Unilab & LabOne Demonstrate Improved Revenues and Profits

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AFTER AN EXTENDED MULTI-YEAR financial siege, Unilab Corporation seems to be regaining its balance. First quarter financials demonstrate respectable gains in revenue and net income at the California based laboratory.

Big gains were posted by LabOne, Inc. of Lenexa, Kansas. For the quarter, revenue and net earnings increased 32% and 43%, respectively. Growth was evenly distributed across all three market segments served by LabOne.

Improved Financials

In fact, most public laboratories and the disease management companies enjoyed improved financials during the first quarter. Combined with the performance of the three national laboratories (reported in the last issue of THE DARK REPORT), it would appear that strategies for responding to managed healthcare are beginning to pay off. Finances seem to be stabilizing in the public laboratory sector of the industry.

Unilab is an instructive example. The company suffered horrific losses since 1995 as the financial impact of rock-bottom laboratory reimbursement rates buffeted clinical laboratories in California. In fact, it was the only California-based public laboratory which did not file for bankruptcy.

Unilab responded to the financial pressure with extensive cost-cutting and operational restructuring. It finished 1997 with improved cash flow and carried that trend through first quarter 1998. Revenues for the quarter were $54.5 million, up 2.8% from the same quarter last year. Net income was reported at $3.1 million, compared to a $1.1 million loss last year.

A significant accomplishment at Unilab was improvement to EBIDTA (earnings before interest, depreciation, taxes and amortization). Unilab saw its EBIDTA jump from $4.5 million last year to $8.4 million this year. As a percent of sales, EBITDA increased from 8.5% to 15.5%.

This demonstrates that Unilab’s costcutting efforts, in combination with a diligent effort to reprice managed care contracts upward have contributed to improved cash flow. In fact, requisition counts were about equal to first quarter 1997, but pricing increased by more than 4.0%.

Because California is a bellwether state, Unilab’s financial performance provides good information as to how managed care trends are affecting clinical laboratory operations. Unilab is the biggest laboratory in the state, with annual revenues of about $215 million.

LabOne Shows Big Gains

Moving to America’s heartland, LabOne continues to demonstrate its effectiveness at marketing specialized testing programs with good success. At $79 million in annual sales, LabOne is the fifth largest publicly traded laboratory in the United States.

First quarter revenue at LabOne rose by 32%, to $23.3 million. Net earnings increased from $1.4 million to $2.0 million, a 43% gain. Clients of THE DARK REPORT know that LabOne has pursued a market niche strategy in recent years in three segments of testing. Blood testing for life insurance policies is LabOne’s major revenue source. It increased 17% during the first quarter, to $16.8 million.

Clinical testing climbed from $1.6 million last year to $3.7 million. Substance abuse testing was $2.9 million, an increase of 61%.

Value-Added Services

Persistent sales efforts and value-added services are two reasons why LabOne saw strong growth across its three main testing divisions. LabOne intends to maintain this pace of growth. It just announced another agreement with Epitope to market Epitope’s OraSure oral fluid test to “public health, corrections, military, and college health markets.” LabOne already offers OraSure to life insurance companies under an exclusive arrangement with Epitope.

Life insurance companies find it both cheaper and easier to test applicants for HIV using the OraSure test. Thus, they have increased the volume of tests ordered annually, to LabOne’s benefit. LabOne’s sales force is familiar with the test and both companies expect the relationship to further boost the volume of OraSure tests used in the market segments covered by the agreement.

Additional Testing Volume

Another product which is helping to generate additional testing volume is LabOne’s LabCard program. Marketed through third party administrators (TPA), LabCard is a way for insurance plans and self-insured employers to lower their laboratory testing costs.

The program now covers more than 1.9 million lives. It recently enrolled Blue Cross/Blue Shield of Tennessee as a client. LabOne predicts continued strong growth with its LabCard product.

The financial performance of Unilab and LabOne are representative of the second tier of public laboratories. Like the three blood brothers, they have endured several years of financial stress. But performance in the first quarter of 1998 indicates that an industry-wide turnaround may be under way.

In the next issue of THE DARK REPORT, we will look at the financial performance of publicly traded laboratories involved in specialty testing and disease management.

Universal Standard StillPostingRedInk

First quarter financials for Universal Standard Healthcare Inc. (formerly Universal Standard Medical Laboratories) showed a net loss of $0.2 million. This is an improvement from the $.05 million loss for the same quarter last year.

Universal Standard is based in Southfield, Michigan. It is publicly traded and does considerable laboratory testing for the Big Three automobile companies. The laboratory has struggled in recent years, as its profit margins eroded due to declines in fee-for-service testing volumes.

Net revenue for first quarter increased by 17%, from $13.5 million to $15.8 million. This was due to a new laboratory services contract negotiated with General Motors that became effective January 1, 1998. CEO Eugene Jennings expects the General Motors contract will help Universal Standard return to profitability in 1998.

One sign that this might be true is the company’s increased cash flow. EBIDTA increased from $0.9 million last year to $1.2 million this year. That is a 33% improvement.

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