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Executives

Tara Mackay

Marc D. Grodman - Founder, Chairman, Chief Executive Officer, President and Managing Director

Sam Singer - Chief Financial Officer, Chief Accounting Officer, Senior Vice President and Director

Analysts

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

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Raymond A. Myers - The Benchmark Company, LLC, Research Division

L. Mitra Ramgopal - Sidoti & Company, LLC

Bio-Reference Laboratories (BRLI) Q1 2013 Earnings Call February 28, 2013 10:30 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Bio-Reference Laboratories Inc. First Quarter Fiscal Year 2013 Earnings Conference Call. My name is Steve, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to Tara Mackay, Investor Relations Coordinator. Please go ahead, ma'am.

Tara Mackay

Thank you. Good morning, and welcome to Bio-Reference Laboratories' First Quarter 2013 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 this 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 requirement and mandated pricing reimbursement; the service, customer and geographic market mix of any particular period; the company's ability to effectively manage its operating cost and collect its receivables in a timely fashion; on 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 prospectus 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 D. Grodman

Tara, thank you very much. This quarter, we demonstrated a continued strong growth of over 16% despite the effects of Hurricane Sandy and despite a tough comparable quarter last year. I'm going to speak more about these -- about this later in the call.

But right now, I want to start somewhere else. I've been a champion for the clinical laboratory industry. Clinical laboratories are not simple businesses. We're a service industry with a high degree of technical and scientific regulation. We impact patients lives more frequently than any other diagnostic medium, and we typically provide diagnostic results even before we initiate the billing process. We hold the key to advances in personalized therapeutics, provide more informatics support to the medical industry without any additional remuneration. We run complex logistical operations that could pick up bone marrow on one side of the country one day and report a diagnosis and a prognosis of the leukemia the next morning.

But from the outside looking in, our industry is often simplified, commoditized and misunderstood. It's within this context that Bio-Reference stands with a record of growth and innovation that is simply unmatched as an enterprise for over 20 years.

Obviously, I'll have more to say about these issues. But first, I want to ask Sam Singer to comment on the results of this first quarter. Sam?

Sam Singer

Good morning, everyone. During the first quarter of fiscal year 2013, which ended on January 31, Bio-Reference reported net revenues of $161,256,000 compared to $138,793,000 in the first quarter of the prior year, an increase of 16%. Gross profit on net revenues for the current quarter was $70,922,000, representing a 44% gross profit margin. In the first quarter of the prior year, gross profit on net revenues was $60,117,000, representing a 43% gross profit margin. On January 31, 2013, operating income was $15,759,000 as compared to $13,282,000 for the same quarter of last year, an increase of 19%. Earnings per share on net income was $0.31 per share in the current quarter as compared to $0.26 per share in the prior year quarter.

Patient count for the current quarter increased to 1,973,000 from 1,814,000 for the prior year quarter, an increase of 9%. Our net revenue per patient for the first quarter just ended was $81.13 compared to $75.87 per patient in the same quarter of the prior fiscal year, an increase of 7%. On January 31, working capital was $151,624,000 as compared to $151,625,000 that we reported on October 31, 2012. Our days sales outstanding on January 13 -- excuse me, on January 31, 2013, was 92 days.

Thank you, and I return the call to Dr. Grodman.

Marc D. Grodman

Sam, Thank you very much. This was a very successful quarter. Over 16% growth despite Hurricane Sandy and a tough comparable quarterly comparison. Our strength and record of combining growth and innovation has never been more evident. Prior to today's announcement of our results, we announced the reaffirmation of yearly guidance, and we believe that this first quarter performance demonstrates the substance of that confirmation.

First of all, we embraced the adoption of the Accounting Standards Update Topic 954, which requires certain health care entities, such as Bio-Reference, to present that portion of the provision of a doubtful accounts relating to patient service revenue, which was previously classified as a portion of bad debt, and is deducted now from patient service revenue rather than an operating expense. Everyone who follows us knows that over the last 2 decades, we have been consistently asked why our bad debt is higher than other companies similar to ours. We welcome the reclassification of doubtful accounts pursuant to this update, because it enables investing public to more evenly compare result of operations with similar companies.

