Brilliant Acquisition Corporation
Q3 2009 Earnings Call Transcript

Published: 2 Sep 2009

[Operator:]

Good day ladies and gentlemen and welcome to the third quarter 2009, Bio-Reference Laboratories earnings conference call. My name is Keisha and I will be your operator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) I would now like to turn the call over to Ms. Tara Mackay, Investor Relations. Please proceed ma’am.

[Tara Mackay:]

Thank you. Good morning and welcome to Bio-Reference Laboratories, 2009 third quarter earnings conference call. Bio-Reference Laboratory is one of the largest independent regional full service laboratories in the country, with focused marketing capabilities in the areas of genomics, oncology, women’s health, correctional health and physician office pathology. Leading us on the call today will be Dr. Marc Grodman, President and Chief Executive Officer; and Sam Singer, Chief Financial Officer. Some of the commentary made in the presentation may relate to future results and events. Statements regarding the company’s revenue and earnings guidance are based on the company’s current expectations. Actual results in future periods may differ materially from those currently expected or desired, because of a number of risks and uncertainties, including general economic and business conditions; future regulatory requirements and mandated pricing reimbursement; the service, customer and geographic market mix of any particular period; the company’s ability to effectively manage its operating costs and collect its receivables in a timely fashion; and the level of demand for the company’s products and services and on the company’s ability to manage its supply and delivery logistics in such an environment. Additional discussion of these and other factors affecting the company’s business and prospects is contained in the company’s periodic filings with the Securities and Exchange Commission. I will now turn the call over to Dr. Marc Grodman, President and Chief Executive Officer.

[Marc Grodman:]

Tara, thank you very much. By any measure, this has been an extraordinary quarter for Bio-Reference Laboratories. Next revenue growth of 25%, patient count growth of 20%, operating income growth of 44%, pre-tax income growth of over 47%, net income growth of 36%, DSOs downs to 95 days, and record numbers both of cash generated from operations and free cash flow. My role here is to put these numbers and that goes for any numbers and any quarter in perspective; and although this is a very impressive quarter, our results need to be put in context, our great numbers over the past year. When we were making investments in growth strategies, before seeing the fruits of those efforts, while at the same time experiencing the period of severe economic strength, these numbers must be seen in context with those. I believe that what they reveal is a long term strategy of growth and building value and building capability. Bio-Reference started as a clinical laboratory over 20 years ago, with just a little bit more than $200,000 a year end revenues. The growth that we’ve had is overly organic. The capabilities we’ve produced are what we’ve produced, the ideas are ones that we’ve generated; the new testing ideas are things that we conceived. The value that we’ve created is a tribute to our understanding of a publicly traded growth company; being cognizant of those expectations, but also building for lasting value. It’s also attribute to the people who’ve made-up the Bio-Reference family. Who’ve come in and bought in, in the idea of building something for longtime value. This quarter was attributed to them, and the effort that they’ve made over the past number of years. I want to turn this over to Sam Singer to review the numbers, then I would like to make some remarks. Thank you very much. Sam.

[Sam Singer:]

Thank you, Marc. Good morning everyone. During the third quarter of fiscal year 2009, which ended on July 31, Bio-Reference recorded net revenues of $97,424,000; the highest quarterly net revenues recorded by the company, compared to $77,776,000 in the third quarter of our prior fiscal year, an increase of 25%. Gross profit on revenues for the current quarter was $49,261,000, representing a 51% gross profit margin. In the third quarter of the prior year, gross profit on net revenues was $38,606,000, representing a 50% gross profit margin. Earnings per share or net income after tax were $0.46 per share in the current quarter, versus $0.34 per share in the prior year quarter. Patient count for the current quarter increased to $1,246,000, from $1,042,000 for the prior year quarter, an increase of 20%. Net revenue per patient for the third quarter just ended was $77.61, compared to $74.11 per patient in the same quarter of the prior fiscal year; an increase of 5%. On July 31, 2009, working capital was $72,489,000, a 24% improvement over the fiscal $58,561,000 that we reported on October 31, 2008. Our Days Sales Outstanding on July 31, 2009 was 95 days. Our net revenues were $260, 342,000 for the nine month period ended July 31, 2009, representing an 88% increase over the net revenues for the same nine month period in the prior fiscal year. Our gross profit on net revenues for the current nine month period was $127,252,000 or 48%, compared to the prior fiscal year of $106,428,000 or 48%. The number of patients serviced during the current nine month period was $3,339,000, which was 9% greater than the prior comparable period. Net revenue per patient for the nine month period just ended was $77.37, which was 8% greater than the prior year comparable period. Earnings per share on net income were $1.05 per share for the nine month period just ended, as compare to $0.74 per share in the prior year period. Thank you. I’ll now turn the rest of the call over to Dr. Grodman.

