VCA Antech Management Discusses Q4 2013 Results - Earnings Call Transcript

Feb.13.14 | About: VCA Antech, (WOOF)

VCA Antech (NASDAQ:WOOF)

Q4 2013 Earnings Call

February 13, 2014 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

James R. MacDonald - First Analysis Securities Corporation, Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

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

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

Erin E. Wilson - BofA Merrill Lynch, Research Division

L. Mitra Ramgopal - Sidoti & Company, LLC

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

Brian Tanquilut - Jefferies LLC, Research Division

Operator

Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to the VCA Antech Fourth Quarter 2013 Conference Call. [Operator Instructions] Today's conference call is being 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 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 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 for future periods represents our outlook only as of today's date, February 13, 2014. 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 reference 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 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 call will be available on our website for a period of 3 months.

I would now like to turn the conference to our host, Mr. Tom Fuller. Sir, you may begin.

Tomas W. Fuller

Thank you, Eric. And thank you, all of you, for joining us for the fourth quarter 2013 WOOF earnings call. Today, we reported a good, solid quarter; very consistent, actually, with what we've seen I think in the past several quarters. On a GAAP basis, diluted earnings per share 28% -- $0.28 per share. Adding back the $0.03 for amortization expense related to acquisitions in the quarter brings it to an adjusted diluted earnings per share, excluding amortization of $0.31, which compares to $0.28 in the prior year for 10.7% increase. So $0.28 on a GAAP basis, $0.31 on an adjusted basis compared to $0.28 in the prior year. And as always reconciliations of all the non-GAAP measures to the GAAP measures are presented in the tables accompanying today's release.

As I said, I think, we have a very solid quarter. Each of our 4 businesses had increased operating margins in the quarter. And as a result of across-the-board margin improvement on 4.1% revenue increase, our net income and -- our adjusted net income and our adjusted diluted earnings per share increased almost 17%. And adjusted EPS, excluding amortization expense increased 10.7%.

Our core Animal Hospital and Laboratory businesses, which represent roughly 95% of our consolidated revenue, continue to perform very, very well. Lab internal growth was 5.3%. And on that 5.3%, internal growth margins improved 180 basis points.

In our Hospital division, on same-store, we saw a 60 basis points improvement in same-store gross profit on a 0.9% increase in same-store revenue growth. So on a consolidated basis, 4.1% increase in revenues and consolidated operating -- adjusted operating margin increased -- or excuse me, consolidated adjusted operating income increased 14.8%, and the adjusted operating margin increased 90 basis points, that's consolidated to 10.5%. So after several years of pressure on margins, I think this is our fourth consecutive quarter of margin improvement, and certainly a nice way to end the 2013 year.

Antech Diagnostics revenue increased 6.2% to $79.8 million. On a day-adjusted basis, internal growth was 5.3%, there was 1 additional business day in the 2013 quarter, I think about 90 basis points, so 6.2% total growth, 5.3% day-adjusted. On that 6.2% revenue growth, operating income increased 12.1% and operating margin increased 180 basis points to 34.4%. So terrific margin performance at the Lab. And again, a really good way to end the year. For the year, Lab's at 5.2% and operating income of 8.1% and margins of 100 basis points, so 38.3%.

The components of the growth, number of requisitions increased 2.1% to 2,000,887 and the average revenue per requisition increased 3.2% to $27.43 for the 5.3% day-adjusted growth. So I think, again, the Lab had a very solid good quarter, 5.3 day-adjusted internal growth. So we're seeing good stable growth rates above that 5% level where we can terrific margin expansion. In this quarter 6.2% total growth, operating margin, as I said, we're up 180 basis points, and for the year up 100 basis points on 5.2% growth. So great, great margin at the Lab.

Animal Hospital business, 4.0% increase in total revenue of $343 million. Most of that from acquisitions as the same-store revenue growth was up 0.6% -- or 0.9% rather. On that 0.9% growth, same-store gross profit margins increased 60 basis points to 13%, and our total Hospital adjusted gross profit margins were only slightly less, 40 basis points to 12.5%. As to the components of the growth, number of orders down 2.2% to 1,000,898, and the average order was up 3.1% to $172.47. Total orders for the quarter were 2,000,036.

Acquisition-wise, we had a good quarter, pretty much putting us for the year where we expected to be. 6 hospitals were acquired in the quarter with annual revenues around $15 million, which puts us for the year, $20 million -- 20 hospitals acquired with annual revenues around $60 million. And the Hospital account went from 606 up to 609 hospitals at the end of the quarter.

