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VCA Antech (WOOF)

Q3 2011 Earnings Call

October 27, 2011 4:30 pm ET

Executives

Tomas W. Fuller - Chief Financial Officer, Vice President and Secretary

Robert L. Antin - Co-Founder, Chairman, Chief Executive Officer and President

Analysts

Ryan Daniels - William Blair & Company L.L.C., Research Division

Brian Tanquilut - Jefferies & Company, Inc., Research Division

Erin Wilson - Banc of America Securities

Kevin K. Ellich - Piper Jaffray Companies, Research Division

James McDonald

Jonathan Block - SunTrust Robinson Humphrey, Inc., Research Division

Robert M. Mains - Morgan Keegan & Company, Inc., Research Division

James Macdonald - First Analysis Securities Corporation, Research Division

Unknown Analyst -

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the VCA Antech Third Quarter 2011 Earnings Conference Call. [Operator Instructions] Before we commence the discussion, I would like to preface the comments made today with the 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 risk as and uncertainties. Our actual results may differ materially from those projected in this presentation. The reasons, among others is 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, October 27, 2011, 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 GAAP or 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 3 months. I'll now turn the conference over to Mr. Tom Fuller, Chief Financial Officer. Please go ahead, sir.

Tomas W. Fuller

Thank you, Karen. I think that's actually the hardest part of the call. So good job on that, thank you. Thank you, all, for joining for the us for the third quarter 2011 WOOF earnings call. Today we reported 2011 adjusted fully diluted earnings per share of $0.37 per share, which is flat with adjusted earnings per share in 2010 of $0.37 as well. We did have a very successful refinancing in the quarter and as part of that refinancing, we wrote off $2.7 million of cost for about $0.02 a share, bringing the reported EPS of $0.35 to $0.37 which I said, compares to $0.37 in adjusted basis for the prior year. As expected, that streak, which we acquired on August 9, negatively impacted the quarter by about by $0.005 to $0.01. Qualitatively, I think we did an outstanding quarter. We're seeing great improvement in organic growth rates. Our Hospital same-store sales were plus 1% on a day adjusted basis, which is the first positive we've seen since the third quarter of 2008 and a great improvement from the negative 1.9% in the second quarter of this year.

Lab internal growth rate plus 2.2%, which is up from 1.7% growth in the second and the first quarter of this year. So great trend improvement in comps, also did a great job on margins our Hospital operating margins were up to 30 basis points and our Lab operating margins were down slightly 30 basis points due entirely to increased energy cost.

So our operating income was roughly flat. The increases in our operating income in our core Hospital and Lab business was offset by weakness in our Sound-Eklin business as well as the expected losses at Vetstreet. We also had a $2.4 million increase in stock-based compensation expense, which was included in the corporate SG&A line. As a result of that, adjusted net income was roughly flat and as I said, EPS was flat at $0.37 per share on an adjusted basis. So I think given the state of the world, I think we had a terrific quarter and the indicators, comps, margins are moving in a really great direction.

Antech Diagnostics, total revenue increased 2.2% to $79 million, all due from internal growth. On that 2.2% revenue growth, operating income was up 1.3% and margins as I said, was down 30 basis points to 35.8%. All coming from increasing energy costs. So absent that, we actually saw margin improve on that 2.2% internal growth.

As for the components of the growth, the number of requisitions was up 0.2% to $3,242,000. Average requisition was up 2.0% to $24.36 or 2.2% all-in growth rate. Total requisitions for the quarter was the same number at $3,242,000. I think looking at the improvement in the third quarter compared to the second quarter, most of that did come from volumes which were -- have been negative for the past several quarters, negative 0.5% back in Q2 now, volume 0.2% positive in the current quarter for the 2.2% all-in growth rate. So nice improvement in volumes and trends.

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