Good day, ladies and gentlemen, and welcome to the BioReference Laboratories Third Quarter Fiscal Year 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Ms. Tara Mackay, Investor Relations Coordinator. Please proceed, ma'am.

Thank you. Good morning, and welcome to BioReference Laboratories' third quarter 2013 earnings conference call. BioReference Laboratories 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 the 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 requirements 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 perspectives 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: Thank you, Tara. There are times when an earnings call simply addresses the results of operations from the quarter. There are other times when those results just serve as an inflection point to a discussion of the larger issues that have an impact both on the business or even the industry. This is one of those calls when I believe the global issues overshadow the quarterly results. This was a good quarter in many ways similar to what our prior quarter of this fiscal year. There will be no personalized medicine revolution, but there will be a personalized medicine evolution. BioReference is poised and positioned to play a central role in this highly-anticipated and critical process. I will address these areas, as well as our results, after Sam Singer has reviewed the pertinent financial details of our current third quarter. Sam?

Thank you, Marc. Good morning, everyone. During the third quarter of fiscal year 2013, which ended on July 31, BioReference recorded net revenues of $185,427,000, the highest quarterly net revenues recorded by the company, compared to $160,532,000 in the third quarter of the prior fiscal year, an increase of 16%. Gross profit on net revenues for the current quarter was $85,660,000, representing a 46% gross profit margin. In the third quarter of the prior year, gross profit on net revenues was $74,279,000, representing a 46% gross profit margin. Earnings per share on net income after taxes were $0.53 per share in the current quarter versus $0.45 per share in the prior-year quarter. Patient count for the current quarter increased to 2,161,000 from 1,997,000 for the prior-year quarter, an increase of 8%. Net revenue per patient for the third quarter just ended was $85.25 compared to $79.75 per patient in the same quarter of the prior fiscal year, an increase of 7%. On July 31, 2013, working capital was $168,371,000, 11% improvement over the $151,625,000 that were -- that we reported on October 31, 2012. Our days sales outstanding on July 31, 2013 was 95 days. Our net revenues were $523,136,000 for the 9-month period ended July 31, 2013, representing a 16% increase over the net revenues for the same 9-month period in the prior fiscal year. Our gross profit on net revenues for the current 9-month period was $237,258,000 or 45% compared to the prior fiscal year of $201,930,000 or 45%. The number of patients serviced during the current 9-month period was 6,199,000, which was 8% greater than the prior-year comparable period. Net revenue per patient for the 9-month period just ended was $83.83, which was 8% greater than the prior-year comparable period. Earnings per share on net income were $1.25 per share for the 9-month period just ended as compared to $1.05 per share in the prior year. I'll now return the call over to Dr. Grodman. Marc D. Grodman: Thank you, Sam. If there's one theme that reverberates throughout my comments today, it's the need to compete. Competition makes us better. Competition improves patient care. We can expound on better science and better service all we want, but unless we can compete at the physician or provider level for business, those efforts are for naught. In many ways, we are defined by our history of extraordinary growth. But in many ways, we may be better defined by our willingness to defend our position in the marketplace. That determination to compete has allowed us to create new and disruptive testing solutions, new bioinformatics solutions and almost 4,000 jobs since our beginnings over 26 years ago. It's within that context that we confirmed that BioReference continues to grow. We continue to innovate, we continue to expand. Our performance in the third quarter was quite similar to the results we reported in the immediately preceding second quarter growth in all elements of our business, but especially strong in our genetics area through GeneDx. This is demonstrated by the increasing revenue per patient of around 7% over the comparable period last year, our esoteric percentage of 64% compared to 61% a year ago, an increase in patient count of over 8% and an increase in revenues of almost 16% year-over-year. This continued growth in the face of a changing landscape and highly-competitive marketplace, most of which was organic, in our opinion, remains remarkable. One of the underlying tenets of our strategy is that we work in multiple markets, giving ourselves multiple opportunities to expand regardless of the challenges in any one area. Our regional market has consistently expanded, buttressed by new managed care contracting. GenPath Oncology has continued to evolve, offering more services to providers, along with new testing modalities. And GenPath Women's Health is a national franchise that offers one-stop shopping and cutting-edge solutions all at the same time. However, as I mentioned before, the genetic franchise that has been constructed over the past decade by GeneDx not only differentiates us further as an enterprise and is responsible for the fastest growing part of our business but also has contributed significantly to our prospects of future success and innovation. Our leadership in genetics as it relates to cardiology, neurology, within exome testing and in other areas differentiates us and continually makes us better. Just think for one moment of all you've read in the press about the promise of genetics. Think about the new testing modalities in the diagnosis and monitoring of patients with a high risk or at high risk of developing cancer, then reflect on the fact that we've been at the forefront of many of these new tests have spanned many clinical fields and hold so much promise for the future. With more than 330 sales and service personnel in the field, we remain a company that fuses both strong science and superior sales and service. What is not generally known is that almost 20% of our sales personnel is committed to genetics. Almost half of which have been hired and trained to sell inherited cancer testing services. This is a commitment we have made to being a full-service national genetics laboratory. By and large, the margins year-over-year are quite similar. We've undergone substantial development and incurred substantial expenses in a number of areas to prepare for future growth. We've invested heavily in preparing for our new inherited cancer initiative. We've also invested in our new tumor sequencing initiatives, including new analytical tools as part of our collaboration with Massachusetts General Hospital. We build bioinformatics solutions that we believe to be some