In our other category, which includes Sound-Eklin and Vetstreet, revenue actually decreased $1.8 million or 5.9% to $29 million. Those improvements in both -- in margins at both Sound-Eklin and Vetstreet are just operating income, more than doubled over $1.1 million. And our adjusted operating margin increased 220 basis points to 4%. So good, again, across-the-board improvements in margin resulted in overall improvement in the consolidated operating margin of 90 basis points and the 10.7% increase in adjusted diluted earnings per share, excluding amortization to the $0.31. Which I think is a very good strong close to a good year. For the year, our revenues were up 6.1% and our adjusted diluted earnings per share was up 10.5% to $1.68 per share. So that's the operating results.

Quickly on the share repurchase, in the fourth quarter, we acquired 646,000 shares through the first quarter, through yesterday. First quarter to-date, we acquired another 240,000 shares. So to date through yesterday, we acquired 1,439,000 million shares for a total cost of $41,438,000 million.

Looking ahead, we also provided guidance in today's release. We're looking for revenue of $1.9 billion to $1.925 billion, and net income of $144 million to $153 million. And on a GAAP basis, diluted earnings per share of $1.62 to $1.72, bringing that back to $0.15 for -- estimated $0.15 in 2014 for the acquisition-related amortization expense. Our diluted earnings per share, excluding amortization, comes in at $1.77 to $1.87 per share. Bob?

Robert L. Antin

Thank you, Tom. We believe we had a very strong quarter with all 4 of the units showing growth, as Tom mentioned. But the most heartening part about it is we had expansion of margins in each one of the businesses. Certainly, Antech had a fabulous quarter; they did a great job holding market share and implementing quite a few new programs, both on the imaging side and on the AccuPlex side. So I think Antech had a great quarter. The hospitals, it is a challenge on same-store sales. But they have done a great job holding margin. And when we go through some of the questions, I'll explain a little further some of the programs that they have. So overall, I think we had a very, very good quarter, and I'm very pleased with it and the progress we're making.

So I will let people ask questions now, and we'll open it up.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Jim MacDonald of First Analysis.

James R. MacDonald - First Analysis Securities Corporation, Research Division

Maybe, Bob, you could go into some of those reasons and what you're doing from, I guess, some cost programs to hold the margins so steady and so good there?

Robert L. Antin

Well, the biggest cost that we have in the Hospitals, I think, that's what you're asking. The biggest cost that we have in the Hospitals is on labor, supplies and just general overall management and keeping the focus on it. And I think the hospital folks are very in tune to the stresses in the environment. And while many of our hospitals are up, some still struggle in different parts of the country. So there's a heightened sensitivity towards margin management. They're doing a great job doing it, obviously. So I think it's a focus, and I think the information that we're able to provide to hospitals also gives them real-time tools to be able to manage some of the information. So they've done a good job of it. On the -- I'll just follow-up, on the revenue side. We are testing different programs for certainly client retention. We continue to do a pretty good job of driving new clients in the hospitals. New clients account for more than 8% of our client business. And we're slowly introducing programs that allow us to touch clients a little bit more effectively, both through e-mail and -- the capture of e-mail addresses and the ability to do that. Also, we have had an increase in focus on our websites. And we're being able to touch through the websites an increased number of people. We've had an 88% -- excuse me, we've had over 200% increase in our website utilization. So we're being able to touch and probably, somewhere in the middle of the year, we're going to extend out and create a 2-way texting system that will allow our hospitals to text either more effectively to our clients when they come in. So we're focusing on trying to drive it. But the heart of it is just trying to manage our margins while we're doing it.

James R. MacDonald - First Analysis Securities Corporation, Research Division

Maybe I'll just follow-up on that. Could you -- are you testing some of the wellness recurring revenue programs. And if so, how are those going?

Robert L. Antin

The wellness, we are behind. We expect to start rolling it out within the next 30 days. We had 4 test sites and the test sites were not that effective. So we have begun, redesigned it and we're about to start rolling it out. And we believe, with this, we'll have more success in implementing the wellness programs. But the 4 test sites that we did, the experiences we had were not overwhelming. So we stopped, reconfigured it. And I'm pretty sure, and I have a lot of confidence, that we'll have success in it.

Operator

Our next question comes from Kevin Ellich of Piper Jaffray.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

First off, Tom, I was wondering, was there any weather impact or timing of the holidays impact that affected your same-store growth this quarter?

