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VCA Antech (NASDAQ:WOOF)

Q1 2013 Earnings Call

April 25, 2013 4:30 pm ET

Executives

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

Analysts

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

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Erin E. Wilson - BofA Merrill Lynch, Research Division

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division

L. Mitra Ramgopal - Sidoti & Company, LLC

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

Operator

Good day, ladies and gentlemen, and welcome to the VCA Antech Inc. earnings conference call. [Operator Instructions] As a reminder, this call may be recorded.

Before we commence the discussion, I would like to preface the comments made today with a 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 the 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 performance and involve risks and uncertainties. Our actual results may differ materially from those projected in the presentation for the reasons, among others, discussed in our filings with the Securities and Exchange Commission.

The information in this presentation concerning our forecast for future periods represents our outlook only as of today, April 25, 2013, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise. Listeners should also be aware that today's discussion include reference to non-GAAP financial measures, which management believes are useful to understanding of our business. A reconciliation of these non-GAAP measures to the most comparable GAAP measures will be included with our earnings release and posted on our website, investor.vcaantech.com. Our earnings and guidance releases are available on our website at investor.vcaantech.com. In addition, an audio file of this conference will be available on our website for a period of 3 months.

I would now introduce your host for today's conference, Mr. Tom Fuller, Chief Financial Officer. You may begin.

Tomas W. Fuller

Thank you, Ashley, and thank you for joining us for the first quarter 2013 WOOF earnings call. Today, we reported a diluted earnings per share of $0.34 and adjusted diluted earnings per share of $0.37, adding back a $0.03 charge. As we anticipate, we took a $0.03 charge earlier at the 2 properties that we vacated in the first quarter. We moved those operations to our brand new facility here in West L.A.

Also starting this quarter, we reported a new metrics for us. Adjusted diluted earnings per share excluding amortization expense, which was $0.40 per diluted share. The amortization expense that we're adding back is the amortization of intangible assets associated with our acquisitions. And I'll discuss this and the new operating metrics in more detail in a moment when we go through our annual guidance.

I'll also point out that a reconciliation of adjusted net income excluding amortization expense and adjusted EPS excluding amortization expense to the appropriate GAAP measurement can be found in Table 1 and 2 of today's press release.

Our operating results for the quarter, I think, we had a very solid quarter. Adjusted EPS, excluding amortization expense was up $0.40 -- was $0.40, which is at 8% over the prior year quarter. I think we're pleased to see that all of our business segments are doing well: Sound-Eklin and Vetstreet are both seeing growth and improved profitability; and in particular, our core Animal Hospital and Laboratory businesses continue to see stable and improving revenue comps and then margins are performing well.

Our results are, actually, I think particularly good given the fact we did face a bit of a headwind as we were up against a tough comp in the first quarter of 2012. We had one more business day in the first quarter due to the leap year of last year. And we also had, you may recall, unusually good weather in the first quarter of 2012. So as a result, we had unusually high off trend internal growth rates in the first quarter of 2012, which creates a bit of a headwind this quarter.

Having said that, in the Laboratory division, a day-adjusted internal growth was up 4.3%, and we continue to see good margin expansion, operating margins up 60 basis points on that 4.3% day-adjusted internal growth.

In our Household division, day-adjusted same-store growth 1.8% and adjusted gross -- same-store gross profit margins were down slightly 30 basis points. On that 7.1% increase in revenue for the quarter, our consolidated adjusted operating income increased 9.9% and our adjusted operating margin increased 40 basis points to 13.5%. And I believe that's probably the first increase we've seen in operating margins in well over 3 years. It's a nice milestone and a trend that I hope we'll continue to see in the future.

