Alere Inc. (ALR)

ALR 
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Alere (ALR)

Q2 2013 Earnings Call

July 31, 2013 8:30 am ET

Executives

Doug Guarino - Director of Corporate Communications & Corporate Relations

Ron Zwanziger - Chairman, Chief Executive Officer and President

David A. Teitel - Chief Financial Officer, Principal Accounting Officer, Vice President and Treasurer

Namal Nawana - Chief Operating Officer

Analysts

Jeffrey Frelick - Canaccord Genuity, Research Division

Gregory J. Simpson - Wunderlich Securities Inc., Research Division

Anthony Petrone - Jefferies LLC, Research Division

Zarak Khurshid - Wedbush Securities Inc., Research Division

Jonathan P. Groberg - Macquarie Research

Isaac Ro - Goldman Sachs Group Inc., Research Division

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Alere, Inc. Second Quarter 2013 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Doug Guarino. Please go ahead.

Doug Guarino

Great, thanks, and good morning, and welcome to the Alere conference call to discuss our results for the quarter ended June 30, 2013.

We are joined today by Ron Zwanziger, Chairman and CEO; Dave Teitel, CFO; and Namal Nawana, COO. Before we get to that discussion, though, I would first like to draw your attention to the fact that certain matters discussed in this conference call will constitute forward-looking statements within the meaning of the U.S. securities laws, including statements about future organic growth, potential divestitures, anticipated reductions in our leverage ratio and cost, product launches and regulatory filings. These statements reflect our current views with respect to future events or financial performance and are based on management's current assumptions and information currently available. Actual results and the timing of certain events could differ materially from those projected or contemplated by the forward-looking statements due to numerous factors, including, without limitation, our ability to successfully complete plain divestitures; acquire and integrate our acquisitions and to recognize the expected benefits of restructuring, operational initiative and new business activities, including the benefits of our recent acquisitions of Epocal and certain assets of Liberty; our exposure to changes in interest rates and foreign currency exchange rates; our ability to successfully develop and commercialize products and services; our ability to develop enhanced Health Information Solutions through the integrated use of innovative diagnostic and monitoring devices, and to recognize the expected benefits of this strategy; the impact of health care reform legislation; the content and timing of regulatory decisions and actions, including the impact of the FDA warning letter and the OIG subpoena, as well as the impact of changes in reimbursement policy and budgetary constraints, both in the United States and abroad; and the risks and uncertainties described in our periodic reports filed with the Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2012, as well as in our quarterly reports on Form 10-Q.

Our company undertakes no obligation to update forward-looking statements. Additionally, please note that during this call, we may discuss non-GAAP financial measures. For each non-GAAP financial measure discussed, a presentation of the most directly comparable GAAP financial measure and a reconciliation of the differences between the non-GAAP financial measure discussed and the most directly comparable GAAP financial measure is available on the company's website at alere.com.

With that, let me turn the call over to Alere Chairman and CEO, Ron Zwanziger. Ron?

Ron Zwanziger

Thanks, Doug, and good morning, everyone.

I'm pleased to report an excellent second quarter with strength in all of our business units and widespread geographic strength, as well as current stability in Europe.

In November of last year, we presented to you, our stockholders, a 3-point plan to drive higher operating margin and increase free cash flow and earnings growth. I'm pleased to report that we've made substantial progress in executing our plan.

First point in the plan was the reestablishment of historical organic revenue growth rates, and our Q2 results reflect encouraging progress towards this goal.

Organic revenue growth in our Professional Diagnostics business was 8.6%. This is a notable improvement from our Q1 results of 1.3%. Several of our key international geographies are also contributing strongly in Q2, with growth in our China operations of over 24% and in our African and Latin American businesses, over 17% in each geography. The growth in these regions was largely driven by our comprehensive Infectious Disease portfolio, which in aggregate, grew 14% in Q2.

Our organic revenue growth in Q2 is particularly encouraging, given that several of our key revenue growth initiatives have still to begin meaningfully contributing. For example, consistent with our comments on the Q1 call, our recovery in Triage sales is only expected to commence in the second half of the year.

In addition, we expect our new product revenues to accelerate over the next 12 months and beyond, with multiple launches in new geographies as more registrations are coming through, including in the U.S. We're also awaiting the launch of several new products, including our 2 rapid molecular platforms.

Second point of our plan was improved operational execution to generate dependable long term cash flow. We also made excellent progress against this goal. Specifically, we were able to report a 230 basis points reduction in our total operating expenses in Q2 of '13 compared to last year.

The third point of our plan involving deleveraging to at least 4x debt-to-EBITDA by the end of 2015 through the use of excess cash flow from operations and divestitures of non-core operations. As the company has been substantially formed, both in terms of geographic reach, as well as technological capabilities, significant cash will not be needed for acquisitions.

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