[Marc Grodman:]

Thank you, Sam. This has been an outstanding quarter. Better science and better service have enabled us to enjoy not only substantial growth, but also substantial presence in a number of markets, where we’re offering exciting and differentiating services. That differentiation did not exist merely for the benefit of one quarter or year, but rather represents long term investments in time, people and money, that we’ve made in order to create lasting value for our shareholders. It is our firm belief that we have maintained a leadership role in the most exciting areas of laboratory and medicine testing today; Cancer, Genetics, Women’s Health. We are continuing to expand our Women’s Health program across the country, and to that end we’ve continued to increase our Women’s Health sales force. GenPath, our cancer laboratory, GeneDx a leader in genetic testing, continue to provide us with dramatic growth opportunities and growth, led by the adoption of new platforms and technologies. We have carefully planned for our growth and have increased both capacity and capacity planning substantially to meet our anticipated needs for the next several quarters. We have several opportunities for growth at this time and we intend to invest in the infrastructure to take advantage of those opportunities for our growth company and we are a growth company. I’ve come to believe the business models are not static. We go through alternating periods of investment and retrenchment. The next few quarters of reflect the efforts of our reinvestment plans, but as we have always proven in the past, we believe that the reward will come with continued growth and a value to our shareholders. A year ago this quarter we were seeing the first signs of the effects of the national and global crisis and this was reflected in our numbers. This year, we are clearly seeing an easing of those pressures. We saw strong improvement in all aspects of our business operations, although some of the favorable comparison numbers are probably related to the changing economic effects on a year-over-year basis. However that being said, there have been a number of strong positives to note for the quarter. Our growth continues to be driven by our esoteric programs

[Operator:]

(Operator Instructions) Your first question comes from Art Henderson - Jefferies & Co.

[Art Henderson:]

A couple of questions; Marc, you’ve made it clear that reinvestment is a focus for you going forward to prepare for future growth. Can you just elaborate a little bit more in detail on kind of what you’re doing there? Is it hurrying in both technical and semi-technical capabilities for sales force? Any sort of color you can give on that? Also based upon I think the way you sort of approached it, it looks like maybe instead of having a trajectory of earnings in Q4 that playoff of Q3, we may see a little bit of a turndown. I don’t know whether that’s the right way of characterizing it, but with this additional expense, I just wanted to kind of get your thought, so that we can project more accurately.

[Marc Grodman:]

I think that we are going to be positive, that we’ll continue to grow and be positive. The rate of this number was certainly there, we pushed capacity a great deal this quarter, but we are going to be reinvestment. We are doubling our sales force in Women’s Health. We are opening up satellite facilities around the country to deal with that volume. So, I think the trajectory maybe a little bit not quite as great as what it was between these two third quarters, but we’ll continue to grow and so positive. When we add, we add in the specific ways. We did pretty good in dealing with infrastructure, but we will invest in sales and marketing, and believe that our top line growth will keep that as a percentage of around 9% of net revenues. The other part of the building is going to be in people; capabilities to handle work; be able to give people the service that they deserve and that’s going to be a hiring those capabilities. The tests that we do, and when you deal with some of these esoteric tests, they are not necessarily belated to go into a machine and turn it over; it really is going to be the cost of people to do the work. So to that regard, we do add people and capabilities, and we expect to able to add that. It does not take away from the growth and trajectory of what the company is, and may not to be the same extent that we saw here right now, with the number of factors stripling to an outstanding performance, but we’ll continue to be able grow. We are going to see it in both above the line and below the line in terms of direct, as well as indirect expense, but I still think the compares will be positive, and I still think that we will do very well with those. We’ll be able to absorb those increases. Art Henderson - Jefferies and Co. You’ve built this company organically at an incredible pace. I’m wondering, you’ve made some acquisitions along the line with GeneDx and what not, but are there other things that you’re looking at out there, that maybe appealing to you from an acquisition perceptive, that for whatever reason the economy or what may have occurred in the capital markets has led to a more reasonable valuation on things like that. Could you give a little color on that?