As a result, there will be an equal offset reducing net revenue and bad debt expense. This will affect gross profit, debt revenue, bad debt expense and days sales outstanding, but will not, will not affect other financial metrics, such as net accounts receivable, operating income, earnings per share, net income or cash flow. I realize that this will be somewhat confusing for the first few quarters. A simple way to think about the change is to take 7% off of our net revenues configured under the old methodology and then reduce bad debt by the same net number. While this may be an oversimplification, it does provide some easily understandable parameters in which to work.

Second, we can also finally report the calculated effect of Hurricane Sandy on our operating results. We previously estimated that the loss of earnings would be between $0.03 and $0.05 per share during this current quarter or during the first quarter. It turned out to be $0.03 a share. The net revenue loss based on anticipated revenues, given our experience immediately before and shortly after the days in question at the beginning of November, was approximately $2.5 million. This certainly had an effect on some of our margins, since the first quarter performance is usually very sensitive to extraordinary changes in volume as a result of historical impact from holiday reduction in overall volume. Considering the effects of the hurricane, our growth in this quarter of over 16% in net revenues and 9% in patient count were quite remarkable. It should be also noted that the first quarter of last year had unusually mild weather and was a superb quarter for Bio-Reference.

We have seen continued growth and expansion of our business, especially in the areas of women's health and genetics and the evolution of our business in oncology. Since growth in these areas has historically brought attached routine business, we continue to see positive results in all of our lines of business. In addition, we have been very strong in adding market share in our ever-expanding regional business in the Northeast and Mid-Atlantic regions. Simply put, we have never been a stronger laboratory. Beyond that, we have never been a stronger enterprise. I'll return to that theme later.

We need to note the increase in our average revenue per patient to $81.13 from $75.87 on an as-adjusted basis last year. This was clearly a significant improvement and could be clearly attributable to 2 factors. First, loss of business related to Hurricane Sandy had the greatest impact on original volume, which is associated with lower revenue per patient, are not affecting our national business where revenues tend to be higher. The other factor is the strong performance of our genetics laboratory, GeneDx, which has a proven track record of innovation and market strength and remains a market and scientific leader in genetics.

Earnings per share of $0.31 compared to $0.26 in the previous corresponding period, notwithstanding the loss of $0.03 per share due to Hurricane Sandy, is the most powerful statement we can make in regard to our confidence in our business. The gross margin on an adjusted basis was 44% for the quarter compared to 43% in the prior same quarter. This has been an area of focus for quite some time. We are a company of innovation and most of that -- most of which is expensed in direct costs. Given that concentration, we'll continue to fight for basis points improvement wherever possible. Other SG&A expenses, excluding bad debt and marketing, were flat in the current period at around 15.75%. Sales and marketing was at about 10%, down from almost 11% in the same quarter last year. Going forward, we expect to see sales and marketing expenses range between 9.5% and 10% of revenues.

I think bad debt needs some explanation. This quarter, bad debt was around 7.8% compared to about 6.6% in the same quarter last year. It was somewhat higher this year, even in conversion to a new presentation and the reevaluation of the collectability of certain clients' billed accounts. Going forward, based on our historical analysis, we expect to see bad debt in the 7% range. Net accounts receivable are not affected by the adoption of the new accounting update.

The DSOs are a combination of net revenue and net accounts receivable. Net revenues are affected by the update. Based on our historical analysis, under this methodology, prior DSOs would have been impacted by the increase of anywhere from 6 to 7 days for each period. However, the underlying trends and improvements remain unchanged. DSOs for this period would've been 85 days under the previous presentation, an improvement from 91 days if it was reported in the same way in the same quarter last year. Under the update, DSOs are now at 92 days, which is compared to an adjusted one of 98 days for the same quarter last year.

Clearly, DSOs, as we all know, historically, except for last year, go up in the first quarter. We know that they include November, December, which have lower sales than preceding fourth quarter of the prior fiscal year, and this has been something that we have talked about at length in many other calls. The same is certainly true this year, given the lower revenues in November due to Sandy, as well as fall a few business days in December, given the timing of the end of the month holidays. We expect our pattern of our DSOs to maintain the same trends as we strive for incremental improvements in the future than we have historically seen over the past several years.

Cash flow for the quarter was at $7.5 million. Although somewhat less than the $10 million in the first quarter last year, it was a solid result, particularly in light of the impact of Hurricane Sandy in the quarter and was well consistent with our recent experience.