In Antech Diagnostics, revenue increased 3.1% to $87.3 million as day-adjusted internal growth for the quarter was 4.3 and with that 1 fewer business day in the current quarter. Our actual internal growth for the quarter was 3.0%, total growth 3.1%. On that 3.1% total growth operating income increased 4.6%. As I mentioned, operating margins increased 60 basis points to 39.5%. So we continue to see good trends in revenue and margins. In fact, the 4.3% day-adjusted growth in the first quarter compares very favorably to the 3.0% in the fourth quarter 2012 and the 3.5% growth in the third quarter 2012. The improving trend continues and the margins look great, 60 basis points. Which is a nice improvement up for the 40 basis point improvement and the 3% growth in the fourth quarter of last year. So a good sequential improvement there.

In terms of the components of the internal growth, number of requisitions increased 1.6% to $3,210,000. And our average requisition increased 2.7% to $27.18 for that 4.3% day-adjusted growth. Total requisitions for the quarter is $3,213,000. We added 1 lab in the quarter, so ended the quarter with 56 laboratory locations. So I think the lab had a terrific quarter, the growth rates in revenue and margins continued to improve, 4.3% day-adjusted growth compared to 3.0% internal growth in the fourth quarter. On that growth, we saw great margin expansions, 60 basis points. So we're seeing the inherent operating leverage in that business controlling cost and capturing a higher-margin revenue that is -- in what is inherently a fixed- cost high operating margin business. So a great job in the labs.

Animal Hospital's 7.7% increase to $340.6 million, mostly from acquisitions as the day-adjusted same-store growth is up 1.8%. On that 1.8% adjusted same-store gross profit margin decreased slightly 30 basis points to 14.4%. And I'll point out the adjustment we made is, of that $3.8 million pretax charge we took in the quarter for vacated real estate, about $2 million of that was included in the same-store direct cost, and therefore, it's included in the same-store gross profit. So adjusting for that, margin is down 30 basis points, 14.4%. Total adjusted hospital gross profit decreased 50 points due to lower margins at acquired hospitals, which is fairly typical. So again, the trends continue to look good, 1.8% adjusted same-store -- day-adjusted same-store growth in hospital compared to 1.6% in the fourth quarter of last year, 1.1% in the third quarter of last year and margins behaving pretty much as you'd expect at these levels.

Same-store revenue components, number of orders down 2.2% to $1,676,000. Average order up 4.1% to $175.87 for the 1.8% growth. Total orders for the quarter same-store and from acquired hospitals 1,803,000. On the acquisition side, 3 hospitals acquired, including 1 in Canada, which is great to where we can use it to grow our presence in Canada. 3 hospitals total with annual revenues of $7.2 million. So we continue to see nice trends in the hospital business

In our All Other segment, revenue increased $2.2 million due to growth in our Sound-Eklin business and the acquisition of Vet -- ThinkPets, rather, on February 1, 2012. Operating income increased $1.3 million from a loss of $624,000 in 2012, the income was $718,000 in the current year quarter.

This improvement is due to Sound-Eklin's revenue growth and they're holding their margins and that's loss is decreasing significantly as we expected would happen going into this current year.

So I think in total, we had a great quarter. Our core Animal Hospital and Lab business internal growth rate continued to be stable and improved. We're certainly encouraged by these trends. Lab margins performing really well, 60 basis points on 4.3% growth. Holding hospital margins down slightly at 30 basis points at one point. 8% growth in Sound-Eklin is growing and the losses at Vetstreet are coming down, which is terrific. Our consolidated operating margins up 40 basis points. I said, the first time we've seen increase in margins in quite a while. And an 8% increase in our adjusted diluted earnings per share, excluding amortization expense, $2.40 per diluted share.

Our results for the quarter are within expectations, so therefore, we are not revising our previously issued guidance. However, beginning with our first quarter results, we have modified our adjusted net income and adjusted diluted earnings per share to exclude amortization with intangible assets, associated with acquisitions. As we continue to grow our business through acquisitions, we will use earnings excluding amortizations and measure of our operations performance growth and shareholder returns. We believe this adjusted EPS -- the adjusted -- we believe the adjusted EPS for this amortization will provide a better -- investors have better insight into the operation performance of our business.

