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VCA Antech (NASDAQ:WOOF)

Q1 2014 Earnings Call

April 24, 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

Erin E. Wilson - BofA Merrill Lynch, Research Division

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

Brian Tanquilut - Jefferies LLC, Research Division

Kevin K. Ellich - Piper Jaffray Companies, Research Division

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

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

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

Operator

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to the VCA Antech Inc. First Quarter 2014 Conference Call and Webcast. [Operator Instructions] Today's conference call is being recorded.

Before we commence this 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 the presentation and include statements regarding: one, our intent; two, our belief of current expectations with results -- I apologize, with respect to our revenues and operating results and future periods; three, our expansion plans; four, 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 the presentation for those 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 today's date, April 24, 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 understanding of our business.

A reconciliation of these non-GAAP measures to most comparable GAAP measures will be included with our earning release and posted on our website at investor.vcaantech.com. Our earnings and guidance releases are available on our website at investorvcaantech.com (sic) [investor.vcaantech.com]. In addition to our audio file of this conference call will be available in our website for a period of 3 months.

I would now like to turn the call over to our host, Tom Fuller. Please go ahead.

Tomas W. Fuller

Thank you, Charlotte, and thank you, all, for joining us for the First Quarter 2014 VCA Earnings Call. Today, we report a great quarter, I think, reported GAAP diluted earnings per share of $0.38, adding back acquisition-related amortization expenses of $0.04 for the quarter. Our adjusted diluted earnings for excluding amortization was $0.42, which was a 5% increase, up to $0.40 in the prior year quarter. There was a couple of charges in the prior year quarter. Adding back the $0.03 of amortization in the 2013 first quarter is the $0.40. There's reconciliation at the back of the press release. So a great quarter, 5% increase in adjusted diluted earnings per share.

I think, especially given the weather, very, very tough weather in the quarter, we did a great job. Quantifying the impact of the weather on revenue and operating income is difficult. But we believe that we lost around $3 million of revenue in the Lab division, around $2 million of revenue in the Hospital division. So clearly, we would have done better than the $0.42, but for the weather. So very solid earnings for the quarter. But also as importantly, if you adjust the comps and the margins for the last revenue in both divisions, the trends would have been more in line with our expectations and recent trends. From the Lab, for example, reported day-adjusted internal growth of 1.9%, adjusting for that $3 million approximately of lost revenue. The comps would have been over 5%, which is pretty much in line with what we've seen in the past couple of quarters. And Hospital division reported same-store growth of 0.5%. And adjusting for that $2 million of lost revenue, our same-store would have been over 1%, which compares 0.9% in the preceding quarter. So as I suggested, the margins are difficult to estimate. But certainly, it would have been a very positive impact on the margin, but that revenue we lost was a very high fixed cost, high incremental margin business.

On a consolidated basis, revenue increased 2.5%. Consolidated adjusted operating income, excluding amortization, increased 2.4%, and operating margins were up 20 basis points to 14.8%. So even with the pressure from the really bad weather, particularly in January and February actually, on revenues and operating income, we really increased our margins, which is terrific.

In Antech Diagnostics, our revenue increased 1.4% to $88.5 million on dollars on day-adjusted internal growth of 1.9%. There was 1/2 a fewer billing day in the 2004 quarter. Also, as I mentioned, we did lose about $3 million in revenue due to the weather, particularly bad in January and February. We saw a little bit of it in March, but most of it hit in January and February, which impacted our internal growth rate by about 340 basis points. So adjusting for weather, the growth would have been over 5%. We had about 27 days in the month -- in the quarter actually where we saw more than marginal impact from weather. As I said, a little bit impact in March. And I think what's great is we did see a comp score of 4% in March alone, showing that we are getting back on track on the growth rates.

On that 1.4% revenue growth, operating income increased 1.8%, and the operating margins were up slightly, 10 basis points to 39.6%. So on 1.4%, margin is up 10 basis points, which is terrific. In terms of the components of the growth, number of requisition down 2.4% to $3,114,000. In that number, you can actually see the impact of the weather on volumes. Volume trends have been positive 2.5% in Q3, 2.1% in Q4 and then negative 2.4% in Q1 as a result of the lower volumes because of the weather. Average requisition, up 4.5% to $28.39 for the 1.9% day-adjusted growth. Requisitions for the quarter were $3,118,000. and we added 1 leverage per location, ending with 57 labs in the United States and Canada. So I think the Lab had a great quarter, 1.9% of day-adjusted internal growth, over 5% adjusted for the weather, which is very consistent as we've seen in the past several quarters of growth, over 5% in the Lab, and margins up 10 basis points on very low revenue growth. Clearly, we have plenty of margin opportunity going forward in the Lab division. So great job in the Lab.

