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VCA Antech, Inc. (WOOF)

Stephens Fall Investment Conference Call Transcript

November 16, 2011 9:30 AM ET


Tomas Fuller – Chief Financial Officer



We are pleased to have with us today VCA Antech, a leading animal healthcare company offering vet and diagnostics services throughout their North American Hospital and laboratory network. Today with us we have got Tom Fuller who is the company’s Chief Financial Officer and then with that I will turning it over to Tom.

Tomas Fuller

Thank you. So first time here at Stephens, so delighted to be here. Thank you all for joining us. Coming in, I have really bad (inaudible) I apologise. So I will stop to give you guys a chance to cruise the safe harbour statement I will reflect on.

What a terrific company we have. We have a great industry, terrific management team, we are actually coming up on our 25th Anniversary and the three founders and myself and our Chief Medical Officer are still with the company for 25 years, let me talk a lot about the business we are in and how much we love it.

Great cash flow, being down a little bit last couple of years of the economy, but we still have terrific cash flow, self-funded acquisitions, continue to grow through acquisition, and we are the market leader.

In the industry, most employees, 14,000 employees; 540 hospitals just scratching the surface of the hospital market 2% to 3% market share in laboratory services in all 50 states and Canada, not only – and then our hospitals 6.6 million visits per year from the 4.1 million pets we served. Antech Diagnostic services 16,000 hospital clients; recent acquisition of Vetstreet 4,500 subscribers. So, on every measure, we are the leader in the industry and the profession, very proud of what we have dealt over the past 20 years, employed more doctors and more specialists. All the specialists you see in human medicine dermatology, radiology, oncology, surgery you see in veterinary now, which has been a growth driver for many, many years, as we get more customers here, more medicine.

We train interns programs around the country. Vetstreet, which is our recent acquisition, has provided about 50,000 CE courses to veterinary profession over the past several years so. Leading the profession and leading the industry with, the business is doing great, great markets, 20,000 hospitals, 73 million pet owning houses or households and country owned own a pet and growing.

We are in four businesses, our first business is VCA Animal Hospitals, 540 hospitals which is about a 2% to 3% share of the market. Antech Diagnostics is the leading provider of diagnostics exclusively veterinary’s, like a lab corporate specifically to the veterinary market, 16,000 plus and most of the clients of that 22,000. So, huge share in the lab, Sound-Eklin is the leading seller of digital radiology of the sound solutions for veterinarians, instead of using film, we capture X-Ray’s electronically. And then Vetstreet, new company, terrific fit for the company, is the leading provider of educational and communication services for veterinarians.

In terms of how our company fits together, Animal hospital business, roughly two thirds of the revenue, half the operating income in Antech Diagnostics is roughly a third of the revenue and with margins twice those of the hospitals, close 40% operating margins in the labs space, about half of the operating income as well. And our hospitals account for about 10% of the labs revenue. So, 90% of the labs comes from non VCA hospitals.

Those of you that are healthcare investors, or know a little bit about healthcare, or all things you hate about healthcare contracting, reimbursement, malpractice, don’t exist. We are fee for service, 95% of our revenue in our hospitals comes at the point of service, so which is good news compared to healthcare, but we have seen some pressure in the past couple of years with the consumer and the economy, but it should be stabilizing and I see some improvement up late.

Our first business Antech Diagnostics, that’s where we are the leading provider of outside diagnostic services for veterinarians. The great thing about the model is, the infrastructure is in place, very high fixed costs, varied entry network of moving 30,000 to 40,000 to 45,000 samples through the network a day, which is a very high fixed cost, but also very high income on margin businesses. So that incremental extra sample chemistries, picked from hospitals from as high as 60%, 65%, 70% margin businesses, which is why we start terrific margin expansion path and some of that are margin pressure past couple of years, but there were instructions in place. We are the largest provider of lab services for veterinarians to do a great job. We have 80 specialists which consult and help educate doctors and help doctors educate client on the benefits of lab testing. So with that network, we serve all 50 states plus Canada.

People look at the map and they see kind of capacity utilization issue that’s really most of the work is done through New York and Irvine with Chicago, Atlanta, Tennessee for our FedEx business, most of the march in the map of the triangle we put staff [ph] labs, which are for quick turnaround. So in Boston for example, we pick up between 12 and 1 in the afternoon for all the morning visits, to the simple chemistry haematology, locally get results back to the doctor by 5 or 6 that evening, we pick up again at night flights to New York to resolve (inaudible) so lab is to compete against the point-of-care testing at much higher quality. In many cases, similar or better priced than incremental testing, and much of that (inaudible) veterinarians. So vets do test it inside and outside and we like to think that they give us a larger outside work.

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