of the most critical and differentiating capabilities that we possess. We have built up resources in Florida, where we expect to create nearly 100 new jobs in order to better service and expand our recent acquisitions in that state, and we expect to expand in a similar manner in California given our new acquisition in that state. Gross margin was 46%, virtually identical to the number last year. Other SG&A expenses before bad debt decreased about 75 basis points this year. There was a slight uptick in legal expenses. Bad debt was a bit higher than last year, somewhat over 8% but a bit lower than the previous quarter, as we become more accurate in differentiating between bad debt and allowances in compliance with Accounting Standards 954. Our earnings per share this quarter was $0.53 compared to $0.45 last fiscal year. This reflects an overall tax rate of around 43%, which is virtually the same as last year. There are 4 specific topics I would like to discuss. I think all of these provide some unique insight into our current operations and, perhaps, into our future opportunities. First of all, our DSOs for the quarter were 95 days. This was up from 89 days at the end of the previous quarter and up 9 days in the end of the fiscal year 2012. This was also up from an adjusted 84 days for the same quarter last fiscal year. This comes after almost 5 years of consistently improving DSO. This increase is explainable and, more importantly, all things remaining equal, should come down in the near future. This past [ph] year has been the most tumultuous with regards to collections I have ever experienced given the changes that have been implemented in our industry. We believe and we have been quite successful over the past few years in showing improvement. Since last year, our industry has had to deal with molecular coding changes from both Medicare and Medicaid, delays in payment related to site of service between physician office and hospital due to the end of the grandfather clause, as well as changes emanating from the elimination of the Blue card. Over the last quarter alone, there have been some delays in billing under the new payer contracts, while waiting for these systems to be operational. That being said, I think it is really important to point out that we currently have national or sub-national contracts with the 5 largest commercial insurers and an impressive list of participating Blues plans. We believe that the total number of lives that we cover rivals any laboratory in the country. Specifically, over the past quarter, our DSO rose 6 days. We found that 1 of those days, if you calculate it, probably 2 from the end of the year is directly attributable to reimbursement changes in the molecular coding by Medicare and Medicaids around the country that has been well written about and well documented. These government payers have been inconsistent and, in some cases, not reimbursing at all. As I said in the past, the amount of revenues we generate from these tests is not significant to our overall revenues, but having any tests unpaid and not adjudicated for 9 months has an effect of length and time in our receivables. Two of the increased days -- 2 from the increased DSOs from the previous quarter are attributable to Blue Cross plans, most prominently, delays in our billing to Anthem Blue Cross and Blue Shield -- sorry, billing to Anthem Blue Cross Blue Shield programs from around the country. Our contract with Anthem was effective on May 1, 2013. But in many cases, billing had to be delayed for several weeks or months, while our pricing was loaded into their various Anthem systems around the country. In addition, even in those unassociated Blues plans, where we were paid out of network then signed in network contracts, there have been delays, while our pricing -- new pricing was loaded into their systems. The system seems to be resolving or, at least, is on the road to resolution, and we've seen improvement even in the past month. This is a mechanical change, going from billing 1 system for Blues plans all over the country to billing over 20. We need time to work with these systems, and I think we will. The final explanation for the increase in DSO. Almost 3 days was by our own choice. It started in the early part of this recently completed third quarter. Horizon is the Blue Cross Blue Shield of New Jersey. Many of you who have been following our company may have known that we have had issues with Horizon in the past. Over the past several months, we've come to believe that we should have been paid for certain services rendered to Horizon under our agreement to service their PPO subscribers, which was amended and signed in 2007, as many of you may remember. We believe Horizon has mischaracterized some of these services with managed care and therefore, not payable under our PPO agreement. Based on Horizon's characterization of these services, we had never not previously billed or recognized revenues for these services. After BioReference began to bill and was initially paid by Horizon for a fraction of these previously unbilled claims, Horizon ceased paying for these disputed services and so as to recoup those payments for moneys due us for unrelated, undisputed, absolutely deserve-to-be-paid services. As a result of that, as soon as that started, we elected to temporarily suspend billing Horizon for most services, while this dispute is ongoing. Directly and through a council, we are attempting to settle this matter. However, we are uncertain as to whether this matter will be resolved amicably or must be litigated. As a result of these same issues, cash flow for the quarter was just over $4 million, down from almost $13 million the same quarter in the fiscal year 2012. The change is clearly attributable to the factors outlined above. The second topic I want to discuss involves our 2 recent acquisitions because these acquisitions provide a very meaningful insight into our future plans. We completed the acquisition of Hunter Labs, which is located south of San Francisco and provides us an important base of operations in California, along with in-network status for new insurance plans such as Medi-Cal. The acquisition of Hunter, which had annual revenues close to $20 million, has operated in its last fiscal year, will be augmented by the Bio -- by BioReference's existing insurance contracts, as well as by our state-of-the-art offerings. We have long stated that we provide 1-stop shopping for specialty physicians. This includes routine testing. And the Hunter acquisition provides us with an outstanding opportunity in California and in the western United States. The second announced acquisition will be the service portion of EdgeBio, a clear laboratory located in Gaithersburg, Maryland that will be combined with GeneDx. EdgeBio was a construct sequencing laboratory. They perform the technical part of genetic sequencing for national entities, including both research, laboratory and pharmaceutical clients. The rationale for this is fairly clear. First of all, we need additional sequencing capacity for our growing business at GeneDx. Second, it provides us