We are confident going forward we recognize that there are challenges that all laboratories will be facing. It is important to acknowledge these changes, and at the same time, clearly enunciate what we do not -- that we do not believe that any of them will have a significant effect on Bio-Reference in the coming year. So I'd like to go through them.

Last year, the grandfather clause, which allowed billing for pathology services for hospitals if they had a precedent of billing in this manner, was terminated. The change meant billing hospitals rather than Medicare for most hospital patients. The only exception being for patients treated by hospital outreach programs. This was a confusing change, but we're proud that we have navigated through this complicated transition, fully accounted for the net effect of the conversion of billing providers instead of Medicare for a portion of these services and have billed appropriately in full compliance with the law. We have received payments from both the providers, as well as Medicare, for these appropriate patients, and we do not believe that the grandfather clause termination will have any material effect on our business this year.

Second, there has been much reported about the new molecular coding initiatives. While these codes may impact the number of tests with regards to Medicare, their effect is mostly on oncology or cancer molecular tests. And we have consistently said that the amount of business we do for these tests, specifically for Medicare reimbursements, is not as significant -- is not significant and that a decrease in reimbursement of these tests will not have a material impact on us.

Now it's not to say that this issue has been handled well by Medicare. Our own Medicare contractors has not even posted rates for these tests, and there will be delays in payments for these services for every laboratory in the country by the Medicare contractors. But interestingly, given the confusion, many -- most managed care providers are simply paying on their own rates. And while they very at this time, they're remarkably close to their historical established reimbursements. And I believe this fact, in fact, has been reported by others in our sector. This molecular initiative that started with the hope of promoting transparency had resulted in a great deal of confusion on a national basis. And while this can lead to misunderstandings and manipulation of the facts, we again emphasize that this is not an area where we expect a material impact, given the amount of reimbursement in question.

Final area that I want to talk about is Blue card. It's an issue which I have admittedly taken a public role and spoken out in laboratory industry forums. I have been known to do that on issues. Blue Cross Associations have long taken a view that laboratory test can be billed where the test is performed, thereby allowing laboratories to exist with contractual relations with their local Blues plan only. They changed, which has been put into effect on an inconsistent schedule. It now requires the test to be billed where the specimen was drawn, rather than where it is performed.

Which I'll tell you what's not commonly known about Blues' programs when they made this change. And -- is that it has been done in along various time schedules. What is not commonly known is that some Blues' programs made this change years ago, years ago. And in those cases, it has been fully incorporated into our business plan and our billing procedures. Others like New Jersey just put this plan into effect this January. What is also not fully appreciated is that local Blue Cross trends are not singular in nature, but every state, every Blue Cross plan is, in fact, an amalgam of scores of plans, some very restricted, some quite open, most of all, determined by the negotiation between the insurer and the employer who purchases the care.

We are one of the largest laboratories in the country with contracts with numerous Blues' plans, including new contracts recently negotiated, as well as current negotiations with others at this time. For competitive reasons, we cannot discuss ongoing negotiations. However, based on our current experience with billing, we believe the change in the Blue card program will not have a material effect on our business this year. However, as I indicated publicly, I don't think this -- this is a bad policy that has brought on unnecessary confusion. Smaller innovative companies will have difficulty gaining acceptance, and utilization of their groundbreaking technologies will be limited. Patients from national employers who have used laboratories for years through their physicians as in-network providers will now face out-of-network costs. The situation is not going to please subscribers, and there are cases where Blues are reimbursing laboratory tests at higher amounts than they previously done on the Blue card, a situation that's not going to please employers.

This is a fluid situation, and I believe in time, clearly, some sensible order will be restored. But that's explaining the issue. Let me be clear. Given our size and differentiation of services, I believe that we will handle this transition with minimal overall impact. And even though it may appear counterintuitive, we believe that competition makes all of us better and creates a better industry. We don't succeed by limiting competition, we succeed because of it.

With regard to acquisitions, our philosophy remains the same as we have previously expressed. We buy laboratories we consider to be synergistic. As we have explained in the past, we offer one-stop shopping to physicians as a specialty laboratory. When we buy laboratories in other geographic areas that did not bring in specific technical expertise, we do so to better service our clients and to add growth in those areas. We've had success with this model, and we believe it will continue to provide added value in the future.