The impact of amortization for the first quarter was $0.03 per diluted share, and we expect amortization expense for the full year 2013 will be approximately $21.7 million before tax or $12.5 million or $0.14 per diluted share after-tax. So this adjusted EPS, excluding amortization, will be the measure that we request First Call to use in compiling our 2003 consensus estimates. So therefore, we are revising our estimates to include these assets. As such, to ensure comparability, we are requesting analysts to also provide estimates on this basis. As we did in this quarter, we will provide reconciliations of future earnings releases of GAAP EPS to the adjusted EPS excluding amortization expense. So our guidance for adjusted net income and adjusted earnings per share, excluding amortization is net income excluding amortization, $142.5 million to $151.5 million, that's a 12.5% increase over the previously issued guidance. Diluted earnings per share excluding amortization expense is now $1.59 to $1.69, which is up $0.14 from the previously issued guidance of $1.35 to $1.55. And our revenue guidance remains unchanged at $1.825 billion to $1.855 billion. So that's our operations. Our revised guidance, I think, makes a lot of sense on how we look at our company and our profitability and our growth.

Before I turn it over to Bob for more comments, I'm also pleased to announce that the Board has approved a $125 million share repurchase program. Bob?

Robert L. Antin

Thank you very much, Tom. As Tom mentioned, we had a very good quarter. We saw significant improvements in Vetstreet, our reducing losses with positive growth in EBITDA. Likewise in Sound, we saw a very good quarter from them with growth in all areas in our business. On the Lab side, I think we had an extraordinary quarter. I think, it was very competitive. Margins -- gross profit margins were up, the operating margins were up and probably very significant is the presence that Antech has made in online communications with our clients. We've had a history through Zoasis of communicating our clients on a online basis to give them for the last 10 years, the opportunity to download results as needed for wherever they want it. We improved that capability with Antech online and we have over 20,000 registered participants. And on a daily basis, Antech online to pull down results we have over 9,000 daily unique visits, which we are doing and updating on an ongoing basis. And in February of this year, Antech released Antech on the move and released it in February of 2013 and now has to 3,000 participants and the sign-up rate by veterinary clinicians -- technicians is at a rate of about 35 a day and it's available on iPad, iPhone and shortly, on Android.

In keeping with that spirit and philosophy of connecting to the clients and renewing this stickiness of Antech's presence inside the client hospitals, Vetstreet and Antech are beta-ing and will release in the third quarter Health Tracks, which will revolutionize how veterinarians communicate with their clients in the presentation of diagnostics, which will help all hospitals because it will bring diagnostics to an understandable level, rather than just a low-medium-high that we're all used to.

On the Hospital side, we hit a milestone. Our first hospital was West Los Angeles veterinary medical group in 1986 and it was a hospital that had 8 interns, a few specialists and outgrew its space. And in January, as part of some of the write-down that we took for lease -- lease impact. We are really excited that we opened up one of the largest hospitals in the United States, 1 of only 4 private trauma centers in the United States, has over 50 doctors, 12 specialties, able to treat cancer with a full staff, with a linear accelerator and MRI and a CAT scan. It is one of the most impressive facilities and it really is -- it marks a contrast from 25 years ago, when an animal hospital's most sophisticated technology was an x-ray machine and quite possibly an in-house lab machine. So we're very excited about some of the advancements that we're making throughout.

So I will now open it up to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Ryan Daniels of William Blair.

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

Let me ask a couple of quick questions on the guidance. Number 1, given that the quarter was relatively in the line, is it still safe to assume that you're thinking similar same-store growth for both of the divisions to what you laid out last quarter?

Robert L. Antin

Well, I think, Ryan, we were a little short on the hospital side. We saw a very robust January and as other folks in the industry indicated, the quarter grew weaker as it grew older. February and March where severely impacted, probably most in the Northeast and the Midwest. Interestingly, we are starting to see a rebound in April that looks more like March, no weather, sustained growth, more evenly across the country. So we're pretty encouraged from the original signs that we gave from our -- to our original guidance.