expertise in a number of areas, as well in a number of new technology platforms in addition to new capabilities in bioinformatics. These assets will be used to promote efficiency and expand the R&D efforts of GeneDx. The third reason is that it gives us the option of continuing and perhaps expanding the construct sequencing currently performed at EdgeBio. This is not an area that GeneDx has pursued in the past, and we are undecided if whether it's one that we'll pursue in the future. But the added expertise and capacity of EdgeBio will afford us that option if we elect to pursue it. We're pleased to have Dean Gaalaas join us, the Chief Operating Officer of GeneDx. We look forward to a very thorough and good and hearty [ph] collaboration. These 2 acquisitions demonstrate who we are. They demonstrate our position in the market. We not only possess the means to offer state-of-the-art, cutting-edge solutions, but we also realize we have to possess the means and to deliver and to profit from those. The third topic I want to comment on is our announcement earlier this week that GeneDx has launched and begun accepting specimens for our comprehensive suite of genetic test for inherited cancers. The test offerings include a rapid turnaround test of BRCA1 and BRCA2 genes, combining sequencing and deletion/duplication analysis and Ashkenazi Jewish Panel for the 3 common Ashkenazi Jewish founder mutations in BRCA1 and BRCA2, a 26-gene panel for breasts and ovarian cancer, an 18-gene panel for pancreatic cancer, an 18-gene panel for colorectal cancer and 11-gene panel for endometrial cancer. The test panels, which are marketed as OncoGeneDx, also include a comprehensive cancer panel of 35 genes, and all panels include deletion and duplication assessment. We believe the OncoGeneDx panels utilize the most current data on all the highly penetrant genes associated with inherited cancer, providing rapid results at typically no greater cost than testing for a single gene. It's important to think about keeping up to promoting the savings with technology along to others in providing more information for the same cost or better cost. We believe GeneDx -- the OncoGeneDx panels are the most comprehensive in the market today. We understand that there's been a sea of change in the patent law dealing with genetic diagnostic patents. We've carefully studied the situation together with our patent attorneys before taking this step. We are confident of our position. Our attorneys are among the most experienced and knowledgeable biotechnology patent attorneys in the country, who have worked with us for a very, very long time and they've been with us at every step of the way in this launch. We've done our homework. We're confident. Obviously, there was a -- been a great deal of speculation and discussion on this topic. And I want to make this point very clear. This is not a form where we will compete for market share. The decision as to what laboratory to use will be made by oncologists, will be made by OB/GYN, by geneticists and by -- certainly by genetic counselors, along with many other highly trained and sophisticated professionals. They will take many factors into consideration. Testing for inherited cancers will be performed by many outstanding laboratories. All of whom will possess different strengths and capabilities. And I'm not going to use this form to disparage competitors. We don't earn market share with investors. I know what it's like to be on that receiving end of those discussions. They're counterproductive, and they're wrong. We believe GeneDx will be a strong competitor in the inherited cancer market. On the issue of variants of unknown significance, it's important to note that all data until sometime in 2006 was placed in a public repository that are remarkably complete. To minimize the rate of [indiscernible] facilitate data-gathering for reclassification of inclusive variants, GeneDx's own database with more than 4,000 referenced sequences and it's adding a rate at over 150 individuals per week in its database, GeneDx shares the identified data with public-curated databases, with ClinVar, genetic data repository of the National Cancer Center for Bioinformatics, with the NIH, believing that both the medical community and patients [indiscernible] for making this information freely available. There has been additional data from outside the United States. There are currently over 5,000 genetic variants in the BRCA1, BRCA2 stored in ClinVar. And clinical labs such as GeneDx and other laboratories can access this curated data to improve the interpretation of patient results. We strongly believe that public information must be shared to improve care, an issue on which we have taken a meaningful position over the years and of which I am very proud. The final point about this topic is -- that I want to make is about GeneDx. We've been doing clinical genetic sequencing for a long time, with a depth of geneticism proficiency that is outstanding. This is not easy testing. You just don't press a button and get an answer. Experience truly counts. The breadth of our testing is exhaustive. In 2008, we were the first commercial laboratory to offer next-gen sequencing. With the introduction of our inherited cancer panels, this will take on greater importance over the years. GeneDx is a leader in clinical genetic testing with more than 13-years experience offering 450 disease-specific tests, as well as whole exome sequencing for all 20,000-plus genes and -- as well as comparative genomic arrays. GeneDx alone has over 50 MD/PhD geneticists. And when you add that to another 50 genetic counselors and other MD/PhDs and specialists throughout the entire company, we have a staff that we're proud -- of which we're very proud. These professionals are available to address physician concerns and questions. Our total experience ranging from the most complete menu of capillary sequencing to rare disorders to next-gen sequencing for specific clinical conditions to a full-fledged experience in work in whole exome sequencing puts us in a strong competitive position. But our infrastructure as genetics laboratory, our service, our reputation, our marketing, our sales, even our managed care contracting are something that we're very proud. As a company, we have a different perspective on sharing data. We strongly believe in the fact that as a fundamental guiding principle that competition brings out the best in all of us to the benefit of the patient and the collective good. We will protect that right with passion and determination. And one other added note, I sometimes think there are more people from BioReference who listen to these calls than anyone else. And for all of those and for all the people at BioReference and GeneDx, who have been part of this launch, I just want to say how incredibly proud I am to work with all of you. You've done an incredible job. Finally, we need to address the proposals about cuts to reimbursements to laboratories by Medicare. To be clear, let's take away the shroud, let's take away all the clouds about what's above this, there are 2 distinct issues here. The first