Tomas W. Fuller

I think you always have weather. Obviously, we had extra weather this quarter. But the fourth quarter was pretty neutral, I think you had similar weather issues in the prior year. Net-net I think it was pretty small, actually.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. What about Christmas fell on a Wednesday, so was New Year's. Do you think that's...

Tomas W. Fuller

Again, those things always affect you a little bit, but it's hard to quantify how much. I guess, it has a small negative impact. But again, to quantify it is pretty difficult.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Got you. Understood. And then, Bob, it seems like a big year of new product launches in the companion animal market. There's new parasiticides coming out. Just wondering, do you think this could help drive increased visits and volume to your Animal Hospitals since most of these products require a vet prescription?

Robert L. Antin

I think year-over-year, we're very hopeful that it will. Because in the past, the parasiticides, as you're well aware, have put stress on hospitals because there's been so many OTC products available, whether it's Bayer's products, Frontline, Hartz Mountain, there's been many introductional products that haven't required, and they've been OTC. So we're hopeful that with the reintroduction the parasiticide market will come back in our hospitals. And I think it's a great point. It's a very, very good point.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Great. And then maybe, can you give us kind of a big picture view on the industry? And I guess, any collaborations that you guys are working on that could help drive more volume in the hospital or even testing for Antech?

Robert L. Antin

We certainly -- we are certainly working with most of the pharma companies, not all, but most, to co-brand private products for us that insulate us a little bit from the market and the loyalty of products when clients come into our hospitals, and then are marketed away through the OTC market for the same products. So we now have our own brand, and the pharma companies have been very supportive of it. We have some other efforts that we work on, particularly with Zoetis. We have a pet wellness plan that we're testing in the marketplace with them. And as you know, Zoetis has a rather robust and probably one of the best sales forces out there. And we're exploring different ways on aligning the sales force in different efforts that are compatible. So we are looking to partner up with a few of them.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Got you. And then last question on Vetstreet. Are there some new product launches that are coming out this year? And I guess, how did Vetstreet perform in Q4? Is it now providing a little tailwind to the business?

Robert L. Antin

Admittedly, it's still tough. There's a lot of competition, and it is still tough. In terms of product release, they have come out with some that have actually been very positive. And we have a collaborative exercise going on in the company right now to develop a number of products that will be both used in our hospitals through Vetstreet and separately that will give us the ability to touch the client in so many different ways that we haven't done before. So in the fourth quarter, I can't say that it was overwhelming. We're still struggling. I think they did a good job in rationalizing some parts of their business, but there is still some challenges in front of us.

Operator

Our next question comes from Jon Block of Stifel, Nicolaus.

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

I'll start with the Hospital. And I think it looks like you're certainly continue to lose share at the Hospital. And yes, you're doing a great job holding margin. But I think just a little bit of a bigger picture question though, is it possible that you're sort of obsessed with holding margin and you're really not being proactive in investing and taking the initiatives you need and therefore, you're losing share to some of your competitors that are a little bit more aggressive with some programs. Can you talk to that, the trade-off between preservation of margins and continuing to grow at a notable discount to the industry?

Robert L. Antin

No. I don't think that's the case. I think we've aggressively spent, we're probably the largest spender in search opportunity inside the veterinary world. We probably have the largest per hospital budget. And in many areas of the country, Jon, it's been very, very successful. And I mentioned before in terms of our own Internet capacity, we've had an effort to try to touch -- we have over 8.9 million people that are accessing -- unique visitors that are accessing our websites. We're learning. We're pushing. We've had a 250% increase in those that are touching, even through mobile sites. We're investing in the facilities, in equipment, in technology, and it falls in different categories. Certainly, in our specialty hospitals and hybrid hospitals, where we are investing, we're getting good results. It's on the general practices where we feel the greatest challenge. And I can't even say because we have good relationships in almost all locations where we have a hospital with the local community. Our hospitals don’t perform terribly different from the neighboring hospitals that are there. I think we're spending the money. But at the same time, I think it's a requirement that you still have to manage your P&L. So we're spending the money to drive in clients for new products, new training. We're investing money in client experience in a large way. We're going to be putting out some new apps for clients to be able to use and access their own data files. So I think we're investing. And I will admit that our same-store sales is always a challenge. It has been a challenge. I, too, look forward to the day where it flips and it's not there, and we thought we were heading in that direction. But I don't think we're holding back investment at the hospital level. But I do think we have a focus on managing in those circumstances where we need to.