We believe that our record of growth and innovation is unmatched. We've already confirmed guidance for the year. We continue to grow in women's health around the country. Our disruptive service, GenPath, has now become the standard which other laboratories and IBD companies seek to emulate. We believe in one-stop shopping for physicians who prefers specialty laboratory that could service all of their special needs. The introduction of Inherigen, our Pan-Ethnic Carrier Screen in New York, has been particularly -- or had been particularly successful and an excellent segue into the rest of our expanded services.

As part of our thrust to offer a complete menu of events technical offerings, we announced yesterday our agreement with Natera, an outstanding technology company, to offer their test Panorama, a simple blood test that uses cutting-edge genotyping and sequencing technologies to identify chromosomal aneuploidies such as trisomies 13, 18, 21 and certain sex-chromosome abnormalities in a noninvasive manner, starting in as early as the ninth week of pregnancy. We're pleased to be able to offer Panorama as part of our full-service of prenatal offerings.

LBS, Laboratorio Buena Salud, has started to gain traction. Inspired by the needs and frustrations of Spanish-speaking patients and providers, LBS is a Spanish-first laboratory and has been opening accounts as LBS in New York, New Jersey, Florida and Texas. At this point, we're not attaching any significant monetary amounts at the effort. But initiative that is opening up about 4 accounts a week validates the initiative, as well as our commitment to service the Spanish-first Community.

We remain consistently enthusiastic about GeneDx. And it's not because -- it's not only because it is the fastest-growing part of our business, but because at GeneDx, we create cutting-edge, best-of-breed solutions that answer compelling clinical questions. In doing so, we create analysis and informatics tools that will have value to a much larger expanse of clinical testing. We believe the kind of clinical genetics service that GeneDx provides is simply irreplaceable on the ongoing evolution for a personalized medical and therapeutic solutions.

We understand that the nature of providers is changing. In the coming years, we will continually adjust to be of service to those evolving provider organizations. This is most evident in the oncology market, where the single practitioners are becoming increasingly rare and the nature of providers is changing throughout the country. In this regard, we introduced StormPath, a form of telepathology that has been incredibly well received and which allows us to partner with oncology, pathology practices around the country.

Our new version of tumor sequencing OnkoMatch, a product of our collaboration with Massachusetts General Hospital, is the most cost-effective way for a patient's cancer to be characterized in order to allow access to not only drugs available today but to clinical trials that may be available as well. Tumors are characterized so that patients can take advantage of new therapies and trials when they become available. I can't emphasize enough the importance of this breakthrough. It takes cancer care beyond the immediate, beyond what's there in front of people's eyes right now and takes it into a new direction. We believe it is a changing paradigm of advanced care, as well as a paradigm for intercompany collaborations.

There are scores, scores of new therapies developed by leading pharmaceutical companies that are in some way based on the specific mutations found in tumor analysis so as to attempt to match the right drug with the right patient. More so, we have found a number of patients who, when tested, have more than one mutation and, therefore, maybe, may be not only available for clinical trials but susceptible to more than one drug that you never would have been able to do before. The ability to profile the tumor in a cost-effective manner, often for no more than $500, opens up not only new clinical opportunities but a powerful source of collaboration. We intend to develop more platforms to elicit greater information under our agreement with MGH, including those that can be used in gene discovery and to support the efforts of pharma.

Healthcare is often divided between service and proprietary product companies. Given the adoption of new technologies, the investment we have made with new informatics, with new informatic capabilities in relation to genetic testing, Bio-Reference is starting to bridge those silos. We expect this is going to be a recurring theme for us over the next few years as all of health care needs to be oriented to cost-effective and quality-promoting initiatives for all providers of all shapes and sizes.

We believe there has never been a company like Bio-Reference. We are as proud record of our innovation as we are at our record of growth. We operate in challenging and confusing times, but we understand the challenges ahead, have anticipated many of these, and remain confident in our path forward.

I want to thank all of you for being on the call, and I'm pleased to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question is from the line of Amanda Murphy from William Blair.

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

So I had a question on the impact that you've quantified for Sandy. So I'm assuming -- so obviously, most of that was with volume. Is there a way to think about what your volume growth would've been? Because obviously, there's a bit of a skew in terms of the routine testings so it's sort of hard to back in to it. What would your volume growth had been sort of excluding the Sandy impact?