In the Hospital business, 3.2% increase to $351 million, mostly from the acquisition. The same-store revenue is up 0.5%. And again, we estimate we lost around $2 million due to the weather, which would have added about 50 basis points to our comp sticking over 1%. For the quarter, we saw roughly 300 hospitals experience some weather impact, totaling over 2,400 business days. So it's very widespread, particularly on the East Coast. But as I also mentioned, with the lab, we saw a pretty good come back in March. The comps in March nationwide were 3% for the Hospital division, which is not to say a 3% is sustainable. The comps are always very variable. But obviously, 3% in margin after 2 pretty tough quarters is very great. On that 0.5% same-store growth, adjusted same-store gross profit margin increased 30 basis points to 14.4%, and our total hospital adjusted gross profit margin roughly were flat actually, 13.9%.

The components of the growth, number of order is down 2.3% to 1,892,000 and the average order was up 2.9% to $179.0 -- $179.07, and total orders for the quarter were 2,010,000. Acquisitions side, a little slow start, 4 acquisitions for the quarter, totaling $16 million of revenue, a very, very robust pipeline for the second quarter. So I think we'll, not unusual, actually be a little low in the first quarter. So I think you'll see more activity in this year second quarter coming up as we ended the quarter with 608 hospitals in the Hospital division. So again, I think a good quarter for the Hospitals, reported same-store 0.5% and, on that, margin is up 30 basis points. We did a great job on expenses. And if you adjust for the weather, comps would have been 1%, which is on trend, a little above what we saw on fourth quarter of 2013, 0.9% compared 1% in the current year quarter. Our other category, Sound-Eklin and Vetstreet, revenue decreased $400,000 to $28.1 million. Operating income improved in both Sound and Eklin through cost cutting and margin improvements. Operating income increased about $2 million, and operating margins increased 73 basis points to 10.0%. So I probably said weather too many times, but clearly we all felt it. But, in fact, with a very, very challenging weather for the quarter, particularly in January and February, a strong comeback in March. Despite of the weather, we saw a great growth, 5% increase in earnings per share. Our Lost revenue, lost margin, that would have been better had it been not for the weather. Great margin performance, and the trends in comps, which are in a critical, are all pretty much in line. So that's the quarter.

Quickly on the repurchase program. During the quarter, first quarter 2014, we acquired 280,000 shares for $8.9 million. Finally, before we go back to Bob, we are -- with this release, the results are in our range of our expectations. And as a result, we are not changing our guidance, so we are confirming the guidance that we published in our February 13, 2014, press release.

Robert L. Antin

Thank you, Tom. I believe it was a phenomenal quarter, sitting here, especially with the number of hospitals that we own in the Midwest, the Northeast, down the Central Corridor to the Southeast. Being impacted on weather-related days in over 2,500 days, I think that the results on the Hospital were just short of amazing.

In spite of all the closures, we were still -- in the days impacted, still served the communities we're in, and the employees went through heroic efforts to help people that were stranded in many of the hospitals. And on that subject, even in Antech, where they had 27 fully impacted days for almost 40% or 50% of their clients, I think they did a spectacular job. I think in both areas of the company, the margins were remarkable, and we continue to keep momentum in both areas.

The Hospitals certainly were impacted in January and February, but very pleased that the trend that we had thought would be there, with same-store sales on the Hospital side north of 3%, and we're hoping that we're starting to see a comeback throughout the year. Very difficult to say it because the January and February, but March came back and was a phenomenal effort.

In addition, in Antech, some of the activities that they have done, they have converted fully to ANTECH OnLine. They now have 14,000 unique visitors that go on, on a daily basis to visit the results with over 4 million page views, which I think that's spectacular. They've now introduced on ANTECH OnTheMove, which is their mobile app. They now have gone up from the end of the year to now to over 6,000 clients that are able to utilize it, whether it's a doctor or a technician that has the ability to automatically go into a request line for consults, for service, reports resulting. So I think they've made some phenomenal strides.

