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VCA Antech, Inc. (WOOF)

Q2 2010 Earnings Conference Call

July 22, 2010 4:30 PM ET


Tom Fuller – CFO and VP

Bob Antin – Chairman, President and CEO


Ryan Daniels – William Blair & Company

Mark Arnold – Piper Jaffray

Dawn Brock – Kaufman Brothers

Rob Mains – Morgan Keegan

Maggie (ph) – SunTrust Robinson

Mitra Ramgopal – Sidoti



Good day, ladies and gentlemen, and welcome to the VCA Antech Second Quarter 2010 Conference Call. 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 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, July 22, 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 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 our host for today, Mr. Tom Fuller, CFO.

Tom Fuller

Thank you, Karen, and thank you all for joining us for the second quarter 2010 WOOF earnings call. Today we reported second quarter earnings of $0.44 per diluted share. In the second quarter of 2009 we reported $0.44 per share, but that included a %0.04 charge for writing of something developed software, $5.3 million pretax charge, $0.94 per share on adjusted basis we approved last year, $0.48 per share compared to $0.44 per diluted share in this year's quarter.

Our consolidated revenues for the quarter were up 2.6% to 354 million. Adjusted operating income decreased 9.8% and adjusted operating margins decreased 260 basis points to 18.9%. The adjusted refers to prior numbers only as I mentioned above we had a $5.3 million charge to the software for the share. There are no adjustments in the current year quarter.

The decrease in adjusted operating income and operating margins all came in all three segments. Hospital margins were down 200 basis points, Lab margins down 160 basis points and MedTech down 460 basis points. That's surprising given the state of the economy; we continue to see pressure on our internal growth rates. Hospital sales revenue was down 2% and Laboratory internal growth was down 0.5%. I used declines and revenue put pressure on our consolidated operating income and margins.

Adjusted operating income was down 7.3 million. However this decrease was offset pricely by a $3 million reduction in interest expense and as report it was down $0.4 per share compared to $0.44 in the prior year.

As I mentioned our growth rates relative to prior quarters were down slightly but our characterizing is stable. -0.5% decline internal growth in the lab there be 0.2% increase in the second quarter, so basically flat. Hospitals were down 2% compared to 1.6% so there is a small decline and fairly stable. In the Antech division, total revenues increased 0.2%, $83 million due to an acquisition. Internal growth in Antech was -0.5% and on that operating income was down 2.9% and margins were down 160 basis points to 41%.

In terms of the growth – components of the growth a 2.3% increase in average requisition to $23.22 was offset by a 2.8% decline. The number of requisitions at 3,563,000, this decline is due to the slow up of the economy on our volumes. Total requisitions for the quarter was 3,573,000. In terms of our lab facilities, we added one lab in the quarter so we ended the quarter with 48 laboratories, including four in Canada and 44 domestically.

In Household division revenues increased 2.4% to 267.6 million, all that coming from acquisitions. Our sales revenue was down 2%. Gross cover margins decreased 7.7% and gross profit margins declined 200 basis points, 15.3% and most of that decline came in in our same-store margins which declined 180 basis points down to 18.6%. You'll recall that we held margins really well to the third quarter of 2009 mostly through cutting labor cost. You'll also recall each quarter went by we suggested it'll be more, more difficult to cut labor and cut expenses and hold margin. I think we saw that in the second quarter where we lost 180 basis points on same-store growth with 2%.

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