MWI Veterinary Supply, Inc. (CRR)

Q3 2010 Earnings Call

July 29, 2010 11:00 a.m. ET

Executives

Mary Pat Thompson - SVP & CFO

Jim Cleary - President & CEO

Analysts

Bob Willoughby - Bank of America

Mark Arnold - Piper Jaffray

John Kreger - William Blair

Otto Freeman - JPMorgan Chase

Joseph Garner - Emerald Advisers

Ross Taylor - C.L. King

Presentation

Operator

Good morning and welcome to the MWI Veterinary Supply's Third Quarter Fiscal 2010 Earnings Conference Call. Today's call is being recorded. At this time I would like to turn the conference call over to Mary Pat Thompson, Senior Vice President of Finance and Administration and Chief Financial Officer for introductory remarks. Ms. Thompson, please go ahead.

Mary Pat Thompson

Good morning, and welcome to MWI Veterinary Supply's third quarter fiscal 2010 earnings conference call. This is Mary Pat Thompson, Senior Vice President of Finance and Administration and Chief Financial Officer and Joining me today is Jim Cleary, MWI's President and Chief Executive Officer.

Certain statements contained in this conference call that are not descriptions of historical facts are forward-looking statements as such term is defined in the Private Securities Litigation Reform Act of 1995. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.

Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to those discussed in filings made by MWI with the Securities and Exchange Commission. Many of the factors that will determine the company's future results are beyond the ability of management to control or predict.

Listeners should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. MWI undertakes no obligation to review or update any forward-looking statements or to make any other forward-looking statements whether as a result of new information, future events or otherwise.

Another note that I would like to point out during the call is related to financial comparisons that are made. All financial comparisons are for the third fiscal quarter or nine months ended June 30, 2010 compared to the same period in the prior fiscal year, unless otherwise noted.

Now, I would like to turn the call over to Jim Cleary to begin our remarks.

Jim Cleary

Good morning and welcome to MWI Veterinary Supply's third quarter fiscal 2010 earnings conference call. Today I will walk you through an overview of the results that were presented in our earnings announcement released earlier today. Mary Pat will provide additional detail and explanation of the financial results. Then I will briefly discuss the company's business outlook for the fiscal year ending September 30, 2010. Lastly we will open the call to questions.

Highlights for the quarter included; first, total revenues grew 40% to $347.7 million. Of the 40% growth, 17% was due to organic revenue growth in the United States and 23% was related to our acquisition of SunPower Services Limited. In February 2010 we acquired Centaur which is a supplier of animal health products to veterinarians in the United Kingdom. Second, selling, general and administrative expenses as a percentage of revenues improved to 7.9%, compared to 9.2%.

Third, operating income increased 38% to $15.1 million and our net income increased 38% to $9.1 million or diluted earnings per share of $0.74, compared to $0.54. Fourth, internet sales to independent veterinary practices and producers in the United States grew by 44% and our product sales from the internet as a percentage of total U.S. revenues increased to 36%, compared to 32%.

At the end of June we had 211 field sales representatives and 147 tele sales representatives in the U.S., an increase of 28 sales reps since the start of our fiscal year on October 1st. And sixth, we generated $5.4 million in cash from operations during the quarter and we have borrowings under our credit faculties of only $15.9 million as of June 30, 2010.

Our results for the quarter continue to demonstrate our strong commitment to providing excellent service and value to our customers and vendor partners. Our revenue growth, expense control, earnings growth and value added services, all exceeded our expectations and I would like to thank our employers, customers and vendors for their loyalty to MWI. Also we continue to be pleased with our integration and collaboration with the Centaur team.

Now I will turn the call over to Mary Pat Thompson, Senior Vice President and Chief Financial Officer who will provide additional detail of our financial results.

Mary Pat Thompson

Thank you Jim. Revenue growth was 40% to $347.7 million for the quarter with 17% due to organic growth in the United States. Included in total revenues were $57.7 million related to the acquisition of Centaur. Excluding this acquisition, our revenues to existing customers represented 43% of the growth of total revenues.

Commissions grew 19% to $4.3 million. At the end of June we had 211 field sales representatives and 147 tele sales representatives in the United States, an increase of 22 field sales reps and 6 tele sales reps to the start of our fiscal year, October 1st.

Gross profit increased by 27% to $43.9 million. Gross profit was benefitted by our revenue growth and the addition of Centaur. Gross margin was 12.6%, compared to 13.9%. Gross margin percentage decreased due to the addition of Centaur. Centaur's growth margin is generally lower than MWI's and this reduces the overall gross margin of the consolidated company.

Read the rest of this transcript for free on seekingalpha.com