and enhancing the consumer experience, which are designed to unlock new avenues for growth and contribute to improvement in long-term margins. This initiative is expected to generate pre-