I'm going to go ahead and open it up to some questions now.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will be coming from the line of Erin Wilson from Bank of America.

Erin E. Wilson - BofA Merrill Lynch, Research Division

It was another good Lab quarter, barring some of the weather conditions. How would you characterize the current competitive landscape there?

Robert L. Antin

Oh, I think, as you know, Erin, it's competitive. It continues. I don't know that it's changed terribly much. I think both companies are positioned. We see ongoing competition, but I think the Lab group, I think, Antech Diagnostics has done a brilliant job. So I don't see any difference.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Okay. And then how do you envision -- I know you were rolling out some wellness plans -- how do you envision that impacting your total order volumes. Do you think that this may be a component that would help to explain some of the discrepancy between your same-store orders in the broader industry? Or how would you kind of look at order trends or -- with the wellness programs? And how are the wellness programs rolling out so far?

Robert L. Antin

As I suggested on the last call, we have now piloted 25 hospitals in testing it, and the testing has gone just great. The program, which is branded under VCA, has begun to roll out. And early to tell, but it seems the indications from the hospitals and the clients has been very positively received. So I think, what I mentioned on the last call, we had multiple programs, and we have -- we tested 1 early on, weren't happy with it, and we reinitiated it in 25 hospitals, a new program with greater capabilities. And we're going to add from there. And so far, I think that's been spectacular. I also believe that, over time, will help us with the order growth. And even -- while we're on the subject of order growth, in spite of the fact that we were -- had so many days that were impacted because you've lived back East, I think the order growth actually held pretty well in spite of the weather. So I think, all in all, it looks pretty good right now.

Erin E. Wilson - BofA Merrill Lynch, Research Division

Okay. And just lastly, one quick one. Can you give as an update on the M&A pipeline and capital deployment? It was still a little bit light on the share repurchase effort there, but specifically, I guess, as it relates to MVA as well.

Robert L. Antin

Well, I think, our position is identical. We're now wrapping up individual acquisition -- the individual acquisition program. We're in a position to take a look at whatever opportunity comes in front of us, which may or may not include MVA. It's a good company and with a good platform. So we're in a position financially to respond to it if we are given the opportunity. We're also in a position to look at other opportunities that exist. At the same time, we've always maintained we wanted that ability to do it. And if we opt not to do it, whether the price is too high or uninvited, we're in a position to make some considerations on what we would do with either share buyback or other possibilities.

Operator

Our next question will be coming from the line of Jim MacDonald from First Analyst (sic) [Analysis].

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

How were you able to expand the margins? That's impressive.

Robert L. Antin

Well, I think, one part, because we have so little turnover in the company. I think we have a pretty good culture, understanding the requirements and the demands at the hospitals, in particular. I think there's a dedication to that. So I think a lot of it because the weather is certainly unexpected. I mean, it was brutal. But I think they've just done a great job. I think the systems, the ability to track it also helps. And on the Lab side, I think, if you look historically, they've been able to hold gross profit margins fairly steady and in a very impressive area. So I think, on both side, the operating people, who have been there for a long time, have had experience. Maybe not with a winter like this, but they've had experience. So it's a great question. And to them, I take my hat off because they did just a great job.

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

Just one follow-up on the wellness rollout. Any -- you said you were going to expand it beyond 25. Any thoughts on how that rollout will go through rest of this year?

Robert L. Antin

I suspect -- with the electronics and safety and security and credit card information, I suspect we will see a full rollout really get going towards the end of the third quarter. I think I have confidence in that. I think the feedback's been very, very good. It's one of those things you want to make sure, and we are, that we're doing it in a way. And Banfield has been very good at it, and we've learned a lot from what they've done, is to make sure that we segment the wellness programs in the right way to the client base. We want to make sure that we're not just providing additional discounting program, but we're encouraging people to use the hospitals. So we've been very careful studying it, and I think, so far, the pilot's gone great.

Operator

Our next question will be coming from the line of a Brian Tanquilut from Jefferies.

Brian Tanquilut - Jefferies LLC, Research Division

Just a follow-up to the last question on margins. Tom or Bob, is there anything that you think structurally has changed with your business that you've been able to generate same-store margin expansion despite sub-2% same-store revenues? Or I guess the other way of asking the question, is the bar now below that historical 2% level, and are we thinking more like a 50-basis-point hurdle rate to hold or grow margins?