Marc D. Grodman

You mean in terms of revenues or in terms of patient growth?

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

Patient growth.

Marc D. Grodman

Patient growth, we probably would've been approaching more of about 11%. And I think the number for net revenue growth would -- I think the numbers would have been -- they would've been numbers -- it would've been approaching 11% for volume. It would've been approaching 18% for growth. Earnings per share would've been $0.34 a share.

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

Got it, yes. And so I guess if you look at the split between revenue per patient growth and patient growth, it is sort of the -- the revenue per patient number is accelerating, and like you said, there's some Sandy impact in there. So I'm just trying to think about what's sort of the sustainable volume growth rate relative to the sustainable revenue per patient great -- growth over time?

Marc D. Grodman

Sure. I really -- we -- I think there wasn't a clearer indication of higher revenue growth this quarter. There was -- and we're very cautious about saying and commenting on these things, there was a very strong growth in the higher-reimbursed services. There was a stronger growth in GeneDx, which was probably, and not to say diminish anything else we do, the fastest-growing part of our business. So that certainly is there. The other part is that we do not like to make projections in the first quarter because the first quarter was so variable in terms of how the holidays fall and the effect that it may have. So we don't like to go in and talk about what the effect of it is going to be. But I think that we can continue to go in and see patient growth that will be somewhere in the same area, like in the same area where we've been. But we've seen that a lot of the impact here, clearly, had to go do with the higher reimbursed tests.

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

Got it, okay. And then a couple of things on the reimbursement. So the commentary you made was helpful, but is there a way to think about Blue card in terms of what your overall exposure is? If you look at your commercial book, sort of what percentage is reimbursed by Blue's plan?

Marc D. Grodman

We don't historically break out, because there is no Blues' plans. What you have are 50 or 40 or 39 different plans. And so it is -- and the point that I was trying to raise on people when doing -- when over-simplifies it. And unless one gets into the weeds of this, you don't realize it, that each one of those plans can have 20, 40 plans. And the reimbursement on each of them are different. So as I say, which is why when we looked at this, we -- there are many that -- there are some plans that had accepted Blue card a while ago, and that we have been billing them in the same way and none of this changed anything. There are many -- most, overwhelmingly most of them that we are unchanged at in network, and then there or some that we or have negotiated recently and are in negotiations. And for competitive reasons, I really can't comment on them. And we've also seen that in all those cases where they are not, that we're getting paid. And we've had that experience recently, which is what's given us the ability to be able to say that we do not believe -- although this is a confusing area, we don't quite frankly believe it'll have an impact on us or a significant impact on us this year. But it's very hard because the experience is really not quite there. There are some states that are reimbursing more money now than they did before. And by the way, this is affecting every plan in the country. Because remember every single laboratory, I don't care if they do $8 billion or $1 million, no one has all the plans. And this has to do with their own informatics systems, one of the reasons why this was delayed so many times. So I think it's creating a lot of confusion, but I think which is why we're comfortable in being able to say that, overall, the impact is not going to be significant for us.

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

Okay. And then how do we think about all the impacts of reimbursement to DSO and cash flow? And you mentioned that we may have -- you may see an issue with payment timeframes and things like that. So just curious how to think about that throughout the year here.

Marc D. Grodman

I mean, look, clearly, we have made it very abundantly clear that the molecular testing issues refers to oncology and the percent of that is -- as a percent of our business is very small. And we've also stated that being reimbursed for this oncology business by managed care insurances have really not terribly changed for what they've done and they've continued to do it. The Medicare issue, it's not a lot, but they haven't quite resolved what they're going to be doing. And what -- but this has to be resolved. I mean, somewhere along the line, every laboratory in the country is impacted. I don't think that because of the breadth and nature of our business that we do that we think the impact is not going to be significant, but it will -- they have to get their act together. But again, because the number is not so great, I don't think it'll have a great effect in terms of where we are at this point, just because the numbers are not there. But they do have to go resolve this over the course of the next few months.

Operator

And your next question is from the line of Bob Willoughby from Bank of America Merrill Lynch.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Marc, I think you could've shortened your prepared comments to the simple comment of we will repurchase 10 million shares of stock next week. Can you talk about revisiting that share repurchase with concerns, obviously, weighing on the stock? You went to great lengths to help us understand it, very helpful. But why not be in the market buying a few shares if this is -- if these are such concerns?