are the proposed cuts to clinical laboratory fee schedule that will be considered by Congress this fall as part of a solution we think with regard to fixing the sustained growth rate or the SGR as it is now. Clearly, and we said this in the past, it would be far more beneficial if Congress were considering a permanent resolution of this. Since until now, all they've been willing to do is do 1-year fixes with permanent or multi-year cuts. Regardless, the President's proposed budget that offered that the clinical laboratory fee schedule be cut by 1.75% for 8 years starting in 2016 I believe is that it appears to be the primary downside risk. That's my belief. And as we, in an industry, we can do all we can to negotiate this. I recently wrote an editorial for The Hill, a daily congressional newspaper, discussing what I think is an important misconception that Washington has about clinical laboratories. Every year, Medicare spends $580 billion on behalf of its beneficiaries. Of this amount, less than 2% is spent on clinical laboratory and pathology services. Washington, as a generic term of meaning people that are elected representatives on -- who are both Republican and Democratic, people from the administration, from the permanent administration, all of these pointed to healthy profit margins of the 2 largest clinical laboratories, each 1 10x the size of the nearest competitor as evidence that Medicare is overspending on laboratories. This assumption is wrong. These 2 laboratories represent only 20% of the 2% that Medicare spent yearly on laboratory services. These 2 laboratories have achieved a great deal over the years. They are fine organizations, and I'm pleased to have been able to work with them in many ways. But they alone do not define the laboratory industry. What Washington in that generic sense does not realize is that this isn't about the 20%, it's about the 80%. The laboratory landscape is filled with great companies and institutions who service nursing home patients that 20% don't, who provide breakthrough technologies that change medical practice, who improve cost effectiveness, or who test for rare disorders or specialized disorders that aren't lucrative enough to attract most other laboratories. There are academic medical centers and laboratories that lead us to breakthrough and promise. There are community hospitals that provide access. Nearly half of the nation's small independent laboratories operate with a margin of 3% or less. 89% of rural communities and 79% of urban communities are probably served by small labs. This is the message we have to deliver by the fall. Second, on July 8, 2013, Medicare, without notice or industry consultation, proposed rules that will change the practice of pathology in this country and significantly [ph] affect patient care, especially for patients with cancer. This proposal needs to be talked about and needs to be explained. Medicare proposes changing the payment of these services from the physician fee schedule, the current method, to the hospital outpatient prospective payment system, or known as HOPPS, a method that in essence has no relation to clinical practice. By Medicare's own estimate, this would cut rates for critical pathology test by an average of 26%. However, the specific cuts for some of the most essential and basic tests for cancer, Flow Cytometry, FISH, IHC, would be cut over 75%. Let's think about this for a second. Unlike any of the time that I could recall, the entire diagnostic field, including pathologists from big centers, smalls centers, to independent practices, academic medical centers, independent laboratories, diagnostic manufacturers, IBD manufacturers, have united on this issue. We have worked hard on this issue. See, this is really not a price cut. The HOP system that CMS wants to utilize is not a reimbursement schedule but one that arbitrarily assigns costs as it relates to lump-sum payments to hospitals. And in fact, CMS has publicly stated that it should not be used as an reimbursement schedule at all. More so, this does not only threaten all laboratories, this is the essence of pathology practice. The entire sector is raising questions about this that are serious. The reimbursements proposed by this artificial schedule, based on the work done in conjunction with others in the industry, is simply -- and with multiple examples, is in most cases below the cost of doing the test. After working on this ever since it was announced, I have a great hope that this proposal is not going to be enacted. This proposal creates uncertainty for patient care. And let me tell you what I mean. There's someone who is a partner of a person who has worked with me, who's very close to me, someone who has worked with me and my family for over 40 years. That person had back pain, pretty severe back pain that went on for a month or more. Couldn't find out, thought that compression on the nerve. And finally, when someone took a little bit closer at the scans, there was a lesion. And after going in and getting a follow-up, we realized that, that person was going into a -- was developing renal insufficiency. Because whatever was there was blocking the ureter. The thought was that patient probably had lymphoma, who was sent in, in a sample to do flow cytometry, was achieved quickly, both because this was an emergency, both because of nerve compression as well as renal insufficiency. Those tests that were performed within an incredibly short time, with an answer that came back, incredibly quickly, that, quite frankly, ultimately, wasn't done by us, it was done by another independent facility, who was related to the hospital, was able to give back information to talk about the type of lymphoma so a treatment could be started quickly. This policy creates uncertainty because in January, rather than being on my insurance, if this patient was on Medicare, who's doing the test? Will it come back as quickly? If you're asking every pathologist, every hospital, every independent facility who runs these tests to do it at a loss? The purpose of proposals and policy is not to create uncertainty. And this one does. It's not the role of any part of us. It just makes no sense. I believe it jeopardizes patient care. And I think that our message is starting to get through. No assurances, but I have hope that this will not be enacted. This was a long call. There are a lot of details and many issues. The topics deserve discussion. We had a good quarter. We grew, especially in genetics. We've invested in the future as evidenced by our acquisitions. We took a step back in our DSO, but the reasons are identifiable, reversible and, to some degree, intentional. We have a great opportunity in inherited cancer, and we're fully engaged for a successful outcome with regard to Medicare reimbursements. We remain passionate about the future, we cling passionately to our principles and vision, we believe in a competitive landscape and we'll continue to fight to bring our innovation and service to those who need it most. Again, I know it was a long call. I apologize for its length. I'm more than happy to take any questions.

