Laboratory Of America Holdings' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Laboratory of America Holdings (LH)

Q1 2012 Earnings Call

April 19, 2012 9:00 am ET

Executives

David P. King - Chairman, Chief Executive Officer and President

Stephen Anderson -

William B. Hayes - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer

Analysts

Adam T. Feinstein - Barclays Capital, Research Division

Bill Bonello - RBC Capital Markets, LLC, Research Division

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Darren Lehrich - Deutsche Bank AG, Research Division

Amanda Murphy - William Blair & Company L.L.C., Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Thomas Gallucci - Lazard Capital Markets LLC, Research Division

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

Ralph Giacobbe - Crédit Suisse AG, Research Division

Dane Leone - Macquarie Research

Steven Valiquette - UBS Investment Bank, Research Division

Gary P. Taylor - Citigroup Inc, Research Division

Ricky Goldwasser - Morgan Stanley, Research Division

Gavin Weiss - JP Morgan Chase & Co, Research Division

Brian Zimmerman

Isaac Ro - Goldman Sachs Group Inc., Research Division

Arthur I. Henderson - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 Laboratory Corp. of America Holdings Earnings Conference Call. My name is Keisha and I'll be year coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. David P King, Chairman and CEO of LabCorp. Please proceed.

David P. King

Thank you, Keisha. Good morning, and welcome to LabCorp's first quarter 2012 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 first quarter 2012 financial results, reaffirm our 2012 guidance, highlight our progress on our Five Pillar Strategy 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.

Stephen Anderson

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. These non-GAAP measures include adjusted EPS, adjusted EPS excluding amortization, free cash flow, and adjusted operating income. I would also like to point out that we are making forward-looking statements during this conference call.

These forward-looking statements include, among others, statements about our expected financial results, the implementation of our business strategy and the ongoing benefits from the Genzyme Genetics and other acquisitions. These statements are based upon current expectations and are subject to change based upon various factors that could affect the company's financial results. Some of these factors are set forth in detail in our 2011 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.

William B. Hayes

Thank you, Steve. On today's call, I will review 4 key measures of our financial performance: Cash flow, revenue growth, margin and liquidity. I'll also review our 2012 guidance.

First cash flow. Our cash flow remain strong. Free cash flow for the trailing 12 months ended March 31, 2012 was $686.9 million. We remain pleased with our cash collections. DSO was 48 days at the end of March, an increase of 1 day year-over-year and 2 days sequentially. During the quarter, we reduced our bad debt rate to 4.4%.

Second, revenue growth. Revenue increased 4% year-over-year in the first quarter. During the quarter, revenue per requisition increased 1.2% year-over-year. Total company volume increased 2.8% year-over-year during the first quarter.

Esoteric volume increased 4.8% in the quarter. The quarter benefited from an easier weather comp, which increased the revenue and volume growth rate by 1.5%. Although there was an extra calendar day in the quarter, the strength of days in the quarter was approximately the same as last year.

Third, margin. For the first quarter, our adjusted operating income margin was 19.9% compared to 19.3% in the first quarter of 2011. We are very pleased with the margin improvement, which reflects the positive impact from our integration activities. Fourth, liquidity. We remain well-capitalized. At the end of March, we had cash of $129.9 million and $500 million available under our revolving line of credit.

During the first quarter, we repurchased $122.3 million of stock representing 1.4 million shares. At the end of March, $462.1 million of repurchase authorization remained under our share repurchase program. This morning, we also reiterated our 2012 financial guidance. We expect revenue growth of 2% to 3.5%, adjusted EPS excluding amortization in the range of $6.75 to $7.05, excluding the impact of any share repurchase activity after March 31, 2012, operating cash flow of approximately $950 million and capital expenditures of approximately $155 million.

I'll now turn the call over to Dave.

David P. King

Thank you, Brad. We are very pleased with our first quarter 2012 results. We generated strong revenue growth. We delivered solid increases in core and esoteric volume. Revenue per requisition increased 1.2%. We lowered our bad debt rate to 4.4% during the quarter, reflecting the continued exceptional performance of our operational and billing personnel.

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