VCA Antech's CEO Discusses Q1 2012 Results - Earnings Call Transcript

VCA Antech (WOOF)

Q1 2012 Earnings Call

April 26, 2012 4:30 pm ET


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

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


Kevin K. Ellich - Piper Jaffray Companies, Research Division

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

James Macdonald - First Analysis Securities Corporation, Research Division

Erin Wilson

Unknown Analyst

L. Mitra Ramgopal - Sidoti & Company, LLC

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



Good day, ladies and gentlemen, and welcome to the VCA Antech, Inc. First Quarter 2012 Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. 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 performances and involve risks and uncertainties. Our actual results may differ materially from those projected in this presentation for the reasons, among others, discussed in our filings with the Securities and Exchange Commission. The information in this presentation concerning our forecast of -- for today or for future periods represent our outlook only as of today's date, April 26, 2012, and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new developments or otherwise.

Listeners should also be aware that today’s discussion includes references to non-GAAP financial measures, which management believes are useful to an understanding of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measure will be included with our earnings release and posted on our website at Our earnings and guidance releases are available on our website at In addition, an audio file of this conference call will be available on our website for a period of 3 months.

I would now like to turn the conference over to your host for today, Mr. Tom Fuller, Chief Financial Officer. Sir, you may begin.

Tomas W. Fuller

Thank you, Mary, and thank you, all, for joining us on our first quarter 2012 earnings call. Today, we reported adjusted fully diluted earnings per share of $0.34 which is $0.01 above earnings per share last year of $0.33. Our GAAP earnings was $0.40 which includes a $5.7 million nontax credit or $0.06 per share gain on exercise of our option to acquire the remaining 80% interest in AVC up in Canada on February 1 of this year. I'll quickly point out that the nontax nature of that credit accounts were lower than normal effective tax rates for the quarter of 32.5% versus a normalized rate of around 39.5%.

Our Laboratory and Hospital segment had a very good quarter, both are doing very well, both quantitatively and quantitatively. Operating income was both -- was up in both segments. As importantly, our internal growth rates continued to improve, as is our same stores margins were up in both segments.

Internal growth rates for the quarter, Laboratory was up 6.5% and our Hospital was up 3.5%. Some of that growth is due to the extra business day on leap year of about 1.3%. So on an adjusted basis, 5.2% for the Laboratory is a nice improvement over the 2.2% and 2.3% in Q3 and Q4 of last year, and our Hospital growth rate of 2.2% is a nice improvement over the 1% and 1.1% in Q3 and Q4 of 2011.

So in addition to improvement in growth rates, we also saw -- our margins were up. Laboratory profit margins were up 110 basis points, and the Hospital same-store gross profit margins were up 10 basis points. Canada, which we acquired on February 1, is doing great for the first 2 months of the quarter. They're performing -- for the 2 months in the quarter, they're performing ahead of our expectation. We're very, very excited to be up in Canada, and have our entire team as part of our management team.

Our core business, as I said, Laboratory and Hospital businesses are doing quite well, but Vetstreet losses had a slightly negative impact on our results for the quarter. The increase in operating income in the Lab and Hospital segments of $7.5 million was offset by losses at Vetstreet and about a $5.2 million increase in our corporate SG&A costs due primarily to a $2.7 million increase in share-based comp, and about $880,000 of transaction costs related to AVC and ThinkPets acquisitions in the first quarter.

Antech Diagnostics' total net revenue increased 6.5% to $84.7 million due to internal growth and that 1 extra business day. Operating income increased 110 basis points at 38.9%, which I think is the first quarter we've seen positive margin in many quarters. It was nice to see that we are -- the operating leverage is kicking in. The components of the growth, number of requisitions at 4.9% to $3,202,000, and average requisition at 1.5% to $26.46 since for that 6.5% growth. Total requisitions for the quarter, $3,000,202. No change in lab account. We ended the quarter with 53 laboratories. So I think we'll have a trip to quarter. We continue to see improving internal growth rates on a 6.5% internal growth, operating margin, up 110 basis points. So we are seeing the operating leverage that we believe inherent of what is a very high-fixed cost business. A great quarter for the Lab.

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