[Operator Instructions] Your first question comes from the line of Amanda Murphy of William Blair.

So I had a question first on volume growth. So you guys are clearly continuing to grow meaningfully higher and faster than the market. So, my question is how much of it is now or is coming from continued regional expansion versus new test introduction? And then, how do we think about that going forward? Obviously, you've done some acquisitions that give you more presence on the West Coast and other areas. Do you still have room from a regional expansion perspective? Marc D. Grodman: Yes. I mean, the exact quote, Amanda, that I said in there is that a lot of the regional expansion, which is contiguous expansion for just the routine business, have -- we've done very well. It's under the new managed care contracting that we've had and that we've announced, so I think, are going to be quite beneficial and has been beneficial to us. Volume growth is, in many ways, new accounts and I think that's important to be able to go see. So I think that we still have a lot more room to be able to do it both on a regional basis and within the specialty physicians. I think California will give us that opportunity. And I think that Florida will also give us that opportunity as well. We've sent a lot to investing in there and building up the capabilities of the acquisitions that we did down there. So we still have more room. I think, we said that 8% is certainly where we thought we would be. And I think that there's no reason why we can't continue to do that.

Okay. And then from a genetic testing standpoint, obviously, that's been a big source of strength. Marc D. Grodman: Yes.

How do you guys view, and not just -- this is not just a BRCA question. But how do you guys view GeneDx as a differentiator? Is it -- what's giving you the advantage? Is it the science? Or is it pricing? Or is it turnaround time? Just trying to get an idea of the competitive positioning there. Marc D. Grodman: I understand. I mean, as I've talked about before, I mean -- and I'm only going to do this in the same terms that I did over in my talk because I don't think this is the forum for -- to gain market share. GeneDx has a long reputation in having a depth of genetic experience. We have a number of people that are well known among people who send for genetic testing around the country and a rather good reputation. You've been there, you've seen it, you've met the people that are there who make up GeneDx. We do and we're the first laboratory to do a commercial next-gen sequencing. That's -- it's a learning curve. And it's important to do that and we've been doing that since 2008 in a number of different areas. The infrastructure that we have, and I think what my quotes from the speech was, specifically, not only the people, the geneticists you have here and the breadth of experience you have to call on this and these are general -- these are people who have covered an entire wide range of the genome, in fact. But also the people in the sales, the marketing, the infrastructure, the name recognition. The reality is, is that the zebra is well known among geneticists. If you go with it, it's kind -- I don't know if many businesses where you could go in and say, "It's the zebra laboratory." and people know within that area who it is. That's a great advantage, and we've backed that up. We've also backed it up with being involved in a lot of the national forums in genetics and being an innovator in new testing with that. I think the experience with Exome has been remarkable. And I think part of being one of a number of greater genetic laboratories and academic-related genetic laboratories has given us a strong capability. So when it comes to infrastructure -- and I've also mentioned also briefly the managed care contracting. All of those has created, I think, a strong strength for GeneDx as an enterprise, and which has allowed us to be able to go in and do the growth that we've shown before we did anything else with these new initiatives. And I think we've demonstrated that. It's something that we are very proud, and again, I am very proud of the people that are a part of us.

Got it. And then just on the DSOs. I appreciate all the information you gave there. Is there any -- when you look at DSO and bad debt, is there any impact at all from -- obviously, you've launched some new tests, quite a few new tests over the past year or so. So is there any impact to those metrics from new tests and potential, just, I don't know, difficulty in getting reimbursement for those? Marc D. Grodman: Those have -- that has really not played a part up to this point. I mean, I think that there are elements of this that we constantly try to go improve. When you put all the changes together that have occurred in the last 12 months between all of them, with Medicare, and as you probably have -- know, and has been stated in the past, Medicaid now, literally, does not pay for molecular testing. They're waiting to see what Medicare does with these rates, some, then, down the line. I mean, there have been a lot of challenges with that. To this point, the new test have fully [ph] not contributed to that part of it. A lot of this has been between the Medicare and Medicaid, certainly, with the change in the system. What I said on the call was that we've gone -- and this is not only us, we've gone from billing 1 Blues plan to 20. And there were a lot of changes and delays that have come along with that, excluding the one exception of where we specifically didn't bill. So add to this nigh -- at this time, the new test have not contributed to this point. In terms of the bad debt, I don't think the bad debt has -- really had much of a difference. We had a change with the way that we accounted for it. We really have not seen with that and it has not had an effect on debt. And the new test does not have an effect on bad debt.