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

Okay, that's helpful. Then if we think of the share repurchase, obviously, pretty sizeable could be about 5 million shares or so. Any thoughts on the timing of that? And then second question would be, is that incorporated in your guidance now the reduced share count or given that we don't know the timing of that, is that just upside as it happens?

Robert L. Antin

I think we are looking for 12 to 18 months and the benefit is not included in the guidance. And obviously since we are already close to halfway through the year, most of the impact you'd feel next year. But it's not in the guidance.

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

Okay, great. And then I guess just one last question, given the share repurchase, what is the updated thought on the M&A outlook? Is this going to cause you to step back? Or are you still comfortable that $50 million to $60 million run rate that you laid out last quarter?

Robert L. Antin

We are still comfortable of that in our internally generated cash flow. So we think that's still our target for acquisitions.

Operator

Our next question is from Kevin Ellich of Piper Jaffray.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

I hope you, guys, can hear me. I've got a sore throat. So just wondering if you could maybe give us a little more color on what you're seeing in the operating environment, Bob, is -- are things still the same? Or would you say they're improving or worsening? Any color?

Robert L. Antin

You're in good company because that makes all 3 of us that are sick. In the -- the operating environment, I -- when we are on the conference call in January, I think most of the industry throughout was experiencing a pretty robust January and to our surprise, either through sequestration, the weather, we saw a slowdown, an anticipated slowdown in February and March, but we seem to see a little bit of a pickup in April and we're hoping that the strength that Antech has is a forecaster of some of the strength we're seeing. But we're seeing better indications right now. It's clear that the larger facilities in the United States, the ones with greater capabilities, that are more in the curative than wellness business is seeing greater growth than the local community hospital. So I seem to see a little strength coming and we've experienced that so far in the month of April.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

That's helpful. And then I guess while you're on the Animal Hospital side, order growth was down I think, Tom said, 2.2%. I was just wondering if you could say what or provide what the visit growth was, was it more of a flat environment?

Tomas W. Fuller

That order growth is visit growth.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

It's the same as -- okay, yes, I appreciate that. And then what drove the average revenue per order up 4.1%. Is there some price inflation? Or is that all just mix shift to higher-priced...

Robert L. Antin

Hard to say we can talk before but I think it's the combination of price and certainly, mix and intensity. So as the consumer loosens up there, doctors have an easier job of doing a higher level of medicine so it adds intensity in voice and then possibly shift to mix to a higher value services as well.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. And then, the critical on the reference labs side, things look like they're going pretty well. Just wondering if you are seeing any noticeable or increased competition from the other 2 guys out in the market?

Robert L. Antin

Well, I think, I've seen the -- on the other big player out there, IDEXX, have gotten comfortable competing with each other. We're very diligent and used to competing with each other. And there is a third entrant in the market that we've seen more in the very smaller client hospitals. They've had some of an impact in the hospitals that have a very, very low monthly revenue rate for Antech and I'm assuming for the rest of the industry. But I don't think the market has changed at all. In fact, I think that Antech right now has -- is doing a great job in competing against the marketplace.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Fantastic. And then just lastly, Vetstreet, how quick do you expect that to -- sounds like things are improving. Is it profitable yet? And if not, how quickly do you expect it to be?

Tomas W. Fuller

It's on track to what we suggested back in the last quarter's call. And I think we said that it would have positive EBITDA in the year of $4.5 million to $5 million roughly with a slight operating loss because of the sizeable amount of amortization expense. But it's definitely improving and it is positive cash flow. Hence, on track to what we originally suggested.

Operator

Our next question is from Erin Wilson of Bank of America Merrill Lynch.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Just on Vetstreet again maybe I missed it, but where does your adoption stand at this point? And what sort of growth rate should we be applying to that business near-term, as well as over the longer-term? And kind of what are the key next catalyst or near-term drivers for that business?

