LAB Research announces financial results for the third quarter of 2009

LAB Research Inc. ("LAB Research" or the "Company") (TSX: LRI), a global Canadian-based non-clinical contract research organization, today announced its 2009 third quarter financial results.

This press release contains forward-looking information; investors are cautioned that the statements are based on current information and assumptions and that actual outcomes may vary.

This press release refers to non-Generally Accepted Accounting Principles ("GAAP") measures, including Earnings before Interest, Income Taxes, Depreciation and Amortization ("EBITDA"), Adjusted EBITDA, Gross margin, Backlog, Active Backlog and Book to Bill ratio as financial performance indicators. The Company believes such measures provide meaningful information on its performance and operating results. However, readers are cautioned that non-GAAP measures do not have a standardized meaning under GAAP and, thus, are unlikely to be comparable to similar measures presented by other issuers. The backlog represents the value of client contracts for services that have not yet been performed. Active backlog represents the value of client contracts for services that have not yet been performed but that have been initiated (active). The book to bill ratio refers to the value of signed contracts (excluding any cancellations) in a particular period divided by the net revenue reported during the same period.

2009 Third Quarter Financial Highlights - Revenues of $13.1 million, down 6% compared to $13.9 million in the second quarter of 2009, and down 7% compared to $14.1 million in the third quarter of 2008; - LAB Canada and LAB Hungary revenues up 21% and 52% respectively offset by a decrease of 24% for LAB Denmark, compared to same period in 2008; - Adjusted EBITDA of $0.3 million, down $1.0 million compared to $1.3 million in the second quarter of 2009 and down $0.4 million compared to the third quarter of 2008; - Net loss of $1.7 million of which $1.2 million was from LAB Denmark, down $2.0 compared to net earnings of $0.3 million in the second quarter of 2009, and $0.5 million lower compared to net loss of $1.2 million in the third quarter of 2008; - Loss per share was $0.09, compared to earnings per share of $0.02 for the second quarter of 2009 and a net loss per share of $0.06 for the third quarter of 2008; - 14% increase in request for quotations in the third quarter of 2009 compared to second quarter of 2009; and - Backlog and active backlog as at September 30, 2009 at $28.1 million and $11.5 million respectively, compared to $26.8 million and $11.8 million respectively as at June 30, 2009. Other 2009 Third Quarter and Subsequent Highlights - Closing of a $14.2 million Rights Offering; - Company renegotiates its Canadian banking facilities; - Company entered into 3 new master services agreements with global industry leaders; - Korean market coverage extension through a new exclusive agency agreement; - Nomination of new President for the Canadian site; and - Backlog at October 31, 2009 at $30.8 million, up $4 million or 15% compared to September 30, 2009.

"Our Canadian and Hungarian site revenues continue to grow as a result of the successful implementation of new business development initiatives, launch of new value added specialized services and addition of capacity following completion of our expansion program. While our Danish site's results remained under pressure during the quarter in the context of the severe global economic downturn and stiffer competition from UK-based Contract Research Organizations ("CRO") benefiting from a weaker currency, the noticeable increase in request for proposal activity and contract signings currently taking place will undoubtedly translate into higher revenues in Denmark for the fourth quarter of 2009. As a result of our continued commitment to building the highest quality, flexible mid-size full service alternative to larger organizations, and having successfully regained commercial support, we are now well positioned to capitalize on all significant market opportunities" said Mr. Luc Mainville, President and CEO of LAB Research.

2009 Third Quarter Financial Results

LAB Research posted revenues of $13.1 million for the third quarter of 2009, down 6% compared to the $13.9 million in the second quarter of 2009, and down 7% compared to the $14.1 million generated in the third quarter of 2008. The decrease in overall revenues between the third and second quarters of 2009 is a direct result of the global economic downturn which particularly affected our Danish subsidiary ("LAB Denmark").

Our Canadian non-clinical operations ("LAB Canada") posted revenues of $7.0 million during the third quarter of 2009, up 2.8% compared to the $6.8 million achieved in the second quarter of 2009, and up 20.7% compared to the $5.8 million achieved in the third quarter of 2008. The increase in revenue is a result of the implementation of new business development initiatives following the completion of the building extension in December 2008.

LAB Denmark posted revenues of $4.2 million for the third quarter of 2009, down 24.4% compared to the $5.6 million generated in the second quarter of 2009 and down 40.5% compared to the $7.1 million achieved during the third quarter of 2008. The revenue declines are attributable to lower than expected contract signings in the last quarter of 2008 and first half of 2009 due to the global economic downturn and to stronger competition from UK based CROs benefiting from a weaker currency compared to the Euro and Danish kroner. However, the increase in request for proposal activity during the last few months should translate into higher revenues for the fourth quarter of 2009.

Our Hungarian subsidiary ("LAB Hungary") posted revenues of $1.9 million for the third quarter of 2009, up 22.9% compared to the $1.5 million generated in the second quarter of 2009, and up 52.2 % compared to the $1.2 million achieved in the third quarter of 2008. The revenue increase is due to more contract signings from Japanese clients as a result of the Media Services agreement, our Business Development platform, and site recertification that occurred in late 2008.