[Marc Grodman:]

Sure, we look at acquisitions and those opportunities all the time. We are not going to be by our nature the most aggressive buyers. We build our own cash and we don’t have a burning need to buy to go, because we do have organic growth and as a part of the 25% that was based on these comparisons, but the overwhelming amount of it is purely organic growth at a rate greater than, I think is really seen in many areas. So we look at them, but we are going to be tough conservative buyers. If they provide an opportunity to be both synergistic and accretive, we’ll go in and we’ll look at it. The economic climate has not changed terribly; I don’t think in the value of laboratories. People still want to be able to go get good money for what they have, and we’re very specific buyers. We are not customer list buyers. We don’t buy for business, because I think that when you buy a customer list, the most value that you have with the customer lists is on the day you by it and its downhill from there. You have to have the capability of growing the business, and then it gets to a point if that growth’s going to be there or is ours. So we are tough buyers. Are there opportunities out there? Yes, they are, but we’re not desperate buyers because our organic growth, so we’re a little bit different. The ideal people who work with us are the people who have interest in the company, who want to stay. We look for deals where there are people who build a company and want to be part of building a larger company. As you come in, you know us and many of the people on the call know us. Virtually everyone who’s in Bio-Reference in a position of authority right now, have come from another laboratory and we’ve taken them and we built with them. So the people who want to be here to build something greater are the ones in deals that we probably would go in and favor more, because we’re building in value. We want to provide them careers and opportunities, and for those who don’t have any interest in that, who are financial buyers, there’s less incentive there, because it’s all based on dollars and cents and it’s a different story. So yes, we look at them, but we’re tough buyers and we have no great need for additional deals right now, to augment our organic growth. Art Henderson - Jefferies and Co. Capacity in Elmwood Park, are you running out of space at this juncture or any plans to maybe expand your laboratory facility capabilities at anytime?

[Sam Singer:]

No, we’re not running out of space, but when you build in the laboratory business you need space, you need machines, you need people, and sometime you need specialized people, and you need people of certain talents. When you go into areas, in any one given area, you may sometime exhaust the easy flow of people in that area. So it’s often import to going and tamper the markets and people with expertise. So when we look at areas in cytogets as I mentioned or in Women’s Health, you look for areas where there are people that who want to come join Bio-Reference, which can go in and grow, that you can tap into another market. So it’s not a question of space, it doesn’t change really the philosophy of the company. It’s a evolution of the philosophy, the company would still realize overwhelmingly on one facility, but where we need to go in and go elsewhere for capability, we’re going to go get it. It’s a different world than what it was, and we’re able to go in and deal remotely with getting a lot of services and making it all seamless in decline. Art Henderson - Jefferies and Co. I did have one more if I could. DSOs, great improvement there. What are you doing systems wise? Obviously whatever is happening there is really working, and I’m just wondering, did you take a different tact or is this a build-up overtime, what’s happening on the systems front that’s allowing such great improvement?

[Sam Singer:]

There are a number of things that we’ve done over the years. A part of what I believe is that, as much as we have made improvements over the last year, there have been change that have made it harder as well. As much as we’ve improved data, gathering the information, there have been cases of where it was harder to obtain information. As much as we would have liked to have more electronic ordering, we’ve had resistance in the marketplace, with people doing electronic ordering, at least with us and with our growth. I think that a lot of it has been the concentration on the higher reimbursed business. It’s going in and focusing and appealing decisions, following through by concentrating on the higher claims, you’d be able to make a greater impact. So if I had to generalize, I would say that, but it’s a lot of little thing and there have been less thing biting back that allow us to show some of the improvement. I think that where we are now, and I don’t look at this as one quarter difference, I look at it over the last four, five quarters, we’ve had improvements from where we were at the baseline and that’s since it’s a different baseline. Although I haven’t really said that before, but I think that that’s what we’ve been able to show and hopefully we’ll continue it. Art Henderson - Jefferies and Co. We should expect possibly some fluctuation there as we could…

[Marc Grodman:]

There could be fluctuation. I mean as I said, over the last year when we had our change, which was from the what was 115 to 108 last quarter, there were a lot of people who questioned, is this last year. They said, “Is that going to be real or not?” and I said “I don’t know,” but I think after a year in seeing the improvements right now, I think that we clearly have shown that from that period of time, a year and a half ago, we’ve been at a new baseline.