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

Okay. That was very helpful, Bob, I appreciate the color. And just a couple of follow-ups. We've done some work around wellness, and it seems like it is picking up steam in the industry. You mentioned you had 4 test wellness markets, it didn't work out as planned. You're making some tweaks to the program. Can you just talk about -- so what didn't work out? In other words, was it the uptake that wasn't there on wellness? Was it the profitability of the plan that wasn't there? Any color you can give.

Robert L. Antin

No. I think it was more of the uptake. We introduced it in 4 of the hospitals and it was -- 2 of them were not well accepted. And we partnered with somebody else in it. So we relied on each other's capabilities. And I think in this kind of program, we realized that we have to rely totally on our own. And while we can use the attributes of other people's programs, figuring out the accounting, the processing is a very, very important part to a company, so a large -- that's going to have to implement it. So we learned from the first 4 and we expect an aggressive rollout, I think, I said beginning in about 30 days.

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

Okay. And last 2 for you, Tom, I think this one's for you. The margins at the hospitals, the out margins, I think you said 9.7% versus 9.2% a year ago. Was the 9.2% restated? I've got 9.5% a year ago.

Tomas W. Fuller

I'm not -- 9.2%? I'm showing same-store of 3.0% up from 2 point -- 12...

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

No. I'm sorry, the Hospital operating margin in the press release, you say it was 9.7% Hospital op margin versus 9.2% a year ago. I thought the number was 9.5% a year ago. So I'm just looking for clarity...

Tomas W. Fuller

Let me go back and let me -- I mean, you're off by just a few basis -- let me go back and I can look at that, I don't have it in front of me right now. There should be no adjustments in both years, though.

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

Okay. And then just a follow-up to that. Also, does that margin expansion year-over-year, you called out the extra day at the Lab, I'm guessing did the Hospital have an extra day as well?

Tomas W. Fuller

Actually, not. Because of the way the Sundays fall and how the Lab bills, you typically can have a business day in one business and not the other, which is the case this quarter.

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

Okay. And very last one, just looking at the other operating segment. You gave some clarity last quarter on the split between Med Tech and Vetstreet. Were both down this year-over-year just looking at the numbers? Can you give the revenue?

Tomas W. Fuller

The revenue in each of those was down. But through the margins, they were able to increase their profitability.

Operator

Our next question comes from Ryan Daniels of William Blair.

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

Bob, let me ask another one on the wellness programs. When you talk about rolling that out in 30 days, how aggressive are you going to be in regards to number of locations? Is it an intent to do it, but do a number of pilot sites and then expand based on the success?

Robert L. Antin

Well, I think the size of the pilot is going to be a little larger. And we're certainly going to have the test first before we put our foot down. So I think there will be pilot sites, but the pilot is going to be much larger.

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

Okay. Is that -- you mentioned some of the necessities from an IT standpoint, accounting investments to run the program, that you did with a partner and now you're doing it all internally. Is it predicated on having WoofWare rolled out at more locations so that you can leverage that technology to do exactly those things?

Robert L. Antin

Well, the interface -- eventually, the interface with WoofWare into the program will certainly be very, very helpful. But the rollout is separate. We have, on a separate note, we have 310 hospitals that are installed on WoofWare already. So we continue to focus on putting WoofWare in the hospitals. Separately, in terms of installing the insurance package, we will go back and interface the 2. It would have been easier if they went out at the same time, but that was impossible. So we're separately installing the wellness programs, and then will re-interface them with WoofWare.

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

Okay. Perfect. And then maybe a couple of quick financial ones for Tom. Just number one, I want to get your outlook on M&A activity for '14 and what's incorporating guidance? And then number two, just any color you might have a based on the revenue and EPS guidance you gave us. What's implicit there from organic growth in each of the 2 divisions, if you can share that?

Tomas W. Fuller

On the acquisition side, we're looking for something similar because we do have the share repurchase programs. So we're looking for something in the $60 million to $70 million next year for acquisitions. On the comp side, we're looking for, obviously, the first quarter is a little bit challenged, but we're looking for continued improvement in the comps throughout the rest of the year. But the exact amount, I'm not sure I can specify. But, again, you can sort of use the fourth quarter as a base and expect some little growth off -- or Hospital business more growth, but Lab business steadier growth off of that number.

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

Okay. And just to calibrate though, maybe -- I know the quarter is not done but Hospital, I assume, could actually decline given everything going on with the weather or do you think it could be stable Q1 and then grow from there?

