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Unilab IPO Is A Winner in a Sea of Losers

Unilab IPO Is A Winner in a Sea of Losers By SHELLY GARCIA Senior Reporter So bleak was the stock market outlook in 2001 that more companies scuttled plans to go public than actually completed offerings in the year. But Unilab Corp. not only went forward with its IPO, it landed among the most successful offerings of the year. In June, the Tarzana-based provider of clinical laboratory services raised $100.5 million in an offering that went out at $16 and, by close of business that day, had jumped to $22.88. Since then, Unilab shares have traded at a high of $29 and more recently in the $23-dollar range. On Dec. 21 the stock closed at $25.05, an increase of 32 percent above its opening price, putting Unilab among the 25 top-performing IPOs of the year. “In a year where new offerings leave something to be desired, Unilab has done extremely well,” said Steven Tuen, an analyst with IPO Value Monitor. “They’re doing what they said they’d be doing, so that’s positive.” Unilab was helped along by the sector in which it operates health care companies were among the best stock market performers in 2001 but the company’s biggest boost came from its financial performance. “As the year wore on, healthcare IPOs started to fall out of favor,” said Jeff Hirschkorn, senior IPO analyst for IPO Monitor. “It didn’t take away any of the spotlight from Unilab.” Unilab, the largest clinical testing company of its kind in California, operates about 400 local patient service centers throughout California along with three laboratories in Los Angeles, San Jose and Sacramento. This year, the company expects EBITDA of $81 million, and earnings of 70 cents per share on revenues of $391 million, compared to EBITDA of $63.4 million in 2000 on revenues of $337.5 million. (Earnings per share are not available for 2000.) The company’s guidance for 2002 shows revenues of $424 million to $430 million, EBITDA of $91 million and earnings per share of 96 cents. Unilab is planning to expand into Arizona next year as well. Acquisitions accounted for about $100 million in revenue growth over the past three years but, as Urban put it, “A lot has been hard work in growing our market share at the expense of other players.” Unilab, which is double the size of its closest competitor in California, has been able to secure market share in part by a strategy of establishing a broad network of service centers close to work areas and doctors’ offices. “What really sets us apart are probably two factors,” said Brian Urban, chief financial officer at Unilab. “We have the majority of contracts with independent practice associations in the state, so a lot of doctors are required to send us their work under those contracts, and the convenience of our patient service centers.” Many of the nearly 400 service centers, where specimens are collected, are exclusive to Unilab, making it difficult for competitors to set up locations that are as convenient for patients who need to drop off samples. “We’ve always been a little ahead of the curve in setting up that infrastructure,” said Urban. “That’s been a big benefit.” The health care sector is somewhat insulated from recession, and as managed care companies have pushed preventive medicine, more diagnostic tests are being conducted, another contributor to Unilab’s revenue growth. But a presence in a strong industry sector wasn’t enough to guarantee success on The Street in 2001. Only about 90 to 100 companies issued IPOs in 2001, according to various reports, down from 400 in 2000. Another 160 companies withdrew plans to issue offerings as the Nasdaq continued its downward spiral and the Nasdaq-100 index declined by 30 percent. Indeed, according to preliminary figures from IPO Monitor, the IPOs issued in 2001 increased by an average of just 4.58 percent over their offering price. According to Gaskins IPO Desktop, another online company that tracks IPOs, there were 24 so-called “medical” offerings issued in 2001. Those companies on average saw their stock prices increase by 14 percent, and seven are now trading at less than their initial offering price, the Gaskins data revealed. Unilab officials said that the company’s performance ultimately led them to go ahead with their IPO despite the problems in the market. “While we were concerned, we also thought health care stocks were being received positively,” said Urban “And we thought we had a good story to tell, so we felt confident.”

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