[Operator:]

Your next question comes from Charles Rhyee - Oppenheimer.

[Charles Rhyee:]

Just a couple of quick questions; you talked about obviously expanding out the Women’s Health business, talking about three satellite locations. Can you give us a general sense on what is the sort of a capital outlay needed to do get one of these up and running?

[Marc Grodman:]

Hiring people, space and computer infrastructure; not a huge amount, but the biggest cost is people.

[Charles Rhyee:]

The biggest cost is people, so in terms of the CapEx portion of it…

[Marc Grodman:]

The CapEx portion is not going to be where it’s going to go. The CapEx portion demands and we can certainly talk offline about it. There’s always an ongoing CapEx need, just within the programs that we’re doing. I mean it’s remarkable as we look to go do new testing at a new area such as the swine flu, which is going to take up the capital needs for that and as we kind of need to do work for the rest of the panels, the additional equipment, so we have ongoing capital needs here. The satellite portion on what we’re talking about when we move to new areas, by and large is people, that’s why we move. It’s not because of the machine; at least we’re able to go tap into those new markets. So I don’t think it’s going to change the trajectory of the CapEx numbers that we would have thought for the coming year.

[Charles Rhyee:]

So, then really when we think about the next quarter, it will probably be in the employee related expense line, where we’ll see the biggest…

[Marc Grodman:]

Probably yes, that’s where the biggest numbers that you’ll have will increase. We’ve shown good leverage in other SG&A; and marketing, we’ve always said that however, you look at us and I have the advantage and I guess you have it in just seeing it in where we’ve been in terms of sales and marketing over the period of the last eight quarters. I think that we’ve always hovered around 9%, somewhat lower, somewhat a little bit higher. So where you’re going to see it is going to be above the line. Nevertheless we’ll still have good comparisons, but you’re going to see it in people.

[Charles Rhyee:]

So if I look, and I know we’ll get more detail when the Q comes out, but just a couple of questions, getting a little more details. If I assume DNA is probably fairly consistent with last quarter and you’re saying 14% bad debt, it kind of implies that overall selling, marking, administrative was relatively flat sequentially, and so you get a lot of leverage on the revenue growth. Any reason to think that if anything that was specific to this quarter, or is that sort of the fair run rate in terms of the dollar spent? Anything we should think about that you’re going to be outline here?

[Marc Grodman:]

No. I think below the line I’ve given some really reasonable expectations in terms of sales and marketing where they are? Other SG&A showed some pretty good improvement about where they are, and what we’ve done over there. I’ve also said that when we do new testing and new capabilities, we’re going to see most of that above the line, because it’s really people, and that’s where you’re going to see the greatest effects. That by and large the new sales will be able to more than compensate for that investment.

[Charles Rhyee:]

If I look last quarter and the April quarter, you had a real big step up in the reagents and suppliers and if I recall talking to you guys offline. Earlier it was, a lot of it was the build-up of some supplies ahead of launching Women’s Health or expanding it? Can you give us a sense of what that number or the region supplies was this quarter? Either as a percent of revenues or…?

[Marc Grodman:]

I will tell you that I think it was a little bit better than the last quarter, but I really don’t want to breakdown that degree of granularity on the call, but I think that it’s not just totally different than where it was, inline with where we expected it. I think the place where you’re going to see the investment is in the people. If you have to go to cytology and paps, you have to go the higher side of the text. If you want to do more cancer side of genetics, you have to get people who do that kind of work, and that’s really where you lack that inherent leverage.

[Charles Rhyee:]

Last question, just touching back on the DSO’s, obviously a great improvement. I think if I looked at the last quarter we talked about the impact of the MUEs at the earlier part of the year and obviously the team has suspended it and was any of improved cash collections a function of some of the recent meds getting paid out?

[Marc Grodman:]

No. That didn’t have any effect. The results of the MUEs relatively were not that great. They really were suspended about four months ago. Their suspension is still in effect. Where they go is an issue which is pretty up in the year, that has to be considered over the next 30 to 60 days, but it really wasn’t anything related to that.

[Operator:]

Your next question comes from Scott Green - Bank of America/Merrill Lynch.

[Scott Green:]

My first question is on cash flow. It looks like the revolving note balance fell some. Can you talk about uses of cash going forward? You mentioned increasing the sales force; any other priorities there?