Robert L. Antin

Well, I think the answer is we do focus on, and Tom has always given guidance at -- on an individual circumstance, individual hospital, you like to have 2%, and the model looks that way. But when you have a portfolio of hospitals throughout North America, and you have some large or small one, that number will change a little bit. So while asking and giving the same answer, we think on a sustainable basis going forward, and we were certainly encouraged by March. We do believe we've been able to achieve some of that growth in margin just because of the size of the portfolio of hospitals and the different circumstances. So I think 2% is a good one. But so far, as a result of the difference in the portfolio, I think we've been able to achieve a little bit lower, but I'm not forecasting that in the future.

Brian Tanquilut - Jefferies LLC, Research Division

And then, Bob, you -- in the words that you used to describe the situation with MVA, you made it sound like there's a possibility that you would be uninvited into the bidding process. Is there any specific reason why a financial seller like those guys wouldn't want you to step in, considering that you've always been the logical buyer for all the large assets in the space?

Robert L. Antin

Well, I think it's a little bit of personality. Given how I've -- where I grew up and how I grew up in New York City, there were plenty of things I wasn't invited to. So I never take anything for granted. While I think we certainly have an awful lot in common with MVA, and I would think the management team -- I know some of the management people pretty well, I never take it as a given that we necessarily fit their strategic options. But one of the things that we have done is we've placed ourselves. We're very conservative in making our decisions. We've never been rash. And we'd be ready to take a look at it. But there's no guarantee that they would pick up the phone and call us.

Brian Tanquilut - Jefferies LLC, Research Division

And then last question, kind of related to that. So let's just say MVA doesn't happen for you guys, whether they sell to someone else or decide to pull the deal. Are you -- is that a decision point for you to say, "Okay. Let's buy back stock, while maintaining that flexibility." And then I guess a follow-up to that is what kind of leverage are you comfortable with on the balance sheet?

Robert L. Antin

Well, I think to be consistent over the last 6 months, having the strength in the balance sheet is a point that we're very proud of as a company, having grown and have the balance sheet. And we wanted -- we want the ability to be able to invest or make those decisions. So if opportunities in the marketplace to invest in growth aren't there, we would consider buying back stock, and we'd have the ability because I think, as you know, as most people on the phone know, that we're -- our balance sheet is pretty strong, and our coverage ratios are very good, and we have probably access to quite a bit of debt. So we will make that decision when we see what plays out on the marketplace. Because our impression right now is not only MVA, it might be quite a few other companies that might be looking in an environment where interest rates are low, and MVA did create a lot of interest in the marketplace because of the chatter that's there. Whether or not the chatter is true or not, I don't know. But nonetheless, our job in stewarding the company is to make sure we have the balance sheet, the discipline to be able to make those choices when they come. So that's where we are right now.

Operator

Our next question will be coming from the line of Kevin Ellich from Piper Jaffray.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Bob, just to follow up on Brian's last question on MVA, by you saying they haven't called you yet, have you made the effort and try to contact them?

Robert L. Antin

I think you know the answer to that. I couldn't say it anyway. But if by purpose of this phone call, we're in the business of owning hospitals. We're an acquisitive company. We have a good balance sheet. We have a good reputation. So if somebody would like to pick up the phone and call us, they're more than welcome. We have a good ongoing dialogue.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Understood. I didn't mean to harp on that one so much.

Robert L. Antin

No. That's okay. No. That's all right.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

And then just going back to -- I think Tom gave us some comps that you guys saw in March, which maybe gave you confidence, and that comment you made in the press release, I think -- was it 4% on the Lab side and then maybe 3% on the Hospital side?

Tomas W. Fuller

That's right.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

That's right. Could you break -- would you care to break out -- break that out between volume and price for us?

Tomas W. Fuller

I don't really have that in my hands. I'm not really sure it matters. I think, clearly, you can see in the Lab side, in particular, with the trend in volume going negative partly because of the weather. So you could imagine the volume would be positive. But the exact components, I'm not sure it's all that meaningful. And I don't have it handy.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Sure. But suffice to say, Lab volume was positive in March.

Tomas W. Fuller

Yes.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Okay. That's what I was checking on. And then we saw some hospital consolidation to your flagship in West L.A., which makes a lot of sense. Are there any other properties you plan to vacate, or anything you could call out that might be helpful in facility rationalization?