So other than that specific change you guys have talked about, there's not been a change to how you're accounting for DSO or bad debt, more broadly? Marc D. Grodman: No. No. We have not -- only the change that we have planned with the 954. That was the only...

Right. Okay. And then just last one, on the reimbursement situation. Have you guys attempted to quantify any of the potential impacts you guys, specifically, the -- some of the -- some of the court-specific cuts to FISH as well? Marc D. Grodman: No, we haven't really done that. Our position about this is that these changes are so. We have worked on this for a long time and we've work with and spoken to a good number of people. My guess is that I would not be surprised if 40% of the Senate hasn't been spoken to, personally, on these issues. We've had good discussions with a lot of people. I don't think there is any reason to go in and do something with which we think is probably not going to go into effect. So we have not gone out or given any information about quantifying what this is. I think there's enough information out there. I mean, I think I gave the example that one cannot expect that the most critical test for cancer diagnostics, and not only flow cytometry, but FISH and IHC and special stain, everything, that if someone has cancer, it's going to be -- it has to be done as a loss, will have consequences. I wouldn't go in and give it credence by trying to go give it a number.

Your next question comes from the line of Dane Leone of Macquarie Capital.

A couple of questions. A lot going on here. On the SG&A line, it's pretty flat q-on-q. And you had a pretty good run up in revenues; how do we think about that going forward? And also, in light of the acquisitions you've made, especially at Hunter? And maybe further on Hunter, is that expected to be immediately accretive or accretive in a couple of quarters? Marc D. Grodman: I think, it's going to be accretive in a couple -- I think we'll see that in a couple of quarters. I think we just really closed it at the beginning part of this month. So I think we'll begin to go see, it will be run similarly as what we've done in the past but it will see changes going forward. I'm not going to make comments on the SG&A line because there are a lot of things that are in there, including legal fees. And I would hasten not go in and predict what they're going to be in the next year. I'm not sure I really want to go out on a limb and tell you what that's going to go -- be like. I think that -- I think we can -- I think that we've had -- in the history, we've been able to show a little bit of leverage on that. I think the acquisitions are important. And I think that they will go and I think a lot of those costs on acquisitions, when you get operational with it, may end up going more toward above the line than below the line because it's more people, personnel and informatics systems. And so, I think, that they may have an effect there as well as in below the line. But depending on where we are...

Yes. Could you just expand the context to maybe just the -- your initial or, I guess, the last updated expectation for net income growth over 20%? That's kind of what I'm trying to work through. Are we still expecting that with 1 quarter left or...? Marc D. Grodman: Yes, I don't think that -- there's no part of me which is changing. There's no part of us that is changing expectations of where we're going to end up for the year.

Okay. Is that off of the adjusted number? I guess, just looking at your last quarter, it's -- I'm having trouble figuring out how to get there. Are margins -- gross margins expected to be materially higher next quarter? Marc D. Grodman: Well, I mean, we don't go out and give quarterly -- we don't give quarterly projections out with that. We have done pretty well in the first 2 quarters of this year. We expect, and given where we expect to be in the fourth quarter, we still are certainly reaffirming the guidance of 15% and 20% net income. By going into more that, I'm giving you, specifically quarterly guidance, and I'm not going to do.

All right. I'll try one more. Is there anything you're doing with the core business to -- in terms of cost efficiency programs or anything like that? Marc D. Grodman: We're constantly going in and doing things like that. We expect our opportunity to grow in the fourth quarter. But as I've said to you in the past, I mean, we're not going to go and specifically give specifics on where we're going to do things in the next quarter. We're very comfortable that we're going to be able -- I mean, we reaffirm the fact that we'll make our 15% and 20% number for the year at this point.

Okay. 15% in top line and 20%, bottom line. In terms of OncoGeneDx, could you -- can you give us any details about your thoughts regarding pricing for this test? Marc D. Grodman: No, I really am not. I think that that's something that we're going to deal with customers. We haven't put that out publicly. We haven't used that as a -- and we don't really want to use this as a vehicle to discuss that. I think that we've made comments in the past and I don't think that I've done this on other investors calls, but I do get a sense that pricing will come down from where they were in the marketplace. Okay. No question. However, I will not -- I'm not going to go use this as the forum to be able to go in and predict who or what will go get market share. We'll state our case, but then we're not going to really go beyond that.

Right. I guess, I was just wondering, would it -- if it would be -- if the pricing you would need to get for an adequate margin would be similar to what you're doing on the pan- -- the hereditary test that hits multiple genetic targets. Marc D. Grodman: I mean, I'm not going to really go into more details about it on the call.

Okay. And just so I heard you right, you said you had 330 service personnel in the field, 20% in genetics and 50% dedicated to oncology? Marc D. Grodman: I'm saying that of those, almost 50% are related to inherited cancers.