[Marc Grodman:]

Yes, we are going to be building infrastructure and hiring people where we think that the generation of new sales will compensation for that increase.

[Scott Green:]

Then on what you expect to be DSO improvement going forward, given that we saw a double digit improvement year-over-year this quarter, can you be any more specific on order of magnitude that you might expect in the future.

[Sam Singer:]

No. My remarks said specifically that I’m reluctant to ever give guidance on a change in DSOs and I never gave guidance when we dropped from 115 to 108 and I thought I wouldn’t do it now. What I’ve said in the last five quarter, I think that we’ve been able to go in and show improvement at a new baseline. So I think that we’ve made improvements, but I’m reluctant to go in and give guidance on that.

[Operator:]

Your next question comes from Raymond Myers - Emerging Growth Equities.

[Raymond Myers:]

A different angle on your cash collection improvements; not asking to give guidance on the future. I’m actually interested in how have you improved cash collection? What are some of these initiatives, because I find this quite impressive…

[Marc Grodman:]

I’ve already mentioned that in what was asked before. A lot of it is concentrating on the higher esoteric amounts, the higher build amounts, and following those through are conclusion, including appealing, getting them done. So by being able to put more systems in people on the higher ticket items if you will, we’ve been able to go show some reasonable improvements; and if I had to say if there’s one area that has had some of the biggest improvements, it’s a part of that. You can do more when you have a lot of bills and a lot of them are in very little amounts. It’s kind of hard to go have the same concentration resources on that. When you focus it on some of the higher amounts, you’re able to go show or have more of an impact. There are things that we’ve done in terms of systems review, having more people review bills, having more people review rejections, having more people review what in claims get paid and not get paid, have been able to go in and feel some of that improvement, and I mean there are a lot of things with systems. We have people getting missing information. We have more people doing it, we started that months ago. So it’s a lot of systems that we’ve started, that have taken fruition, but in the course of all this time there’s been one thing. It’s really being on being able to go in and get more things build quicker, getting more corrected information out quicker, having more corrected information get into the system at some point during time and focusing on the high ticket items.

[Raymond Myers:]

Good ob. It sounds like excellent blocking and tackling.

[Marc Grodman:]

That’s really what it is. The trouble is, in the past there’s been a lot of people that have been blocking and tackling the other way, and this time we’ve had a little bit of an open field.

[Raymond Myers:]

You being somewhat an expert in the regulatory and reimbursement realm more than others, could you comment on the regulatory and reimbursement environment? I think you did touch briefly on MUEs, but also the IVDMIA issue and then other changes in reimbursement that maybe happening this year.

[Marc Grodman:]

Sure. MUEs we have and this is part in the role of what we’ve done at the Clinical Laboratories Association. MUEs which started out as being medically unbelievable, and it’s somehow more medically unlikely and I think it’s a very questionable precedence, whereby determination and for those of you don’t know what it means, the number of services that you provide has a description of the number of test if you will, whether it be a flotation mark or whether it be on the number of the chemistry stance, it’s all going to limited by a certain number. That was some number being put out as being changed. We believe it has to be done on medical necessity. We had an ongoing discussion with CMS, we’ve given them response to that and where that stands right now. They implemented this in the first quarter of this quarter. It was suspended when we made our complaint and our concerns known, and they’ve remained suspended pending discussions, and we’re in the middle of those discussions. Where that turns out, I’m really not sure, except that I think one makes national coverage determinations by what is going to be best medical determinations, not on an economic model. In terms of IVDMIAs, we heard rumors ongoing about guidance coming out. It represents a very small amount of all of our revenues in the IVDMIAs, but it is certainly there. We have had ongoing discussions with the FDA. I think that clinical laboratories provide a certain need. There are a lot of fears that out there, that are in many ways already mixed. People are concerned in some ways by direct-to-consumer testing and what cancers people really get. People are concerned by what is going to happen with the future of genetic testing, people are concerned by what our laboratories are doing in developing test, and a lot of these things get mixed up into a grab back and people say, “Well, let’s go regulate,” The reality is most of us really do work that is very well vetted under clear, under a Medical Director who is responsible for the ORSOPs and we all do work that goes back physicians. The more tests that we do, the more complex, it goes to the more trained physicians who really understand what we are doing. We don’t do any direct-to-customer testing. So it’s an ongoing debate, and one that really needs to be clearly delineated and where it turns out, I don’t know. If we ever were in a position of where we would have any crimp to offer these services, the effect on patient care would be devastating. For all kinds of tests that you regularly would go to if God forbid you have cancer. In many ways paps here is a laboratory developed test. So putting in perspective is a level of risk. So when you talk about regulation, people don’t realize what the effect is of what they are talking about. So in terms of next year and you have been asked specifically in terms of where we’re going to be in terms of health reform and reimbursement to laboratories, I think everyone knows that no one knows. No one knows the shape of what it is. There is a house bill which is about Health Reform, but probably will look to us to go have our Medicare reimbursement schedule. Our reimbursement rate has been tied to our CPI and the CPI was down and last year to get rid of competitive bidding, we agreed to a 0.5% decrease. So we are looking at a small percentage, less than 2% of Medicare. Where we are into the Medicare reimbursements? Where we are with the Senate version of the bill, no one has a clue and we really don’t know. There was as you well know and it’s been well publicized; an introduction or an idea of a laboratory co-pay for lab services, which in essence is a cost shift of over the next ten year of $24 billion to seniors, which absolutely flies in the face of what everyone hears now today about Health Reform, that there will be no change to Medicare beneficiaries. Even if one goes in and says that a portion of this, and then they will be mitigated by people have Medigap coverage. People who need services most, who as a question of access the most don’t have Medicaid services; and what’s going to happen to healthcare when a Medicare beneficiary, who is living on a fixed income, gets a $20 bill for lab services two months after he goes at a doctor.

