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VCA Antech, Inc. (WOOF)

Q3 2010 Earnings Conference Call

October 21, 2010 4:30 PM ET


Tom Fuller – CFO and VP

Bob Antin – Chairman, President and CEO


Dawn Brock – Kaufman Brothers

Ryan Daniels – William Blair & Company

Mark Arnold – Piper Jaffray

Bob Willoughby – Bank of America-Merrill Lynch

Stan Manny – Manny Family Investments

Rob Mains – Morgan Keegan

Maggie Lovatt – SunTrust Robinson

Carter Dunlap – Dunlap Equity Management



Good day, ladies and gentlemen, and welcome to the VCA Antech Third Quarter 2010 Conference Call. All participants are currently in a listen-only mode and following the prepared remarks, we will take question. This conference is being recorded. 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 only our outlook only as of today’s date, October 21, 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 introduce our host for today, Mr. Bob Antin, CEO and Tom Fuller, CFO. Mr. Fuller, please go ahead.

Tom Fuller

Thank you, Karen and good afternoon and welcome to the third quarter 2010 WOOF earnings call. Today, we reported diluted earnings per share of $0.32 per share and adjusted diluted earnings per share of $0.37 per share. During the quarter, we had a couple of unusual expenses that we added back to our adjusted diluted earnings per share. First is we missed our refinancing in July of this year. We’ve refinancing cost of which we expensed $2.5 million in the quarter pretax.

We also settled a tax on it for prior year’s state taxes for $5.4 million pretax adding these back to the reported earnings per share. We arrived at $0.37 of adjusted diluted earnings per share which compares to $0.42 of diluted earnings per share in the prior year. I’m not surprised, you know, given the shape of the economy, we’ll continue to see pressure on an internal growth rate in the hospital same-store for the quarter was down 4%. And laboratory internal growth for the quarter was down 9%, which compares to a negative 2% in the second quarter for the hospitals and negative 5% internal growth in the second quarter for the Laboratory division.

So a little bit of deterioration in our growth rates. And as in the past, it’s a high-tech cost business. These revenue decline puts pressure on our earnings and hence, our operating income and our net income. On a consolidated basis, our third quarter revenue increase 5.9% to $358 million. And our operating income decrease 11.3% and operating margins decrease to 310 basis points to 16.2%.

The decrease in the operating income and margins came mostly in our lab and hospital segment. As we continue to see deleveraging, our hospital margins were down 290 basis points. And our laboratory margins were down 280 basis points. So on the $7.4 million decrease in operating income, we partially offset by a million dollar decrease in interest expense resulting in adjusted net income and adjusted diluted earnings per share down 12% to the $0.37 per share from $0.42 from the prior year quarter.

Our Antech Diagnostics, revenue up 0.8% to $77 million. Internal growth for the quarter was negative 0.9% and operating income was down 7.9%, operating margins down 280 basis points to 36.1% and 80 basis points. That decline is due to incremental R&D spending. On an adjusted basis, down roughly 200 basis points year-over-year due to deleveraging and increase our transportation cost that continue to build out in industrial and infrastructure and laboratory network.

Now, the components of the growth, requisitions were down 3%, 3,232,000 requisitions in the same store base and our average requisition was up 2.2% to $23.89 for a negative 9% of our combined growth. Total requisitions for the quarter of $3,235,000. We added one lab domestically for the quarter so we started with 48 labs and ended with 49 labs, 45 in the U.S. and four in Canada.

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