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VCA Antech, Inc. (WOOF)

Q1 2010 Earnings Call Transcript

April 26, 2010 4:30 pm ET

Executives

Tomas Fuller – CFO and VP

Robert Antin – Chairman, President and CEO

Analysts

Ryan Daniels – William Blair & Company

Brian Tanquilut – Jefferies

Mark Arnold – Piper Jaffray

Robert Willoughby – Bank of America

Jonathan Block – SunTrust Robinson

Rob Mains – Morgan Keegan

Dawn Brock – Kaufman Brothers

Presentation

Operator

Good day, ladies and gentlemen. Before we commence this 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 the 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, April 26, 2010, 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 measures 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 will be available on our website for a period of three months.

I would now like to turn the conference over to Mr. Tom Fuller, Chief Financial Officer. Sir, please go ahead.

Tomas Fuller

Thank you, Karen, and thank you all for joining us for the first quarter 2010 WOOF earnings call. Today we reported first quarter 2010 earnings of $0.37 per diluted share, which is flat with the first quarter of 2009. Consolidated revenues for the quarter increased 4.7% to $330 million. Operating income decreased 4.8% and operating margins decreased to 170 basis points to 17.1%. This decrease is mostly due to a decrease in our hospital gross profit margins, which declined 120 basis points in the first quarter compared to the first quarter of 2009.

Laboratory operating income for the quarter was essentially flat and our operating income in our medical technologies segment more than doubled. Not surprisingly, given the state of the economy we continue to see pressure on our internal growth rates, particularly in our hospital division, where same-store revenue was down 1.6% for a quarter. This decline in revenue put pressure on our hospital operating margin and hence the decrease in our consolidated operating income. The decrease, however, was offset by a 3.2% reduction in interest expense, ending the quarter flat at $0.37 per diluted share in the first quarter versus the first quarter of the prior year.

Having said that, given the economic conditions I think we had a good quarter overall, but we hope there are some – continuation of some positive trends. First, we continue to see improvement in our growth rates, but we were impacted by the weather, severe weather in February of this year. Our internal growth rates are improving. Laboratory internal growth for the quarter was 0.2%, very difficult to measure, but we estimate that the impact of the weather in the laboratory segment was 1.0% to 1.2%. On an adjusted basis, something around 1.2% to 1.4 internal growth in the lab, which is roughly even with the prior year, the first quarter of 2009 sequentially.

Hospital down 1.6% on a same-store basis. With 107 closed hospital days, the growth here was impacted by about 20 basis points to 40 basis points. So adjusted for those closed hospitals, we estimate that our growth rate was a negative 1.2 to negative 1.4, which compares very favorably to the 2.2% in the fourth quarter of 2009. So sequentially, we continue to see improvement in our internal growth rates.

We are holding lab margins as we have in the past year, cutting cost, reset our cost base at 1.2% [ph] revenue growth, margins were basically flat or down slightly 20 basis points. Hospital margins, we did lose margin, but comparatively to the fourth quarter where we saw 190 basis points of margin production when we saw 90 basis points of margin reduction in the first quarter of 2010 on the 1.6% negative growth.

So the trends are all continuing to move in the right direction. So we're happy about that. Antech Diagnostics for the quarter 0.4% increase in revenues to $78.2 million. Internal growth was 0.2%, operating income and margins were essentially flat for the quarter. The components for the growth, number of requisitions was down 2.1% to 3, 00,206 and the average revenue per acquisition was up 2.4% to $24.33, for a total of 0.2% internal growth (inaudible) the weather, you will also note that this was the first quarter we saw negative – a significant amount of negative requisitions in the first quarter. Most of that is due to the less requisitions due to the impact of the weather.

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