Specialty Laboratories Announces Third Quarter 2005 Results

Business Wire, Oct 26, 2005

VALENCIA, Calif. -- Specialty Laboratories, Inc. (NYSE: SP) (Specialty), a leading hospital-focused clinical reference laboratory, today announced results for the third quarter ended September 30, 2005.

For the third quarter 2005, net revenue was $38.7 million, increasing 11.6% from $34.6 million in the third quarter 2004. Net income was $519,000 or $0.02 per diluted share, compared to a loss of $2.2 million or $0.10 per diluted share for the third quarter 2004. Results of operations during the third quarter 2005 include charges of approximately $639,000 related primarily to legal expenses incurred in connection with the previously-announced merger between Specialty and AmeriPath, Inc. These charges are recorded in Selling, General and Administrative expenses (SG&A). Net income excluding these charges was $1.2 million or $0.05 per diluted share.

Adjusted EBITDA, excluding these charges, was approximately $2.7 million in the third quarter 2005, an approximate $1.6 million sequential increase from the second quarter 2005 adjusted EBITDA of $1.1 million, which also excluded certain charges.

"We are pleased with the progress we have made on certain expense reduction initiatives, which began in the second quarter, and the impact they had on our third quarter performance," said David C. Weavil, Specialty's chief executive officer. "Our management team has done a very commendable job, and will continue to strive for additional productivity gains. However, on a sequential basis we did experience a slight decrease in total accessions during the period, and we are working on improving our sales performance in gaining new client referrals. We will continue to maintain our focus on service, selling and profit improvements in the fourth quarter, and beyond."

Financial Highlights

--Volumes. Third quarter 2005 patient accessions were approximately 918,000, increasing more than 17.4% from the approximately 782,000 accessions of the year-ago quarter, but decreasing by approximately 1% from the second quarter 2005. An increase in Specialty's independent laboratory business, which began during the third quarter 2004 and continued during the third quarter 2005, accounted for approximately 142,000 patient accessions in the third quarter 2005 compared to 56,000 in the third quarter 2004. Excluding this stream of independent laboratory business, which we believe is temporary in nature, accession volume grew approximately 6.9% from the year-ago quarter to 776,000 accessions, and declined slightly from 778,000 accessions during the second quarter 2005.

--Revenue. Net revenue for the third quarter was $38.7 million, increasing 11.6% from $34.6 million in the third quarter 2004. Excluding the temporary independent laboratory business, revenues were $36.9 million, an increase of 8.8% over the third quarter 2004.

--Pricing. Average price per accession, excluding the temporary independent laboratory business noted above, increased by 1.8% from the year ago quarter and was flat in comparison to the pricing achieved in the second quarter 2005.

--Gross Margins. Gross margin as a percentage of revenue was 35.0% during the third quarter 2005 compared to 30.9% in the year ago quarter and 32.7% in the second quarter 2005. The improvement in gross margin realized during the third quarter over the second quarter 2005 was the result of a more favorable test mix and the continued benefit of significant cost reduction initiatives that were implemented during the second quarter 2005.

--Balance Sheet. Cash and investments were approximately $38.6 million as of September 30, 2005. Specialty continues to expect to receive approximately $3.5 million in additional cash payments in the fourth quarter 2005 related to its facility sale-leaseback transaction, following the final completion of all contractual obligations. Days outstanding for accounts receivable were approximately 66.8 days at the end of the third quarter 2005, compared to 64.5 days at the end of the second quarter 2005.

--Cash Flow. Operating cash flow for the quarter was $1.1 million. Capital expenditures were approximately $914,000. Depreciation and amortization for the period totaled approximately $1.4 million.

As announced on September 30, 2005, Specialty Laboratories has signed a definitive merger agreement with AmeriPath, Inc. ("AmeriPath"). Specialty expects to complete the transaction in the first quarter of 2006.

Conference Call Information

Specialty Laboratories' quarterly conference call will be broadcast live on Specialty's website, www.specialtylabs.com, on October 26, 2005 at 5:15 PM Eastern. A replay will be accessible on this site through the close of business on October 26, 2006.

About Specialty

Specialty Laboratories performs highly advanced clinical tests used by physicians to diagnose, monitor and treat disease. Offering an extensive menu of specialized testing options for more than ten major medical specialties, Specialty provides hospitals, laboratories and specialist physicians a single-source solution to their non-routine testing needs. By focusing on complex and technologically advanced testing, Specialty generally does not directly compete with clients for routine testing work and offers clinical testing services that complement the laboratory capabilities of its clients. Specialty's Web address is www.specialtylabs.com.