AmeriPath, Inc. Announces 2006 Fourth Quarter and Full Year Financial Results

Business Wire, March 16, 2007

PALM BEACH GARDENS, Fla. -- AmeriPath, Inc. ("AmeriPath" or the "Company"), a leading provider of physician based anatomic pathology, dermatopathology, molecular diagnostic services, and other esoteric services, reported its financial results for the fourth quarter and the full year ended December 31, 2006.

Net revenues for the fourth quarter of 2006 increased 38.9% to $198.0 million from $142.6 million in the fourth quarter of 2005. Net revenues for the year ended December 31, 2006 increased 33.5% to $752.3 million compared to $563.6 million for the year ended December 31, 2005. Net revenues and results of operations include the results of Specialty Laboratories, Inc., ("Specialty"), a hospital-focused clinical reference laboratory specializing in esoteric testing, from the effective date of the acquisition by AmeriPath, which was January 31, 2006. Net revenues from Specialty for the fourth quarter of 2006 were $41.0 million. Net revenues from Specialty for the year ended December 31, 2006 were $148.1 million. Same store net revenues for the fourth quarter of 2006 increased 9.1%, or $13.0 million, when compared to the fourth quarter of 2005. Same store net revenues increased $44.4 million or 8.0% to $601.0 million for the year ended December 31, 2006 from $556.7 million for the year ended December 31, 2005. On a per revenue day basis same store net revenues increased $0.2 million or 8.4% to $2.4 million per revenue day for the year ended December 31, 2006 from $2.2 million per revenue day for the year ended December 31, 2005. The 2006 year to date period had 254 revenue days compared to 255 revenue days in the 2005 year to date period.

EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure, for the fourth quarter of 2006 was $29.1 million compared to $21.8 million for the fourth quarter of 2005. EBITDA for the year ended December 31, 2006 was $114.2 million compared to $90.7 million for the year ended December 31, 2005. A reconciliation of net income to EBITDA is found in the attached table.

Costs of services for the fourth quarter of 2006 increased to $104.9 million (53.0% of net revenues) from $74.4 million (52.2% of net revenues) in the fourth quarter of 2005. Costs of services for the year ended December 31, 2006 increased to $418.1 million (55.6% of net revenues) from $299.0 million (53.0% of net revenues) for the year ended December 31, 2005. The increases in costs of services as a percentage of net revenues are primarily due to the acquisition of Specialty and from increased costs of the outpatient laboratories associated with the increased revenues from physicians' offices.

Selling, general and administrative expenses for the fourth quarter of 2006 were $41.1 million (20.8% of net revenues) compared to $30.8 million (21.6% of net revenues) in the fourth quarter of 2005. Selling, general and administrative expenses for the year ended December 31, 2006 were $154.2 million (20.5% of net revenues) compared to $110.5 million (19.6% of net revenues) in the year ended December 31, 2005. The increases in selling, general, and administrative expenses for the year ended December 31, 2006 are primarily due to additional resources in information technology, billing conversions from third-party providers to in-house systems, increased Sarbanes Oxley and audit related costs, and the impact from the Specialty acquisition. Specialty's selling, general, and administrative costs are higher than historical selling, general, and administrative expenses of the anatomic pathology business.

The provision for doubtful accounts for the fourth quarter of 2006 was $28.6 million (14.4% of net revenues) compared to $19.3 million (13.5% of net revenues) in the fourth quarter of 2005. The increase in the provision for doubtful accounts as a percentage of net revenues in the fourth quarter of 2006 was primarily due to additional provisions in the fourth quarter to provide for any exposure or timing delays of payments as a result of conversions to the new Lab Information System and Billing Information System (LIS/BIS) and the related increases in accounts receivables from such conversions. The provision for doubtful accounts for the year ended December 31, 2006 increased to $84.9 million (11.3% of net revenues) compared to $73.8 million (13.1% of net revenues) in the year ended December 31, 2005. Substantially all of the reduction in the provision for doubtful accounts as a percentage of revenues for the period ended December 31, 2006 compared to the period ended December 31, 2005 is a result of the increase in outpatient revenues as a percentage of consolidated revenues. The provision for doubtful accounts on the outpatient revenues are lower than the provision for doubtful accounts on the inpatient revenues. Outpatient and esoteric revenues, as a percentage of total revenues, continued to grow at a faster rate than the inpatient revenues. The bad debt percentages on outpatient and esoteric revenues are generally lower than on inpatient revenues and therefore, reduces total bad debt expense as a percentage of total revenues. Outpatient and esoteric revenues, as a percentage of total revenues, for the twelve-months ended December 31, 2006 were approximately 71% compared to approximately 60% for the twelve-month period ended December 31, 2005.