Laboratory Corporation of America Holdings (LH)
Q1 2010 Earnings Calls
April 21, 2010; 09:30am ET
Brad Hayes - Executive Vice President & Chief Financial Officer
Ed Dodson - Senior Vice President & Chief Accounting Officer
Steve Anderson - Director, Investor Relations
Adam Feinstein - Barclay’s Capital
Bob Willoughby - Bank of America
Kevin Ellich - RBC Capital Markets
Amanda Murphy - William Blair & Co.
Brian Zimmerman - Deutsche Bank
Tom Gallucci - Lazard Capital Markets
Glenn Greenberg - Brave Warrior
Kemp Dolliver - Avondale Partners
Bill Quirk - Piper Jaffray
Gary Taylor - Citi
Ricky Goldwasser - Morgan Stanley
Ralph Giacobbe - Credit Suisse
Shelley Gnall - Goldman Sachs
Gary Lieberman - Wells Fargo.
Anthony Vendetti - Maxim Group
Kevin Ellich - RBC Capital Markets
Previous Statements by LH
» Laboratory Corporation of America Holdings Q4 2009 Earnings Call Transcript
» Laboratory Corp. of America Holdings Q3 2009 Earnings Call Transcript
» Laboratory Corporation of America Holdings Q2 2009 Earnings Call Transcript
Good day ladies and gentlemen, and welcome to the first quarter 2010 Laboratory Corporation of America, earnings conference call. My name is Jasmine and I’ll be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)
I would now like to turn the conference over to your host for today, Mr. David King, Chairman and Chief Executive Officer of LabCorp; you may proceed sir.
Thank you Jasmine. Good morning and welcome to LabCorp’s 2010 first quarter conference call.
Joining me today from LabCorp are Brad Hayes, Executive Vice President and Chief Financial Officer; Ed Dodson, Senior Vice President and Chief Accounting Officer; and Steve Anderson, Director, Investor Relations. This morning we will discuss our first quarter 2010 results, highlight some of our strategic initiatives, and provide answers to several frequently asked questions.
I’d now like to turn the call over to Steve Anderson who has a few comments before we begin.
Before we get started, I would like to point out that there will be a replay of this conference call available via the telephone and the internet. Please refer to today’s press release for replay information.
This morning the company filed a Form 8-K that included additional information on our business and operations. This information is also available on our website. Analysts and investors are directed to this 8-K and our website to review this supplemental information. Additionally, we refer you to today’s press release, which is available on our website for a reconciliation of non-GAAP financial measures discussed during today’s call to GAAP.
I would also like to point out that we are making forward-looking statements during this conference call, and these statements are based upon current expectations and are subject to change; based upon various important factors that could affect the company’s financial results. These factors are set forth in detail in our 2009 10-K and subsequent filings. The company has no obligation to provide any updates to these forward-looking statements, even if our expectations change.
Now, Brad Hayes will review our financial results.
Thank you, Steve. By now you should have had a chance to review our first quarter results. On today’s call I’ll discuss four key measures of our financial performance; cash flow, revenue growth, margin and liquidity.
First, cash flow. Our cash flow trends remain excellent. Free cash flow for the trailing twelve months ended March 31, 2010 increased 17% to $777 million, compared to $663.9 million in 2009, net of transition payments to United Healthcare.
We are also pleased with our strong cash collection efforts in the quarter, as evidenced by significant improvement in DSO. DSO at the end of March was 46 days, an improvement of six days year-over-year. Although DSO increased two days sequentially, this increase is typical from the fourth quarter to the first quarter. As a result of our success in cash collections, we reduced our bad debt rate by 25 basis points.
Second, revenue growth. Revenue increased 3.3% year-over-year in the first quarter. During the quarter we achieved strong growth in revenue per requisition, which increased 6.4% year-over-year. The growth in revenue per requisition is attributable to mix shift, increases in test per requisition and rate increases. The revenue growth per requisition was also impacted by the Canadian exchange rate, Monogram and the lost government contracts, which together improved revenue per requisition by 3.5%.
Total company volume decreased 3% year-over-year. Excluding Canada, volume decreased 3.3% year-over-year. Inclement weather had a significant impact on the first quarter, resulting in an estimated 1.3% reduction in our volumes. Also the termination of two large government contracts at the end of the second quarter of 2009 reduced volume by 2.4%.
Excluding these items, domestic volume increased 0.4% in the quarter. Esoteric volume increased 5.3% in the quarter. We estimate that bad weather lowered revenue by $23 million, and EPS by $0.08 in the quarter.
Third, margin. For the first quarter our adjusted operating income margin was 20.4%. This margin decreased 40 basis points year-over-year, due primarily to the impact of weather.
Fourth, liquidity. We remain well capitalized. At the end of March we had cash of $172.2 million, and approximately $440 million available under our revolving line of credit. At the end of March, total debt was $1.3 billion, including $20 million drawn down on our revolving credit facility.
During the first quarter we repurchased $105.7 million of stock, representing approximately 1.4 million shares. At the end of March, approximately $216.1 million of repurchased authorization remained under our previously approved share repurchase program.
This morning we reaffirmed our 2010 financial guidance. We expect revenue growth of 2.5% to 4.5%. Adjusted EPS in the range of $5.35 to $5.55, excluding the impact of any share repurchase activity after March 31, 2010. Operating cash flow of approximately $870 million, excluding any transition payments made to United Health Care and capital expenditures of approximately $135 million.
I will now turn the call over to Dave.
Thank you Brad. We are very pleased with our first quarter results. Despite severe weather we grew revenue by 3.3%. We also grew esoteric revenue by approximately 5.2%. Taking into account weather and the previously lost contracts, total company volume increased by 0.5%. Revenue per requisition remained strong, increasing 6.4%.