Robert L. Antin

Well, there's always the review process that goes on, where we look at hospitals that we can tuck in. We are going through a program right now of trying to consolidate smaller hospitals into some of our larger facilities that have capacity. So far, West L.A. has been great. It is -- and I would invite anybody, if they come to the West Coast, it is difficult to believe how magnificent an Animal Hospital can be. So we're looking at consolidating other practices, including our own, into facilities. Not quite like that, but on the special side.

Kevin K. Ellich - Piper Jaffray Companies, Research Division

Got it. Okay. That's helpful. And then there's a number of new products that came to market this year, were introduced, Bob. A lot of them are -- they do require a vet's prescription. Wondering if you have thoughts on, should this be a driver of volume growth into the hospitals? And then on top of that, just wondering if you could give as an update on how your facilities in Canada are doing since you've made some acquisitions up there last year.

Robert L. Antin

As far as the product and specific to this quarter, and I think you'd get the same information from the manufacturers with January and February being so tough, all the categories were down. Flea and tick was down. Heartworm was down. I think the introduction of the products, although Merial has a product that's already back-ordered for the demand next card. So I think that actually will help some of the product categories. But it's so early in the year to tell. As far as Canada is going, they're doing a great job. They've grown a number of hospitals pretty quickly, and I think I mentioned moving into Québec, particularly in Montréal. We've basically become the largest provider in partnership with a lot of the doctors up there, and we have a pretty good acquisition program. We've basically staked out Canada as a very meaningful area for us, and we have by far a #1 market position. So we're very excited about that.

Operator

Our next question will be coming from the line of Nicholas Jansen from Raymond James.

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

2 on -- 2 quick ones for me. In terms of just the M&A environment as a whole and kind of your thoughts about share repurchases, when do you think we'll have an answer at some point this year to think about in selection with your use of cash. Obviously, you’re building it right now, and you're probably close to $200 million of free cash flow. When do you think that we'll have an answer either way of -- either MVA or something else or a bigger buyback? Just trying to get a sense of your thoughts of the timing of this process.

Robert L. Antin

I would be taking a guess. I wouldn't take it to the bank. But I think we'll have greater clarity within the next 3 months. I think that's probably a good timeframe. It's not just -- by the way, the question is about MVA, but it's really a bigger market question. We're -- we are ramping up. We expect, on the acquisition side, more activity, more competition. We're ramping up. We're adding to the department. We're adding to the capability. And at this point, we're going to be a little bit more aggressive in the marketplace, both in activity and if we expect that the purchase price on individual facilities might go up a little bit as well. But we have the commanding position, and we're going to go after it very strong now.

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

Yes. That's helpful. And then maybe if you could provide a little bit more color on the pilot thus far under wellness. I think you said about 25 of them. And given your -- giving some of level of comfort to this at a larger rollout later this year, any comp dynamics? Any, let's say, tangible results that you could call as, "Hey, this facility was not on wellness. And now it's up 1% or up 2%?"

Robert L. Antin

No.

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

Any thoughts there?

Robert L. Antin

You won't get that. You won't get that. Wellness is a -- it is something that builds. It's a program that builds on a monthly basis. Our pilot program and specifically has a couple of basic alternatives to it. We expect later on to roll out a kitten and puppy program wellness as well. But you should not, and I underline not, think that it is a water shed opportunity in the early stage. It has what we've experienced and we've seen in other places, including hospitals that we've purchased, that we've had an opportunity over years to take a look at because they had preexisting wellness programs that were homemade. It is a continuous build. So you won't see it. You won't see it all of a sudden. You will see it over time. It's like a ladder. So I would not expect on 1 call, all of a sudden, just the orders bounce because there's a wellness. I think that would be a bad thing to suggest. But the program, nonetheless, for us, so far, has been doing very well.

Operator

Our next question will be coming from the line of Jon Block from Stifel.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

The first question, just the ASP at the Lab. I'm just looking at it. I think have the numbers right. The ASP at the lab was up about 1.3% in 2012 full year, 2.9% in '13. And then I think the ASP was up 4.5% in the first quarter of '14. And maybe if you can just give some color there, is that just mix shift to a greater number of specialty task? Or are you guys relying more on price for the growth? Can you comment on there? It's a pretty big move in price.

