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VCA Antech (WOOF)

Presentation at JP Morgan Healthcare Conference 2012

January 12, 2011 4: 30 p.m. ET


Tom Fuller - CFO


Tom Fuller

Thank you all for coming in, and your interest in WOOF. I’m Tom Fuller. I’m the chief financial officer. While you peruse our Safe Harbor statement, I’d like to reflect on what a great company we have, and I’ve just noticed that this is the 30th year for JP Morgan’s healthcare conference. Interestingly enough, just two weeks ago, January 1st, was VCA’s 25th anniversary. It started back in January of 1986.

So we’re very proud of what we’ve accomplished. Clearly with the current macro-environment, we’ve been impacted like a lot of companies. We’re in a great industry. We have a management team that’s been with the company since the start, 25 years. We’re very, very proud of what we’ve built.

Last quarter, after nine or eight quarters of negative growth in our hospital division, which is our largest division, we saw a positive 1% comp, which at the time would suggest - I’m not sure that is the inflection point we’re all waiting for, but certainly it furthers our belief and strengthens our conviction that we probably have hit bottom, so we’re bouncing on the bottom and very optimistic about what the future leaves for us.

We continue to invest in the company. We bought a company, Vetstreet, last quarter, the leading provider of communications for veterinarians. In July we bought Brightheart, which was roughly $55 million in revenue. Small hospital chain. Recently, yesterday in fact, we announced increasing our stake from 20% to 100% of Associate Veterinary Clinics, up in Canada, AVC, which is the leading provider of pet healthcare in the Canadian markets. We’re very excited about that entry.

So as we continue to work through the economy, and do our best to manage - and it was a pretty tough environment - holding margins as best we can, we continue to invest in the company. And we are the market leader - which we’re very proud of - in the industry. We employ the most people, 14,000-plus employees.

We have 540 hospitals, and now with the addition of AVC coming up at the end of this month, it will be about 585 hospitals, so approaching 600 hospitals - 52 labs in all the United States, plus Canada. Our hospitals see 2.9 million clients, over 6 million pet visits per year, Antech Diagnostics, 13 million requisitions per year.

So not just the leader in the industry, but also the leader in the profession. We employ the most doctors. We’re at 2500 veterinarians. We employ the most specialists. We have internship programs where we train in, I think, 23 programs around the country, 153 interns. Vetstreet is the provider of 50,000 continuing education courses online for veterinary professionals.

So our reach in the industry is deep, and we’re very proud of what we’ve built over the past 25 years. Looking at markets, 22,000 animal hospitals, 210 million pets - over half the households in the country own a pet, which is why we feel so good about the future, and those of you who have a pet I’m sure you know we spend lovingly. Within reason, we’ll spend anything on our pet. So the market’s great.

We’re in four businesses, Antech Diagnostics is the leading provider of veterinary reference laboratory services for veterinarians - 16,000 clients of that 22,000 hospitals. VCA Animal Hospitals, 540 hospitals domestically. About a 2% share of the hospital market, probably a 4% share in terms of revenue. So a huge market, where we’re just now starting to scratch.

Sound-Eklin is the leading provider of imaging diagnostics for veterinarians, radiology and ultrasound equipment. And our recent addition, Vetstreet, is the leading communicator of veterinarians, helping veterinarians connect with their clients, increase marketing, increase sales, and compete in the online retail space.

So four great complementary businesses, all hitting the same market. In terms of how the company fits together, our animal hospitals represent roughly two-thirds of our revenue, half our operating income, and laboratory roughly a third of our revenue, with margins twice those of the hospitals, represent the other half of operating income.

And those of you who are familiar with healthcare, the things you don’t like about healthcare: reimbursement, Medicare, contracting, malpractice, is virtually nonexistent. We’re fee for service, so it’s a great environment for us to operate in.

Our first business, Antech Diagnostics, as I said, is the largest provider of diagnostic services exclusively for the veterinary market. The great thing about the business is the platform’s in place. An extensive platform of 52 laboratories in the United States and Canada, serving 13,000 clients, 16,000 pickups, 13 million requisitions picked up in 2010, and growing.

People see the math, they think capacity, utilization - the little triangles are what we call stat labs, for quick turnaround. In a market like Boston, for example, even San Francisco, we’ll pick up twice a day, sometimes three times a day, do the simple chemistries and hematologies locally, get the results back to the doctor that afternoon, pick up again in the evening and fly it down to New York, Chicago, Irvine, and get the results by the next morning.

So turnaround time in the veterinary market is critical. Doctors expect rapid, same-day, next-morning turnaround. Because the infrastructure is in place, very high fixed costs, but very, very high incremental margin business where we estimate additional chemistries from the same client can be as much as a 60-70% margin revenue when we pick up additional samples.

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