Laboratory of America Holdings (LH)
Q2 2010 Earnings Call
July 22, 2010 9:00 am ET
Stephen Anderson - Director of Investor Relations
William Hayes - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer
David King - Chairman of the Board, Chief Executive Officer and President
William Quirk - Piper Jaffray Companies
Ralph Giacobbe - Crédit Suisse AG
Steven Valiquette - UBS Investment Bank
Gary Lieberman - Wells Fargo Securities, LLC
Thomas Gallucci - Lazard Capital Markets LLC
Kevin Ellich - RBC Capital Markets Corporation
Darren Lehrich - Deutsche Bank AG
Kemp Dolliver - Avondale Partners LLC
Gary Taylor - Citigroup Inc
Adam Feinstein - Barclays Capital
Amanda Murphy - William Blair & Company L.L.C.
Previous Statements by LH
» Laboratory Corporation of America Holdings Q1 2010 Earnings Calls Transcript
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Good day, ladies and gentlemen, and welcome to the Second Quarter 2010 Laboratory Corporation of America Earnings Conference Call. My name is Crystal and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. David P. King, Chairman and CEO of LabCorp. Please proceed.
Thank you. Good morning, and welcome to LabCorp's 2010 Second 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, Vice President, Investor Relations.
This morning, we will discuss our second quarter 2010 results, highlight a few 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 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, including based upon various important factors that could affect the company's financial results. Some of 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've had a chance to review our second quarter financial results. On today's call, I will 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 12 months ended June 30, 2010 increased 19.6% to $800 million compared to $668.8 million in 2009, in each case, net of transition payments to UnitedHealthcare. We were extremely pleased with our cash collections. DSO improved five days year-over-year to 45 days at the end of June. As a result of our continued success in cash collections, we reduced our bad debt rate by 25 basis points to 4.8%. We're very proud of the LabCorp employees who have made this success possible through their diligent focus on getting paid for the services we provide.
Second, revenue growth. Revenue increased 4.2% year-over-year in the second quarter. During the quarter, we achieved strong growth in revenue per requisition, which increased 6.3% of 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 3.3%. Total company volume decreased 2% year-over-year. Excluding Canada, volume decreased 2.1% year-over-year. The termination of two large government contracts at the end of the second quarter of 2009 reduced volume by 2.4%. Excluding the lost contracts, volume increased by approximately 0.3% in the quarter. Esoteric volume increased 4.9% in the quarter.
Third, margin. For the second quarter, our operating income margin was 21.8%. This margin increased 40 basis points year-over-year due to reductions in bad debt expense and operational improvements. Margin expansion was hindered by costs associated with recent transactions and acquired assets that are not yet integrated.
Fourth, liquidity. We remain well-capitalized. At the end of June, we had cash of $103.8 million and approximately $430 million available under our revolving line of credit. At the end of June, total debt was $1.3 billion, including $30 million drawn down on our revolving credit facility. During the quarter, we repurchased $116 million of stock, representing approximately 1.5 million shares. At the end of June, approximately $100.1 million of repurchase authorization remained under our previously approved share repurchase program.
This morning, we updated our 2010 financial guidance. We expect revenue growth of 4.5% to 5.5% compared to previous guidance of 2.5% to 4.5%, adjusted EPS in the range of $5.40 to $5.55 compared to prior guidance of $5.35 to $5.55, excluding the impact of any share repurchase activity after June 30, 2010, operating cash flow of approximately $870 million, excluding any transition payments made to UnitedHealthcare and capital expenditures of approximately $135 million.
Finally, while we do not provide quarterly guidance, we want to remind you that the fourth quarter is always our softest quarter from a top line and earnings perspective due to the impact of the holiday season on volumes. I'll now turn the call over to Dave.
Thank you, Brad. We were very pleased with our second quarter results. Despite continued challenging economic conditions, we grew revenue by 4.2% in the quarter.
We also grew Esoteric revenue by approximately 5%. Revenue per requisition remains strong, increasing 6.3%. Taking into account the previously lost contracts, volume increased by approximately 0.3%. And we generated operating margin expansion of 40 basis points due to our continued improvement in bad debt expense and our focus on automating and optimizing our labs and patient service centers. Margins would have been higher, but for the factors Brad Hayes mentioned.