[Raymond Myers:]

They don’t paid?

[Marc Grodman:]

They don’t paid it or they don’t go to the doctor again. Its co-pay, it’s two things. It’s their policy, but it’s the doctor order to test, but it’s also they have politics. So it really doesn’t make sense. We’ve had a lot of lobbying efforts and I scarcely believe that we found anyone; anyone who has ever been sympathetic to seeing the value of a lab co-pay, but given the nature of the Senate, there are people that are still keeping it in the question and there is no issue that it’s a laboratory community. By the way, other patient interest groups, I believe there are other people that have come out of ARP, I believe has come out, is not really believing in co-pay and as a cost shift to seniors, so yet it stays there. No issue units us more and we have a lot of work to do in the coming months to see how that’s going to take place, but truly no one knows what’s going to happen.

[Operator:]

(Operator Instructions) Your next question comes from Graham Tanaka - Tanaka Capital Management.

[Graham Tanaka:]

Just to focus a little more, you’ve done great on esoteric, but on the core testing business, I mean how much growth are you seeing from standard batteries having more markers, more tests on them, and how much you think you might get? Is there a boost possible from this whole H1N1 concern?

[Marc Grodman:]

Yes, I mean we have had an improvement in our clinical. Remember they were the most affected by the economic downturn last year, but they have shown improvement. Even beyond where they would have been if there was not an economic improvement clinical, business still was up. We talk about ourselves with Women’s Health, and talk about ourselves as GenPath and our cancer lab and about GeneDx and those areas, and we often don’t talk about us as an original laboratory in the Northeast. The reality is that Bio-References has a substantial franchise here in the Northeast. We have a lot of infrastructure here, a lot of people who serve as physician in this area and a great deal of acceptance, name recognition and a good provider of service. So we grow and at a certain point you grow, because you are who you are. You don’t have to let people know that anymore and we are a strong competitor and we have been able to go in and show good growth in this area. I think the swine flu will have an effect. I think that it will increase testing over that quarter. The effect and the amount to it, I don’t know. The ultimate reimbursement of a lot of these tests, believe it or not, we still don’t know how well or not they will be reimbursed, but clearly people will go in and get tested, because it’s easy to be able to go send out test. The diagnosis of swine flu and all viral infections requires overwhelming and careful monitoring and support of care, and differentiation of knowing which physicians do, as to who’s really sick and needs help and who really doesn’t. That’s a hallmark of all care; nevertheless there will be a lot of testing. I’m sure that will follow.

[Graham Tanaka:]

There’s a lot of publicity and a lot of concern and some of the publicity talks about people, some part of that public already has been exposed. Is that some thing that can be determined from blood tests or not?