To inherited cancers. Okay, got that. Marc D. Grodman: Almost.

And then on the -- just wrapping up, and one of the strategy points that you touched on in your speech. Going in and pressing back against CMS for seemingly endless cuts to reimbursement. And I read your piece in The Hill where it's clear that our Herfindahl index of the industry is very skewed. I mean, with LabCorp and Quest is dominating the majority of the share, I guess that the [indiscernible] Marc D. Grodman: Well, no, Dane, that's not my point. I think that my point is the exact opposite of that, is that Quest and LabCorp represent 20% of the Medicare spend, yet the visual, okay, the idea, the concept is that you can titrate reimbursements by looking at their queues. And my point in the editorial is that you can't. Is that, in fact, the 80%, who are hospitals and us and small companies and labs who service nursing homes, that 80% is affected by those cuts and that you can't go by titrate their numbers, you can't go in and then see -- disregard the effect on the 80%. And what effect they're going to have to service. So it's not skewed. The impression is skewed. I've got to tell you, when we've gone out and we've had meetings and we've talked to people and talked about the numbers, the 80%, 20% numbers, you would be -- I've been shocked how people would say, "I didn't realize that." There are some industries that are defined by the large players, where that most of these services are defined by larger entities. The laboratories aren't. They're really not, and that's the message that I think we have to be able to go in and get through. You can't go look at someone -- and this is by no means, by no means a criticism of those large companies that I've said I worked with and that are fine organizations, but you can't look at them and say, "You see I can go lower -- I can lower Medicare rates." Doesn't make sense.

I guess the question I was asking there was that from a director point of view, they're looking to partner with health systems like ACOs, right, the ACO model is being pushed. Marc D. Grodman: Yes.

So in that model, you could direct -- you could direct more of the health care ecosystem towards that model by doing exactly what they're doing, which is basically pricing out marginal players and forcing them to integrate and then creating what used to be a profit center to people, be it a liability cost center and, ultimately, incorporate that into the bundle for the Medicare pricing agreements. So in that light, why would they stop doing that, right? Wouldn't they just continue to try and parse out the marginal... Marc D. Grodman: Well, because -- let me give you the reason. I think that your points were well taken. I think that we are moving toward parts and on other calls that I've talked about that there is going to be -- that more and more in the future -- and I don't mean in the next quarter or the next year, I'm talking about over the course of the next 5 years or more, that more and more work will be done by providers. And our roles will be to go in and serve the providers. I think that's a trend that's going to happen. I agree with you. And I think that we've talked about how, but we're trying to reshape our business to be of service to providers. But what you bring up is a very interesting point. You say why not do it? Why not? Because there are patients in the middle. See, you can't go in and change the system for January because there may not be anyone to do it or because the changes are going to be too abrupt. It's what I've said before, the policy is not to go ultimately create uncertainty as to be able to go on and provide care and reach our ultimate goals. I think that providers will insource more. I do. I think that we'll end up doing more work for them. We may even do more work for them at Lord knows what prices that they're going to be, but those will evolve over the next number of years. But to go in and to do this, it'd be -- and not to regard the 80%, you got to go deal with the other issues of that on an automatic basis. The President's budget kind of points towards that. He talks about the gradual lowering of the Medicare rate going through 2024. There are differences between giving the system time to equilibrate so patients are not hurt versus being able to go in and do it in a drastic way to create uncertainty. That's my point about the pathology cuts. To be able to go highlight that, that has, I think, struck a responsive chord. You don't want to make changes where, really, you could affect patient care where you don't know where someone will go get. So I agree with you, I think that the fear of it is right. I think there will be more insourcing and we'll do more work to providers. I just think that going through a policy that just tries to go short-circuit that and do that sooner will create far more -- it will create far more uncertainty and uproar than what will happen.

