VCA Inc. (NASDAQ:WOOF) Q3 2016 Earnings Conference Call - Final Transcript

Oct 26, 2016 • 09:00 am ET

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VCA Inc. (NASDAQ:WOOF) Q3 2016 Earnings Conference Call - Final Transcript

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Presentation
Operator
operator

Good day, ladies and gentlemen, and welcome to the VCA Inc. Third Quarter 2016 Earnings Conference Call and webcast. (Operator Instructions) As a reminder, this conference call may be recorded.

(Forward-looking Cautionary Statements)

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

I would now like to introduce your host for today's conference, Tom Fuller, CFO. Please go ahead.

Executive
Tom Fuller

Thank you, Charlotte, and thank you all for joining us for the third quarter 2016 WOOF earnings call. Today we reported GAAP earnings per share -- diluted earnings per share of $0.71 per share, adding back acquisition-related amortization expenses of $0.07 per share diluted -- adjusted diluted earnings per share of $0.79, which is 16.1% increase over the $0.68 of adjusted diluted earnings per share in the third quarter of 2015.

I will note that we disposed of VetStreet in December 2015, which -- so the current year results do not include VetStreet in the 2015 quarter. VetStreet contributed about $0.03 per share to that $0.68 per share. So excluding that $0.03, adjusted diluted earnings per share increased almost 20% -- 19.7% year over year on an apples-to-apples basis. So great EPS growth.

Our core hospital lab business continue to do well. Margins are up in both of those segments on over 5% comps to each of those. On a day-adjusted internal growth of 5.5% in the lab, adjusted operating margin was up 60 basis points, and on same-store, growth in the hospital was a 5.4%. Same-store adjusted gross profit margin was up 40 basis points. On a consolidated basis, revenue increased 19.1% due to internal growth of about 5% in both segments and hospital acquisition, including CAPNA, big acquisition on May 1 of this year.

I can actually point out that the disposition of VetStreet and a mix shift between revenue at hospitals and laboratories impacted our margins in the quarter. So I'm at 19% total revenue growth. Adjusted gross profit increased 15.7%. Adjusted gross profit margins were down 70 basis points, and adjusted operating margin was flat at 17.8%. So again, VetStreet was a higher margin revenue, so loss of that higher margin revenue accounted for about 40 basis points of that 70 basis point decline in adjusted gross profit margins.

Adjusted for that, margin was down 30 basis points. And in that mix shift, lower margin hospital revenue grew at 25.2% and higher margin lab revenue grew at only 4.8%, accounting for a little pressure on margins. But it's important to point out that both of our two core segments, animal and hospitals, margins increased. Adjusted