Laboratory Of America Holdings Management Discusses Q2 2012 Results - Earnings Call Transcript

Laboratory of America Holdings (LH)

Q2 2012 Earnings Call

July 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

Gary Lieberman - Wells Fargo Securities, LLC, Research Division

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

Darren Lehrich - Deutsche Bank AG, Research Division

Ricky Goldwasser - Morgan Stanley, Research Division

Gavin Weiss - JP Morgan Chase & Co, Research Division

Isaac Ro - Goldman Sachs Group Inc., Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Gary P. Taylor - Citigroup Inc, Research Division

Dane Leone - Macquarie Research

Anthony V. Vendetti - Maxim Group LLC, Research Division

Hima B. Inguva - BofA Merrill Lynch, Research Division

Alexander Y. Draper - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2012 Laboratory Corporation of America Holdings Earnings Conference Call. My name is Reggie, and I'll be your conference operator for today's call. [Operator Instructions] I would now like to hand the call over to the host for today's call, Mr. David King, Chairman and CEO. Please proceed.

David P. King

Thank you. Good morning, and welcome to LabCorp's Second 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; Adam Feinstein, Senior Vice President, Corporate Development and Strategy; and Steve Anderson, Vice President, Investor Relations.

This morning we will discuss our second quarter 2012 financial results, update 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 other statements about -- 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. Also review our updated 2012 guidance.

First, cash flow. Our cash flow remained strong. Free cash flow for the trailing 12 months ended June 30, 2012, were $749.5 million, excluding the Hunter Labs settlement. We remain pleased with our cash collections. DSO was 47 days at the end of June, a decrease of 1 day sequentially and an increase of 1 day year-over-year. During the quarter, we maintained our bad debt rate of 4.4%.

Second, revenue growth. Revenue increased 1.4% year-over-year in the second quarter. During the quarter, revenue per requisition increased 1.5% year-over-year. Total company volume was essentially flat year-over-year during the second quarter. Esoteric volume increased approximately 1.3% in the quarter.

Third, margin. For the second quarter, our adjusted operating income margin was 19.7% compared to 19.9% in the second quarter of 2011. The decline in adjusted operating income margin is due to a 30-basis-point drag from recent acquisitions that we've not fully integrated.

Fourth, liquidity. We remain well capitalized. At the end of June, we had cash of $124.4 million and $510 million available under our credit facility. During the second quarter, we repurchased $130.3 million of stock, representing 1.5 million shares. Year-to-date, we repurchased 2.9 million shares for $252.6 million. At the end of June, $332 million of repurchase authorization remained under our share repurchase program. This morning, we updated our 2012 the financial guidance. We expect revenue growth of 2% to 3%; adjusted EPS, excluding amortization, in the range of $6.80 to $7, excluding the impact of any share repurchase activity after June 30, 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 pleased with our performance, given that we continue to face a very difficult environment for volume growth. During the quarter, we grew earnings per share by nearly 8% year-over-year. We continued to integrate our recent acquisitions and focus on expense control, lowering our selling, general and administrative expenses as a percentage of revenue by 90 basis points year-over-year, adjusted for the Hunter Labs settlement and Orchid legal expenses in 2011. And we extended our contract with WellPoint on a multi-year basis, stable pricing and continue the exclusivity in our key markets.

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