Your next question comes from the line of Bob Willoughby of Bank of America. Robert M. Willoughby: Marc, I know you're not willing to forecast litigation expenses. Nobody should be willing to do that. But year-over-year, can you help us size the step up year-over-year that have -- might have been in the quarter? I imagined that was a decent number. Marc D. Grodman: I think it was a decent number. I mean, you're right, I'm not going to qualify it, but it was clearly a higher number than what it was in the previous quarter and I can't project it for the coming year. Perhaps, it will not be. We really don't know. But I think that we have to show that we're going to be willing to go and fight for the right to compete. We'll just stand our ground where we have to. But it was somewhat higher, clearly higher this quarter. And I will also say that it will probably be higher in the fourth quarter just given over what we have been and what we've done in the last month. Robert M. Willoughby: And in thinking about what CMS may or may not owe you -- Blue Cross, Blue Shield, may or may not owe you, as well as Horizon, I mean, what kind of a cash flow number are we ultimately talking about if it were all to come in today? Is that a $10 million number? Or could it be more than that? Marc D. Grodman: I really don't -- I wouldn't want to give an actual number to it. What I did say, I think, over there is that our increase that we have -- I mean, and I think we can figure it out from the numbers. I think that a lot of our increase that we've had over -- and just the last quarter alone, was clearly related to just the mechanical efforts with Anthem and the fact that we chose not to bill Horizon. I think when you take those out, I think, that we're -- our numbers clearly would have been quite similar and a little bit better than where they would have been for the same quarter last year. Robert M. Willoughby: Did you comment on progress this quarter? Actually, as any of the Blues issue, the Anthem issues have corrected itself or are we... Marc D. Grodman: I think that we did. We did. We've already seen correction. As a matter -- when we're building Anthem, we're billing 14 different plans. We only used to bill 1. We're billing 20, where we used to bill 1. So in fact, we've seen for some of them that we couldn't start billing until sometime in the quarter. We've already seen resolution for some of them already in the first month of this quarter. So I think that these are mechanical issues that we have to resolve. There's some in particular that still are not resolved but I think they will all resolve themselves or they should resolve themselves by this quarter. Robert M. Willoughby: And if you say goodbye to Horizon, what ultimately would the revenue hit be? And would you anticipate picking up anything as kind of a non-network provider? Marc D. Grodman: I think that actually that we've tried not to go in and play that game of brinkmanship. But I think there are circumstances that we certainly would do very well as an out of network provider and might even -- so I would -- because the fact that this is now potentially out there, I don't think there's a question. This is not the revenue issue, if anything. This is a -- we think that there are more revenues that are due us and more business that is due us. So it's really not a revenue loss and I think that as an out of net -- we're a strong laboratory in New Jersey. We have a strong base here. We have a strong marketing staff and huge followers and we do a great deal of work in this state. So I don't think there really is, necessarily, at this time, a revenue that we would see. But I have to be careful about we -- going it beyond that in explanation. Robert M. Willoughby: Okay. Okay. And just you've been active on the deal front. Cash flow has been a bit weaker. I mean, is there an appetite or ability to do more deals here? Or [indiscernible] in a while? Marc D. Grodman: Absolutely. Absolutely. The cash flow is -- we feel is a temporary thing. We've explained what it's from, both on the mechanical part and our own intentional part, in our own issues that we've had but we are -- absolutely have an appetite and looking to where it make sense. One of the comments that I made on the call is that it's one thing to go out and have and do interesting cutting-edge tests. And you sit there and how do you get it in? How do you process it? How do you get it out? How do have the electronics? How do you draw the blood? One of the effect is that we would not be as an effective a Women's Health laboratory if we weren't able to do all the routine businesses and make it seamless for the doctor and the same is true about oncology. So I -- we're starting to go look a little bit more at acquisitions and as we expand this and seeing what opportunities are out there and we have no concern about how we're going to be able to afford them.

And your next question comes from the line of Mitra Ramgopal of Sidoti. L. Mitra Ramgopal: Yes. Just a quick follow-up on Horizon. It seems like that's a -- really, a specific payer issue and there really shouldn't be any concerns about it expanding elsewhere? Marc D. Grodman: No, I don't have -- this has been, as I mentioned in my call, that people who have followed our press releases know that we made a release about an issue back in 2007, in many ways, this is a continuation of that issue and it's a specific payer issue that has no effect on -- I don't believe it has an effect on anywhere else. As I've mentioned before on the call, I think that if you look at the number of managed care, a number of lives in which we have contracts, I think our numbers will rival any and we have contracts with 5 of the -- with the 5 largest commercial insurers in the country. So I don't think there's any relation of one to the other. L. Mitra Ramgopal: Okay. And when I look at esoteric testing, the 64%, I think this is the highest at this quarter. As you look over the next 3 to 5 years in terms -- excluding acquisitions where the industry is headed and the strength you are having in genetic and Women's Health, et cetera. Where do you see that number going or how high? Marc D. Grodman: It really -- I don't -- the reason why I don't predict it is because we are able to go in and grow in a lot of other areas. There are new prison contracts that we're looking forward to being able to see over the course of the next few quarters. That will lower revenue per patient. They may change that number. We may end up doing a lot of more business in California that is not. It does ebb and flow. So when you look at that over the quarters, it doesn't really mean anything. But I think that if you look at this over long periods of time, it will consistently edge up. There may be 3 quarters where it doesn't, there may be 3 quarters where we'll stay the same, even edge down. But by and large, it will slightly, over a long period of time, continually to grow, just given the fact and the strength of where our genetics is going to in, as what I described as the personalized medicine evolution. L. Mitra Ramgopal: And just finally, just quickly on acquisitions, I know you have now expanded nicely on the West Coast, in Florida, et cetera. As you look at more acquisitions, is this going to be, the focus, more on geographies or continue to be technology also? Marc D. Grodman: Here's the problem. We -- EdgeBio, was clearly a technology acquisition and Hunter was a regional acquisition. So we don't make it easy. Meaning we're what we are, we're opportunistic. We have the business plan to combine both. And whatever fulfills that and makes sense, we do, but you can't always predict what we're going to do.

I would now like to turn the call over to Dr. Marc Grodman for closing remarks. Marc D. Grodman: I want to thank everybody for being on the call today. I know this was a long one. I know there were a lot of issues to be able to go in and talk about. We are incredibly proud of the work that we've done. I think when you think about where diagnostics are going, I think that we're proud of our position of being in the forefront. We believe in the right to compete for business and we'll continue to do that going forward. I want to wish everybody a great Labor Day and I look forward to our next conference call at end of this year. Thank you very much.

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