Robert L. Antin

All right. I would -- neither one of us would like to guess about the weather. The only thing we know about the weather is living in Southern California has been a blessing. But it's hard to forecast, it's impossible to forecast. We're getting hit by it, no doubt. I couldn't tell you to what extent because you don't know how long it's going to last and where it's going to hit next.

Operator

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

Erin E. Wilson - BofA Merrill Lynch, Research Division

Another good Lab quarter, how would you characterize the overall competitive landscape?

Robert L. Antin

Well, I think it continues, Erin, to be competitive. And I think the one bright spot in the industry is that Diagnostics continues to grow. We certainly compete with them, and I think we're both doing a pretty good job. Our focus in our larger clients has been strong, our market share in the larger clients has been positive. We continue to see this very, very small hospitals erode a little bit to both other companies, the ones probably less than $1,000 or $500 a month. But I think, overall, it's been incredibly positive. I think on the side of -- which would be your follow-up question, I presume -- we too have a very robust electronic capability in the Lab. We have over 14,000 unique visitors that come into the Lab that rely on it. We have over 20,000 client activations in our system, our ANTECH OnLine Zoasis. We introduced, about 2 quarters ago, the Antech OnTheMove, and we have over 66,000 subscribers to the service. So we're starting. It's competitive, but I think we're both doing a good job. And I think by the numbers, the Lab folks did a phenomenal job by selling through, introducing some new products, expanding them and also capturing some margin increase. I think they did a great job.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Great. And what are you seeing as it relates to the acquisition pipeline out there and kind of deal multiples? Obviously MVA is making a lot of noise out there.

Robert L. Antin

Well, it goes back and it's probably a question someone else will ask. We saw the same press release about MVA, which is a great company. They've been very active in the market through acquisition. There's a number of other smaller companies that are likewise. And from even our share buyback, having dry powder to be able to look at the opportunities they've offered. But one thing we do see, we focused in the beginning of 2013 when the clarity in the market was a little less than it is now. We held back a little on the acquisitions, but we made the target. We do see the individual acquisitions, while historically stayed in the 5, 6x EBITDA, I think there's a little pressure right now on higher prices because there is people that are spending money to try to make their company grow a little bit, possibly, for additional M&A activities. So I think there's a lot of activities on the individual acquisition. And I think there's, as you just saw in the press release, the largest one out there is going to look at their strategic options.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Okay. And maybe this one's for Tom. What's incorporated into the guidance, I'm sorry if I missed this, but as it relates to share repurchases?

Robert L. Antin

I'll answer that one. I think, we have a share repurchase program, Erin, that the board authorized $125 million. And we're still focused there, but we're also -- the board also recognizes that even with the recent announcement that MVA might be there which, while it was an announcement, you live in the industries, we want to make sure that our balance sheet is strong enough to choose between a share repurchase and allocation towards additional growth opportunities that might be there. So I don't think Tom can give you a specific number. We're allocated from the board to $125 million.

Operator

Our next question comes from Mitra Ramgopal of Sidoti & Company.

L. Mitra Ramgopal - Sidoti & Company, LLC

Just a couple of question. I mean, when we look at the Lab segment, clearly, this is probably the best year for organic growth in about 5-plus years. And as you look out to 2014, '15, with the economy continuing strengthen, et cetera, is it more a case of you just benefiting from an expanding market or are you be able to take share against -- from competitors?

Robert L. Antin

That's a difficult question. I think it's both. I think that the Lab -- the Lab team, and their positioning, has put themselves in a position where, in the last few years, we've lost some share in different categories, and sizes of hospitals. So I think they're performing much better. I think they had a sales, Sal Rallo and Josh Drake have done a great job at positioning it. So I think there's some growth there. I think there's also some growth in activities they're doing in the same hospitals, training and providing sell-through with the introduction of AccuPlex, it's made some gains. With the introduction of AIS, which is an image read service where our own doctors are very involved in some of the diagnostics on the radiology side, I think they've done a great job. We are hopeful that the market itself and the traffic through hospitals throughout will add more than it has in the past. So if that happens, I think, there's some upside on it.

L. Mitra Ramgopal - Sidoti & Company, LLC

And a quick question on acquisitions. Again, based on your plans for this year, any update in terms of expectations regarding Canada or is the focus going to be more domestic?

Robert L. Antin

No. I think it's both. I think there's Canadian opportunities. We've recently focused in Québec, we've made 4 acquisitions in Québec. 3 of the larger, 2 very exciting because 2 very larger specialty general practices combined that are training centers. And so we've focused there, but Canada is still a focus to us as well. We're looking outside of North America to continue to grow.