Robert L. Antin

Well, the first one is, I wanted to answer your question. We found religion from your question in the first quarter. We initiated a share repurchase program. The second is on Vetstreet, they went through a pretty challenging period of going through the migration, the unexpected challenge, and I think they're firming up and competing a little bit more vigorously. We are holding in some areas, growing in others and we've lost some clients in some other areas. I believe that the -- I believe that Vetstreet has regone -- reinitiated a market campaign both with HealthyPet Magazine and the integration into our portal business so it's allowing people to -- clients to take advantage of what ThinkPets did so well. And that's print one of the U.S. most distributed that pet care magazines to their clients. We also have initiated a program wherein people can opt-in for Facebook. So we have a number of initiatives that we're doing.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Okay that's great.

Robert L. Antin

In vetstreet.com, the visitor count now is probably somewhere in the neighborhood of about 1.8 million on a monthly basis. So I think that's a great -- it is a very content-rich site.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Okay. And just following up to on -- yes, I did notice the share repurchase. Can you talk about maybe the -- more or elaborate more on the timing and magnitude, what we should be thinking about from modeling purposes with the share repurchase program?

Tomas W. Fuller

Again, we suggested 12 to 18 months. So and we have another 8 or 9 months this year. And hopefully, we'll be -- pro rata hopefully, we'd see it come earlier than later. But I think the big answer is 12 to 18 months.

Erin E. Wilson - BofA Merrill Lynch, Research Division

But it's not an accelerated overnight.

Robert L. Antin

Which we're buying back roughly at $125 million. We're buying back roughly 6% the outstanding.

Operator

Our next question is from Nicholas Jansen of Raymond James.

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

First, I know last year in the second quarter you had a difficult quarter in terms of the revenue slowing down and you kind of increased costs. You had this big margin miss last year in 2Q. I was wondering how should we think about kind of cost dynamics in the second quarter of this year, assuming that the revenue trends holdup as you saw in April.

Tomas W. Fuller

Yes, we did see a very, very strong revenue in the first quarter, which was followed by weak, a bit of a fall-off in the second quarter. So the question at that time is how much of the revenue was, to that effect, was pulling revenue from Q2 into Q1 based on what we saw this year, I think that's probably a little bit what's going on. But also just the fact that we did have better weather this quarter versus the quarter we had in the prior, prior years. So we did lose margin in the second quarter, primarily because of a labor cost got a little bit ahead of us, but I think most of the declines we're deleveraging. I think the hospitals have always done a really good job of adjusting their labor levels to match their revenues. I think we saw that in this quarter by mitigating and holding margin fairly, fairly well so I think we're in a good place going into Q2 if revenue continues to, as Bob suggested, show a little bit of strength, we can hopefully see some margin improvement in the second quarter, but until we see the revenue it's hard to say what's going to happen.

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

That's helpful. And then maybe just kind of looking into the reference lab, it seems like your growth accelerated well. Your largest peer did see some deceleration. So I know the question has been about market share for the last couple of years and they've been growing faster. So maybe just kind of walk us through market share dynamics this quarter. What's changed so to speak, if anything?

Robert L. Antin

I think over the past several quarters, actually, we've been losing share for several years. In the past several quarters we've seen a slow steady decline in share losses to fairly de minimis now. So that, that could account for part of the difference. The share losses were definitely less than they were a year ago. Still there but fairly de minimis, which would account for some of that delta shrinking. We also note -- and we also realized and I think we've talked -- we've acknowledged, many of the analysts knows that much of their growth probably come from international as well. So it's hard to do it -- hard to be apples-to-apples comparison.

Nicholas Jansen - Raymond James & Associates, Inc., Research Division

That's a valid point. And then maybe -- and lastly, kind of update us on your thoughts around maybe building out your own point of care platform? Anymore diligence on that? Or you're still going to just kind of keep that and kind of a longer-term dynamic.