Marc D. Grodman

We have -- on our 1 million share repurchase plan, we have, I think, 700,000 shares less -- left of what we can purchase, and there is nothing in the world that would prohibit us from increasing or increasing what our purchase options are. It is certainly a consideration. I think it was last year at this time when you asked me about what we think the future of where we're going is and how we operate, and there is truth that we do not benefit from any part of being a public company. I think it's apparent to anyone who really knows this. We clearly are looking at all those different options and including the purchasing of shares and looking -- seeing where we are. There's something -- we believe in the system that rewards substance, and we have to figure out what the best medium is to be able to go in and achieve that.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

Well, maybe to that answer, Marc, I -- we don't associate you with doing acquisitions on a regular basis, but you did do the 2 small ones here. Are we looking at a more aggressive pipeline in fiscal '13 or some of your comments about maybe exiting the private arena? Would that just be -- if that's the case, but you -- doesn't it take sort of going private concern off the table?

Marc D. Grodman

No, I think that we really do constantly reevaluate the business. Anyone who knows us and know how we think, we work in a collaborative environment, and we constantly see what to grow. What we don't do is to go in and buy laboratories for customer lists. We have no belief that, that has any value. We buy because we think there's a strategic value on where we are. We're doing enough business in Florida that we need a significant hub in Florida. Now that's different than buying a customer list. We're buying it and building it up. We're buying, put a small lab in Florida because we really thought it was a good place to build out a Spanish-first service. There's a need there and it's a differentiator, one that I think is important. So it is possible that we will go in and look at deals around the country if it makes sense to increase our business. One of the most valuable parts of our business, one of the -- and we've talked about this is the ability to offer one-stop shopping as a specialty laboratory. So there are people all over the country who can go in and -- or at specialty labs that have taken our acquisitions, taken what we done and emulated to them to the T, they probably will call it GenPath with 2 Hs at the end. And we'll go ahead and do that, but they're not really able to have a capability of being able to be a one-stop shop. And there are one-stop shop places that are trying to differentiate but still has the essence of a full-service laboratory. And so we're unique. So where we can build out that business plan, we have to go in and think about it. And in terms of -- on the overall business, I don't think either way we're going to stop growing the business. We are built for those 2 things. It's kind of in our creed and for 2 decades, that we constantly have to innovate. And we know in our business nothing lasts forever and that you have to continue to reinvent yourselves. And we've shown a track record of doing it. So we may look at more, but they're always going to be strategic because you going to be able to go add in more business in a region.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

I guess, Marc, your answer is you may, you may. What's the likelihood of share repurchase in deals? I mean, can you put percentages by it in some way, shape or form?

Marc D. Grodman

No, I wouldn't -- on -- in this forum, I really wouldn't commit to what it is, but it's something that we -- we have another 700,000 shares that are remaining, and we have to manage that versus money that we're spending on things right now. So I wouldn't commit to a percentage, Bob. It wouldn't make any sense for us to do that, but it's something that we are going to think about seriously.

Robert M. Willoughby - BofA Merrill Lynch, Research Division

And what's your CapEx number for fiscal '13?

Marc D. Grodman

I believe -- and Sam is on the phone, I believe it's around $25 million.

Operator

And your next question is from the line of Raymond Myers with Benchmark.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

I want to ask you about the Natera, not acquisition but partnership, in the prenatal testing area.

Marc D. Grodman

Yes.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Can you talk a little bit about what expense or investment might be required to support that? How does Bio-Reference directly benefit from the transaction? And does it reflect any new strategy to leverage your sales presence?