[Marc Grodman:]

Well, you can go in and see whether someone, when they’re in the middle of being sick has swine flu, but I don’t think that pre-testing, I don’t believe we’ll have a great deal of value that I would endorse. When people come in with viral symptoms, I think that they will be tested and I already say this, just kind of more as a physician that anything else. The key is really looking at the patient in terms of what support of care they need and whether or not they are capable of handling the stress of a viral infection more than whether or not they specifically have swine flu or not. An elderly person who has trouble breathing and high fevers and is dehydrated, they need hospitalization whether the swine flu test is positive or not. A young person who is really incapacitated severely, the young and strong needs help and that’s something which is going to be the more important part of it, not the testing. So that’s my thoughts of that Graham. So thanks for really giving me a chance to do that.

[Graham Tanaka:]

On the standard batteries, any change going on there?

[Marc Grodman:]

No, we’ve continued to have tremendous success and differentiation on our ACT panel or advanced cardiovascular testing panel. It was something that we’ve done; it’s truly a differentiating effect. When we take away Women’s Health, and take away cancer, it’s one of the more powerful selling tools that we have when we go out to physicians and they really do like it, and there’s been a tremendous up sale in our own physicians who utilize it. So that more than anything else has had an effect. Whether there are other tests that are more popular than what they were? Yes, there’s more vitamin D testing, but those are just things about what people do, because there’s more information about that. In terms of where we are in our operations, it doesn’t change the needle at all, it really doesn’t have an effect like that. Besides that, at our level of growth that we have, we grow in strong double digits and we grow with organic growth and new customers. So changing in testing behaviors doesn’t have the same effect that would have on a lab that would grow at less than 5%. Where it has more of a steady mix, we grow with new initiatives in the business.

[Graham Tanaka:]

How about on the cost side? What kind of cost inflation do you think the company is going to be seeing in the next 12 months and is that some sort of inflation in labor or are there things that you think will be…?

[Marc Grodman:]

I think that as I said before, I think most of the increase perhaps is going to be on labor. I think that’s going to be where we see most of it historically, and we’re working in those areas that do require people. So I think that will be where we’re going to go watch, but I still think that our future growth and the initiatives that we started will compensates for whatever increase in expense we’re going to have. As I said before, there are periods where one investments in parts for people we turned. We’ve gone through a period of quarters where we kept our expenses extremely tight, because we have made the investments prior to that point, and now we’re at a point at where we’re able to see the growth, and we continuing to make investments to continue to support that growth and we go through that period. This has been a great quarter. If you look at this from a distance, “Wow, what really happen?” but when you look at this over the last five quarters, you see absolutely a trajectory of strong, steady ongoing growth. We said a year ago this was going to happen, that we have it, we’d catch up, we did.

[Graham Tanaka:]

So the company is growing top line is able to offset the inflation.

[Marc Grodman:]

Absolutely. There are some times when it won’t match, but when you take a step back and don’t live on it quarter-by-quarter, you see that’s what we’ve done.

[Graham Tanaka:]

The effect on reimbursement, what’s the timing of making the decision?

[Marc Grodman:]

We don’t really know, because we don’t know what the changes would be. There will be some changes at this point that will take place January 1 for Medicare, but we don’t know any other changes and when they’re going to happen or the timing of it. There really is no idea at this point that we really are up in the air.

[Operator:]

Your final question comes from Charles Rhyee - Oppenheimer.

[Charles Rhyee:]

I apologize if I missed this; did you talk about your expectations for full year guidance here. Obviously you’re running ahead of your goal of…

[Marc Grodman:]

No. We don’t historically have done anything in giving our quarterly guidance. I think that this was a good positive quarter and where we had it, but we haven’t really said anything about that for the year. We certainly still standby our original numbers that we have, which is that we thought we’d exceed 20% in operating and net income, which we’re obviously doing. I think that we will do better than 15% in revenues, which I think that we’ll do. We didn’t do anything else specifically in the quarter.

[Charles Rhyee:]

I was just wondering if you were changing full year guidance at all.

[Sam Singer:]

No. I don’t think at this point it would be necessary.

[Operator:]

There are no further questions in queue. I would now like to turn the call back over to Dr. Grodman for any closing remarks.

[Marc Grodman:]

Thank you very much for being on the call. We moved the call up one day, because we didn’t want to interfere as much as we could with the Labor Day weekend. I wish all of you a good somewhat belated end of summer. I look forward to speaking with you either at the year end call and certainly for many of you in the interim. I wish you well and take care. Bye-bye.

[Operator:]

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.