Operator

Our next question comes from Nicholas Jansen of Raymond James.

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

First, a clarification with regards to guidance. What have you assumed with regards to weather in the first quarter? So I just want to make sure that the range out there includes your current thoughts on the outlook there?

Robert L. Antin

Well, we've -- in the guidance we've included some accommodation for the weather. But if you could tell us how many more storms and how many more days, I think we'd be better prepared to know whether we've overestimated or underestimated it. But the truth of it is, we've taken into account some of it, but I am not sure that we can be so scientific to know whether we've taken it all on the weather.

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

Okay. That's helpful. And then kind of looking at the balance sheet, I know there's still perhaps M&A or buybacks. But looking at your leverage ratio, south of 2x right now, what's your level of comfort in terms of accelerating that? Certainly, you have a lot of capacity and what, almost $200 million of free cash flow? I'm just trying to get a sense of your willingness to lever up.

Robert L. Antin

Well, I think the levering up is going to be twofold: one, is the board is committed, absent any excellent opportunities, for acquisition to buyback shares. And we're comfortable that we could take on additional leverage in the company. I think we're pretty, as you should mention, we're not terribly levered. I think we have plenty of headroom and runway on leverage. I think we're looking in the market and we're hopeful that we're going to accelerate our acquisition opportunities this year. We're expecting a little higher price just because of the activity on the other side. But if we don't do any very large acquisitions, I could see us focusing more on share repurchase.

Operator

And our final question comes from Brian Tanquilut from Jefferies.

Brian Tanquilut - Jefferies LLC, Research Division

Bob, just wanted to hear your thoughts on price inflation for the Animal Hospital side of your business. What kind of pricing have you put in place this year?

Robert L. Antin

Pricing this year is probably in the neighborhood of 3%. And I can't tell you that it's actually stuck. If I look at some of the numbers, it's hard to tell. But I would say that price increases are around the 3% mark. My own feeling, it depends on what sector you're in. In the specialty hospitals, there's more capability because the expenses are higher and people's expectations are -- they're willing to spend more when they have very sick animals. The place where I see the greatest sensitivity is on well pets, because it is a totally disposable issue, and people choose to go to the hospital when their pet is well, when they feel like they can afford it or when they're offered something. So I think there's more price sensitivity on the wellness, as opposed to the emergent specialty or more sophisticated procedures. But I think there is some additional room.

Brian Tanquilut - Jefferies LLC, Research Division

Okay. And then we've gone through 2013 and you guys did pretty well on the volume side. Are we at that point now where you feel like you need to step-up in your hospitals again? Meaning, are we now where we're back to full capacity utilization, or close to full capacity utilization with your current staff?

Robert L. Antin

I think we have an awful lot of capacity in the hospitals. I'm sure there are some circumstances -- some circumstances where you may have to add as growth comes. But right now, I think, in most of our hospitals, we have an awful lot of underused capacity. So I don't think that would be the case. I think we have plenty of opportunity.

Brian Tanquilut - Jefferies LLC, Research Division

Okay. And then last question for Tom. In terms of same-store margins, how are you thinking about that as you built your guidance for this year?

Tomas W. Fuller

As you know, I think, looking at the 60 basis points in the quarter and the 0.9%, which is maybe a little bit higher than we might have expected. But you do have issues with mix going on, households [ph] growing different rates having an impact on margin, holding cost. So going forward, I wouldn't necessarily expect to see that our guidance does not include, if revenue were to be that level, we wouldn't expect to see margin driven like that, maybe something less than that. But then the good news is, as we go through the rest of the year, the revenue growth rates continue to improve, then you would see margins, hopefully, expand commensurate with that improvement in the growth rates. But I think -- but I wouldn't expect the 60 basis points to be sustainable on something in less than 1% growth. Hopefully we won't be in a position to see that, but we'll see.

Robert L. Antin

So I'd like to thank everybody. I think we had a very good quarter with all 4 of the operating divisions showing improvements in operating margins. I think the results were good. I think they were what folks expected. I think from our standpoint, we were very excited about the progress that we're making in each one of the segments. So I appreciate it, and I thank you all. Have a good year. Bye-bye.

Operator

Ladies and gentlemen, this does conclude today's conference. Thank you for your attendance. You may now disconnect. Have a great day.

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VCA Antech, Inc. (WOOF): Q4 EPS of $0.28 misses by $0.03. Revenue of $43.5M (-89.6% Y/Y) misses by $401.99M.