Tomas W. Fuller

We continue to evaluate it. I think you realize on the labs side, we have a competitive product on AccuPlex that competes in the marketplace that was launched second quarter or March of the last year, that's actually coming through a full year and it's a reference-based test that's actually doing very well. We still continue to look at both segments of the market, both in-house, but I don't want to comment any more than that.

Operator

Our next question is from Jon Block of Stifel.

Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division

Maybe just a first question. I'm just curious why the accounting change now? I mean I guess, you've been rolling up hospitals for years. And so what made you find, I guess your found religion in the share repo, but what made you find religion on the accounting change to x out the amortization?

Tomas W. Fuller

I guess something we've actually been looking at for quite a while. We've actually heard a lot of feedback from shareholders. I'm not sure anything necessarily changed. And the occurrences would necessarily make us change why we changed this quarter but I think it's an evolution of what others have thought.

Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division

Okay, great. And then I know there was an earlier question as to price realization at the hospital, but actually your price realization at the lab has been pretty good as well, and so are you able to put through more price on the list or is that also something that is more mix shift in nature, Tom, because I think in the past 2 quarters, you've gotten 2% plus on price and you sort of had closer to 1% or so before the 4 quarters prior to that.

Tomas W. Fuller

I think it's -- I think both dynamics are very similar. You have, I said before in the commentary that the areas that you see you see veterinary growth in is particularly on the curative facilities. The larger ones, the more intense where services are and they tend to have a greater utilization and a greater -- and a higher spend than general practices and we're seeing more growth on that side. So it would make sense that the average invoice would go up because it's been pulled by the more intense services in the larger hospitals. And likewise on the lab side, even the hospital, West L.A., that we opened up for 40,000 square feet, it relies on diagnostics. And its average invoice is much higher. So you're seeing that throughout the United States, not just in VCA Hospitals, but also on other specialty hospitals that's adding to that spend.

Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division

Great. That's very helpful. And maybe just last 2. You mentioned a little bit on Vetstreet, some growth, some contraction in other markets, is that dependent on where IDEXX has rolled out Pet Health Pro and I actually don't know if they rolled it out nationwide. Can you speak to maybe how Vetstreet is standing up versus Pet Health Pro across the country?

Robert L. Antin

Well, I think we're going to feel some body blows from it. I think that's certain. But I also think that the hospital -- and its mostly to the cornerstone and they do a good job there. And we have cornerstone installations as we have every other once. We're going to feel that. But we also -- we're also entwined with a lot of hospitals. And the hospitals offerings between their emails, their communications, their reminders. It's not so easy just to pull the plug and walk on to somebody else. So I expect we will, on some of the portal business feel it, but I see different parts of the business is actually going. So it'll be a battle. There's no question.

Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division

I appreciate it. And very last question, I promise. You guys did a great job but it looks on SG&A almost flattish on an absolute basis year-over-year and particularly corporate G&A, actually I needed to go throughout the numbers, but corporate G&A looked down. Tom, could you just talk to us on what you saw on SG&A? Is it just sort of tightening the belt or is there anything specific in corporate that allows you to decrease that?

Tomas W. Fuller

Actually, sequentially, much of the decrease off of Q4 is actually a result of the spike in Q4. So the current quarter is actually more on trend, the 15.4%, and the fourth quarter of last year it was a little bit higher. Can't recall what's actually in that number. But it's more of a return to the normal level in the current quarter.

Operator

Our next question is from Mitra Ramgopal of Sidoti.

L. Mitra Ramgopal - Sidoti & Company, LLC

Just a couple of quick questions related to Canada. It's been over a year since the AVC acquisition. I'm just wondering if it's meeting or exceeding your expectations and just overall, your thoughts on that market. I know you just added another lab, but how do you see the opportunities in that market now that you've been there couple of years?