The Company's gross margin was 28.3% for the third quarter of 2009 compared to 29.5% in the second quarter of 2009 and 25.2% for the third quarter of 2008. The gross margin of LAB Hungary increased in the third quarter of 2009 compared to both the second quarter of 2009 and third quarter of 2008 as a result of significantly higher revenues. The gross margin of LAB Canada decreased from 41.0% to 38.8% between the second and third quarters of 2009 but increased from 28.9% to 38.8% between the third quarters of 2008 and 2009. The gross margin of LAB Denmark decreased due to lower revenues as explained above. Management is hopeful that all three sites will positively contribute to profitability in the coming quarter.

Selling, general and administrative ("SG&A") expenses stood at $3.3 million for the third quarter of 2009, compared to $2.6 million in the second quarter of 2009 and $2.7 million for the third quarter of 2008, representing 25.1%, 19.1% and 19.3% of revenues respectively. The increase between the second and third quarters of 2009 is attributable to $0.3 million of bad debt, $0.3 million of recruiting and professional fees in relation to the implementation of the International Financial Reporting Standards. The SG&A expenses for the second quarter of 2009 were also decreased by a non-recurrent recovery of capital tax of $0.2 million.

EBITDA stood at $0.5 million for the third quarter of 2009 compared to $2.4 million for the second quarter of 2009, and compared to $0.6 million for the third quarter of 2008. Our Adjusted EBITDA, excluding foreign exchange and restructuring charges, amounted to $0.3 million compared to $1.3 million for the second quarter of 2009 and $0.7 million for the third quarter of 2008, representing 2.5%, 6.0% and 5.2% of revenues respectively. The negative variance between the second and third quarters of 2009 is mainly attributable to a decrease in Denmark from a positive 2.9% Adjusted EBITDA to a negative 14.9% due to much lower sales and a $0.3 million bad debt expense.

Our amortization expense was $1.7 million for the third quarter of 2009, compared to $1.4 million for the same 2008 period. This increase is due to additional amortization charges resulting from the completion of the Canadian building expansion project in 2008.

Our net interest expense was $0.8 million for the third quarter of 2009 compared to $0.6 million for the same 2008 period. The negative variance is attributable to the Canadian debt increase.

We recognized a foreign exchange gain of $0.1 million compared to a loss of $0.1 million for the same 2008 period and compared to a gain of $1.1 million in the second quarter of 2009. The increase in foreign exchange gain between the third quarters of 2008 and 2009 occurred mainly in Hungary where the Hungarian forint appreciated relative to the Euro.

The provision for income taxes stood at $0.3 million recovery for the third quarter of 2009 and in line with the same 2008 period.

The net loss for the third quarter of 2009 amounted to $1.7 million compared to net earnings of $0.3 million in the second quarter of 2009 and a net loss of $1.2 million for the third quarter of 2008. The net loss per share amounted to $0.09 basic and diluted on the basis of 18,841,999 weighted average shares outstanding compared to a loss per share of $0.06 basic and diluted for the same 2008 period on the basis of 18,081,935 weighted average shares outstanding and earnings per share of $0.02 basic and diluted for the second quarter of 2009 on the basis of 18,176,019 weighted average shares outstanding.

As at September 30, 2009, the Company's cash position was $5.9 million, compared to $0.1 million as at December 31, 2008, and compared to a bank overdraft position of $1.0 million as at June 30, 2009. The net proceeds of $13.6 million from the Rights Offering helped restore the cash position, as well as reimbursing $5.0 million of capital on our Canadian long-term debt.

As at September 30, 2009, our backlog stood at $26.8 million compared to $28.1 million as at June 30, 2009, still representing approximately 5 months of revenues for LAB Canada and LAB Denmark and 12 months for LAB Hungary, based on the first nine months of 2009 average revenues. Despite strong contract quotation activity, the active backlog decreased from $11.8 million to $11.5 million due to lower conversion rates linked to changes in sponsors outsourcing practices and the lower average value of the contracts signed in a highly competitive market.

2009 Outlook

During the first nine months of 2009, the Company had to address the economic downturn, excess capacity in our sector, the financial covenants issue with our Canadian lender and limited liquidities. All these factors negatively impacted our ability to maintain our historical level of contract sales. In response to these events, the Company reacted proactively by proceeding with 1) a restructuring of its European operations and implementation of cost control measures in all operating units to rapidly improve its financial performance; 2) a restructuring of its Canadian debt facilities following the closing of the Rights Offering; 3) securing a $7.5 million loan with a government agency; 4) the closing of a $14.2 million Rights Offering; and 5) the doubling the number of business development professionals actively promoting our expanded service offering and capacity. Management believes that all these actions will drive improved financial performance and help regain the support of both the capital and commercial markets. The Company appreciates that the Rights Offering has caused a significant dilution to shareholders who decided not to participate. However, we believe the Rights Offering was the best solution to protect shareholders' interest and to raise the required level of capital to re-position LAB Research for many years of successful growth.

"Having successfully addressed current issues impacting the perception of the commercial and financial market towards our Company, we are confident in our ability to meet our growth objectives over the coming quarters. We also remain committed to deliver profitability at all our sites in the near future" stated Mr. Luc Mainville, President and CEO of LAB Research.