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VCA Antech, Inc. (WOOF)

Q4 2012 Earnings Conference Call

February 14, 2013, 16:30 PM ET


Robert L. Antin - President and CEO

Tomas W. Fuller - CFO, VP and Secretary


Erin Wilson - Bank of America Merrill Lynch

Bob Willoughby - Bank of America Merrill Lynch

James Macdonald - First Analysis Securities Corporation

Kevin Ellich - Piper Jaffray

Ryan Daniels - William Blair

Jonathan Block - Stifel Nicolaus

Mitra Ramgopal - Sidoti & Co.



Good day, ladies and gentlemen. Welcome to the VCA Antech, Inc. Fourth Quarter 2012 Conference Call and Webcast. At this time, all participants are in a listen-only mode. Later, we'll have a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes.

Before we commence the discussion, I would like to preface the comments made today with a statement regarding forward-looking information. The information contained in this presentation includes forward-looking statements that involve risks and uncertainties. Such statements appear in a number of places in this presentation and include statements regarding our intent, our belief or current expectations with respect to our revenues and operating results in future periods, our expansion plans and our business strategy and ability to successfully execute on that strategy.

We caution you not to place undue reliance on such forward-looking statements. Such statements are not guarantees of our future performance and involve risks and uncertainties. Our actual results may differ materially from those projected in this presentation for reasons among others discussed in our filings with the Securities and Exchange Commission.

The information in this presentation concerning our forecast for future periods represents our outlook only as of today's date, February 14, 2013, and we undertake no obligation to update or revise any forward-looking statements whether as a result of new developments or otherwise.

Listeners should also be aware that today's discussion includes reference to non-GAAP financial measures, which management believes are useful to an understanding of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measure will be included with our earnings release and posted on our website at investor.vcaantech.com. Our earnings and guidance releases are available on our website at investor.vcaantech.com. In addition, an audio file of this conference call will be available on our website for a period of three months.

I would now like to turn the conference over to your host for today, Mr. Tom Fuller. Sir, you may begin.

Tomas W. Fuller

Thank you, Mary, and thank you, all of you, for joining us for the fourth quarter 2012 WOOF earnings call. Today, we reported a $0.66 loss per share which included a $0.90 impairment charge. So adjusting for that charge, our adjusted earnings per share for the fourth quarter was $0.24, which is a nice increase off of $0.21 of adjusted earnings per share in the preceding year or the 2011 quarter.

As a result of our impairment testing, we determine that the goodwill of our Vetstreet business was impaired and we took a write-down of goodwill and other intangible assets in the quarter of $122 million pre-tax which is $79 million after-tax or $0.90 per share. So excluding that charge, on an adjusted diluted earnings per share for the quarter $0.24.

Operation, again a good quarter. In absolute terms, the $0.24 is a 14% increase over the $0.21 per share in the fourth quarter of 2012, which is really the first real increase in earnings we've seen for quite some time now. On a relative basis sequentially, our core businesses; Hospital and Labs, the comps continue to improve and doing a very good job of holding and improving margins actually.

In Antech Diagnostics, we had 2.1% day adjusted internal growth which is down slightly from the 2.5% internal growth we saw in the third quarter of 2012, but Sandy did impact us. We think it's around 1.5%. So adjusted for Sandy, our internal growth in our Lab was 4.5%, which is a nice improvement after 2.5 in Q3.

Similarly, in the hospital division where Sandy impacted, it was roughly 50 basis points we reported the same day a day adjusted internal growth of 1.6% but around 2.1% adjusted for Sandy. So nice sequential improvement in growth rate and this is holding margin -- a lot of margins. Operating margin is up 30 basis point for the year and our hospital same-store margin is up 10 basis points.

So, operating margin on a consolidated basis, adjusted operating margins were flat at 9.6% which is actually pretty good based on past history. Our cost, as I said, Lab and Hospital business were seeing improvement growth rates, holding margins and our adjusted operating margin was flat. As a result of that, we're holding margin on 13.3% revenue growth. Our adjusted diluted earnings per share increased 14% to $0.24 per share.

In Antech Diagnostics, revenue increased 1.7% to 57.2 million due to internal growth on our adjusted basis 3.0% day adjusted internal growth. On that growth, operating income increased 2.9%, operating margins increased 40 basis points to 32.6%. As for the components of the day adjusted growth, number of requisitions increased 0.7% to 2,828,000 and the average revenue per requisition increased 2.3% to $26.56 for that all-in 3% day adjusted growth. The total requisitions for the quarter was 2,828,000.

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