Robert L. Antin

Well, we're definitely learning the across-border politics are different. Certainly in the macro sense and also the professional sense. And I think we're very happy. I think we got a really good team up there. We are expanding into some other provinces as we speak and hopefully, we will begin to grow our presence in the specialty and the educational market. And we're hoping to do that cross border and share, because the VCA is by far now, the largest postgraduate educator of veterinarians in the world. And we have a lot of commonality between Canada and the United States. So we're looking to expand in that segment of the market. And we're looking right now, to expanding in Québec. So we're very pleased with it. There are some socials changes that are different, but...

L. Mitra Ramgopal - Sidoti & Company, LLC

And Tom, a quick question in terms of the cost of acquiring in Canada versus the U.S. Is it pretty much the same?

Tomas W. Fuller

Actually, I think they pay a little bit less, but very similar.

Operator

Our next question is from Kevin Ellich of Piper Jaffray.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Just had a quick follow-up. Bob, on the lab side, do you think you're actually picking up any market share?

Robert L. Antin

I think, we are about even or maybe actually down 1%, but it depends how you measure it. On the smaller hospitals, to your first question, on the smaller ones, and there are hospitals that do less than $500 a month with this. I still think there's an erosion and a replacement to those to another competitor that's out there. Who's going after that for box placements. But I'm thinking a larger part, which makes up over 90% of our business. I think it's very sticky and I think we're holding well and I think our major competitor is holding pretty well. So I think we're in a great equilibrium right now.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. And then just 2 quick ones for Tom. First, I missed the average revenue per req on the lab side, it was -- can you give us that again?

Tomas W. Fuller

It was $27.18.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. And then I know you mentioned a year ago, you had the leap year impact and also the easy weather comp, did you classify that for us or can you?

Tomas W. Fuller

It's hard to do. I think I'd rather not be clearly -- we were impacted by that.

Operator

And our final question is from Brian Tanquilut of Jefferies.

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

Bob, just a question on acquisitions. I mean last quarter you talked about the accounting spending $50 million to $60 million deals with a caveat that you would revisit if things picked up, but seems things are off to a good start so far. At what point will you come up with that decision and say, okay things are -- we're comfortable where we are and we're willing to rate that -- take the $100 million or whatever that number would be.

Robert L. Antin

Well, I think one of the pieces that I said last time and I think the company is doing. We have balanced now between the share repurchase and our acquisition. We are not -- we are still very comfortable in our own leverage. So I think between the share repurchase of $125 million and a target of about $60 million in acquisition revenue, I think we're very comfortable. If the market does -- because there was a little head fake, I think mentioned a couple of times that other people in the industry, January seemed pretty good, February, March were soft. If we see a sustained pickup, we would likely be do more aggressive on that side and have the balance sheet to do it. So I think it's a wait-and-see. I mean, we're focusing on 2 areas now. We're doing the buyback but we're also focusing on the hospital side and trying to regain strength in some areas where we can take management's focus. So I think we're still on target to do what we said we would do.

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

And Bob, to that point. I have these questions for Tom. What's your comfort when it comes to debt-to-EBITDA ratio?

Tomas W. Fuller

Excuse me, I have the cold too. So I am going to -- I think we're currently less than 2x levered. We have a lot of opportunity to increase that. How much, I'm not sure at this point I want to talk about it. But clearly we have lots of capacity at less than 2x.

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

And then last question, Tom, do you think you can give us the amortization from last year? Like for the other quarters?

Tomas W. Fuller

Actually, there's a table in the guidance section that has the prior year, by year amortization expense. I think it's like $0.14.

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

Okay. No I was hoping, I was wondering if you can give us like by quarter, but I'll take it offline.

Operator

Thank you. I'm not showing...

Robert L. Antin

Hi, I would like to thank everybody, not only the shareholders, everyone else on the phone including management. We had a very, very good quarter. Difficult times and we're heading in the right direction. We had some milestones in each one of our business segments, so we feel very encouraged by it. And I want to thank everybody and have a good day. Bye-bye.

Operator

Ladies and gentlemen, thanks for participating in today's conference. This concludes today's program. You may now disconnect. To everyone, have a great day.

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