Marc D. Grodman

No. I mean, it is our -- first of all, I think Natera is a fine company. There are a number of companies that are working in this space. I think Natera offers a very interesting platform that it is -- I can't go to the specifics, but there was clearly a mutual benefit to both companies to promote this work. It will not require -- it will require us training and marketing, but it will not be a -- the same kind of expense we would have by developing our own tests. It'll be much less than that, but there will be clearly joint training and materials that'll be produced. And in terms of what it could do for us, the advantage is simply that we benefit by going in and providing all services. We have the ability to go into an office, an obstetrical office, and we could perform everything from a simple blood count and to simple test that are often done when someone -- when a woman first find out that she's pregnant to complete carrier screens, to complete -- otherwise to arrays; if they have an amnio, to now prenatal noninvasive testing to -- based on what the findings are at amnio, to be one of the few and sometimes the only laboratory in the world that can perform certain abnormalities -- you could form certain tests that you would perform when you see abnormalities on a sonogram. That breadth of what we offer from the easy to the most complex, under both GenPath and GeneDx, is a distinct advantage that has cost us and that we have worked very hard in developing over the years. There is nowhere where you get that scan -- that expense of testing. And what this does is that it takes an important element of questions that are raised and it helps to fill that out. So I think it's something which is positive relationship. We like the people over at Natera, and I think that just helps fill out our entire menu of services.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

So, Marc, I assume that there's an economic split, that you get revenue for doing the tests, correct?

Marc D. Grodman

They're going to perform the test. It is a benefit for both of us. I'd say -- I really can't get into more detail than that.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Okay, good. And then regarding leveraging the sales force, you built up quite a nice franchise in women's health. And is this a conscious strategy to leverage your sales force over other companies' products? That's not something that Bio-Reference has done to a large extent in the past. So this appears to be a little bit new. Is this a conscious strategy, or is this just a one-off opportunity?

Marc D. Grodman

Well, I think this is something that just works very, very well with our existing strategy. I think it just simply fits right into our purpose. So in some way, it's somewhat of a unique area. But I would simply -- no way. If there was a technology or something that we could go introduce, that we can go in and leverage as part of our product offerings, we would absolutely look forward to do it.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Okay, great. And then did you mention that bad debt was higher than 7%?

Marc D. Grodman

I said that this quarter was a little bit higher, given its conversion to a new system. But I gave guidance that I think that bad debt will be at about 7% for the rest of the year.

Raymond A. Myers - The Benchmark Company, LLC, Research Division

Can you be more specific about approximately what bad debt was in the quarter? It's just important for our model.

Marc D. Grodman

This quarter was -- it was somewhere -- I think it was 7.7%, 7.8% this one quarter. It will be down to 7% the rest of the year.

Operator

And your next question is from the line of Mitra Ramgopal from Sidoti.

L. Mitra Ramgopal - Sidoti & Company, LLC

I noticed the esoteric testing at 62% is probably the highest you've done. And I was just wondering, given the new test you're adding and some of the new programs, like oncogen, et cetera, how do you see that number trending over the next -- as we look out longer term?

Marc D. Grodman

As we've -- as I've sometimes mentioned in the past, we consistently go in and bring a new test. And as I mentioned before, Mitra, there is a lot -- and there's been strong growth in GeneDx that certainly increases those numbers. The only question about that is that we also grow a lot by doing routine testing in specialty offices, and those often may not be as much and that sometimes will affect it. Also, there was the effect, for the first quarter, of Sandy lowering the volume a little bit. I think we'll -- I think right now, with the first quarter's, I don't like to make predictions on the trends because it's so thrown off with the effect of the holidays, and not only with Hurricane Sandy, but with the holidays that came out. So I don't really want to make a projection about where we think that's going to be, except that there was an increase related to the genetic testing in particular. So I think that was important. So we'll just going to have to take a look at that in the later quarters and see where it turns out.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay. And then just a quick question on the sales force again. In light of the new programs, et cetera, that you're bringing on, do you think you need to invest even more in terms of expanding the sales force, or are you pretty much comfortable with where you are?

Marc D. Grodman

No, I'm not. We have increased our sales force, continue to do that. We have done that where we've done it opportunistically in both in oncology and in women's health, and we have made substantial increases to our sales force at GeneDx. I think that's important to their growth.

Operator

I would now like to turn the call over to Dr. Grodman for closing remarks.

Marc D. Grodman

Great. Listen, I want to thank all of you very much for being on the call. We are excited, and we have been continually. We're proud of the record of accomplishment that we've done. I thank all of you for being on the call, and I appreciate and look forward to speaking to you next quarter.

One other point for those of you that are here. And we know that we have a policy with investors, people who have been with us for over time, we're happy to go in. We are transparent. We ask you to come visit our facility. We believe that our facility is the most impressive laboratory facility in the country. Come visit us, talk with us, we want you to be able to know more about what we do here.

Thank you very much, and have a great day.

Operator

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

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