MWI Veterinary Supply, Inc. ( MWIV)

F4Q10 (Qtr End 9/30/2010) Earnings Call

November 4, 2010 11:00 a.m. ET

Executives

Mary Pat Thompson - SVP & CFO

Jim Cleary - President & CEO

Analysts

John Kreger – William Blair

Erin Wilson - Bank of America

Mark Arnold - Piper Jaffray

Ross Taylor – C. L. King

Otto Freeman - JPMorgan Chase

Joseph Garner - Emerald Advisers

Presentation

Operator

Good morning, and welcome to MWI Veterinary Supply’s fourth quarter and 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 fourth quarter and fiscal year 2010 earnings conference call. This is Mary Pat Thompson, Senior Vice President of Finance and Administration, 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 reflects management’s views only as 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 fourth fiscal quarter or fiscal ended September 30, 2010 compared to the same period in 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 fourth quarter and fiscal year 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, 2011. Lastly, we will open the call to questions.

Highlights for the quarter included, first, total revenues grew 45% to $358.9 million. Of the 45% growth, 19% was due to organic revenue growth in the United States and 26% was related to our acquisition of Centaur. 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 8.4% compared to 9.4%.

Third, operating income increased 30% to $13.8 million and our net income increased 34% to $8.8 million or diluted earnings per share of $0.71 compared to $0.53.

Fourth, internet sales to independent veterinary practices and producers in the United States grew by 53% and our product sales from the internet as a percentage of total U.S. revenues, increased to 35% compared to 32%.

Fifth, at the end of September, we had 217 field sales representatives and 159 telesales representatives in the U.S., an increase of 46 sales reps since the start of our fiscal year and 18 sales reps since the start of our quarter.

And sixth, we generated $6.3 million in cash from operations during the quarter, and we had borrowings under our credit facilities of only $10.1 million at the September 30, 2010.

Our financial results were very strong for the quarter and fiscal year. We have achieved excellent growth in our revenue, earnings, and value added services. I would like to thank our team for their continued dedication and focus on customer service that contributes to our ongoing success.

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 45% to $358.9 million for the quarter, with 19% due to organic growth in the United States. Other revenue growth, 26% or $53.8 million was related to the acquisition of Centaur. Excluding the acquisition, our revenue to existing customers represented 40% of the growth of total revenue.

The organic growth of 19% was partially due to the fact that among other things, certain of our existing customers, as well as new customers, placed additional orders with us when their usual supplier was no longer able to meet their needs.

Commissions grew 19% to $4.7 million. At the end of September, we had 217 field sales representatives and 159 telesales representatives in the United States, an increase of 28 field sales reps and 18 telesales reps, since the start of our fiscal year on October 1, 2009.

Gross profit increased by 31% to $45.5 million. Gross profit was benefited by our revenue growth and the addition of Centaur. Gross margin was 13.7% compared to 14.1%. Gross margin decreased due to the addition of Centaur. Gross margin percentage decreased due to the addition of Centaur.

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