Tomas W. Fuller

I think it's definitely mix. But it's a little bit of price. But I don't think it's price per se. I think what's reflecting is, as Bob suggested earlier, the competitive environment has gotten way better. So not only are we seeing less pressure on share, but you'll also see less pressure on price as your daily making decisions to hold the client through, hold share or hold price. And as that pressure comes down, you see a little less discounting, which I think is reflected in the average requisition. But also a big, big jump in Q1 compared to Q4, 4.5% compared to 2.2% in the fourth quarter, which I think is probably just mostly mix now. But longer-term churn, I think is just a reflection of less pricing on pressure in the market -- less pressure on pricing in the marketplace with a little bit of price.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. Great. And then I think there was an earlier question on the Lab. I don't know what it was. But just -- can you comment on the market share at the Lab? I think it's one of the few times that you guys are sort of teed up all of 12 hours before your primary competitor. But how do you feel, Bob, in terms of if you're holding share at the Lab, gaining share at the Lab? Any comments there, please?

Robert L. Antin

Well, I think it's marginal. I only have the greatest respect for IDEXX. And I think percolating up and down a little bit, it could be a little plus, it could be a little minus. We battle it out like that. So I think the competition -- it was Erin from Bank of America who had asked the question. It is still competitive. We hold price and largely because of mix, and I do think it's still competitive. So it percolates up and down a little bit.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And I just got maybe 2 more. You gave a lot more color sort of on the cadence of the quarter, which typically you're hesitant to do. And I guess it's because of just how adverse the weather was. But based on the 3% Hospital number that I think you gave for March, Tom, can you give the comp from a year ago? Because some of us look at stack comps, et cetera. So I mean, was it all from a...

Tomas W. Fuller

No. [indiscernible]. And again, in the announcement, I made the point, I wouldn't necessarily expect to see 3% throughout the rest of this quarter.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

And I don't. But I'm just saying what was that 3% plus off of?

Tomas W. Fuller

I don't know the answer to that. But I think it, clearly after 2 horrendous months in the quarter, everyone's aware of -- across the country. And then coming in at the adjusted 1% comp, I think you could assume that 3% is probably in line with the growth rate. It was in line with the prior year quarter. I'm not sure if you stack any way you cut it. I'll tell you upfront, I think it's not necessarily a sustainable number. I'm not sure [indiscernible].

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Yes, yes. I'm just trying to figure out what the comp was a year ago. Got it. And last 2, the consolidation that you mentioned that you have in the quarter, and I think, Bob, you referenced it as well, I'm just trying to get my arms around it. So when you go out and you close 2 hospitals, and you fold it into like West L.A., you take the vacancy charge, you take the vacancy charge in the P&L, you take the volume from those hospitals, fold it into an existing, that goes into your same-store sales number? And I know it's across a broad swab of hospitals, but I want to make sure I've got my arms around that correctly. So you get the benefit in the same-store and the onetime expense?

Tomas W. Fuller

In most cases, you're taking 2 hospitals that are already in the same-store base, so it doesn't really change. You're comparing combined hospitals.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

And I'm sorry. Do you mean 12 months, to your point?

Tomas W. Fuller

Yes.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay, okay. And then you're just sort of taking the expense quickly from closing that hospital?

Tomas W. Fuller

There's typically -- the expense we took last in the first quarter of last year was of unusual circumstance for 2 very large hospitals with long leases in real estate we've owned for quite a while. A typical closure there is very, very small, exiting costs, which are expense, but they're not that material. It's why it's not broken out anywhere.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Got it. And last one, for your...

Robert L. Antin

[indiscernible] time before running out the lease.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. Got it. And last one for you. Just we took a dart throw in our checks on weather. We have like 150 bps. You guys came in a little bit north of that. And I know it's more art than science. But the computation of weather, I mean, you had a lot of specifics on the number of adverse days in 1Q '14, does your computation assume there was adverse weather in 1Q '13 because every quarter has some bad weather. Clearly, this was a little bit higher than normal.

Tomas W. Fuller

Yes, yes, of course. Yes, of course. It's -- there's always weather. So if you weather-adjusted every quarter, you would be in an ice age after a while. So definitely, you kind of compute a net weather day.

Jonathan D. Block - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And now we have Tom coming to our conference in about a month. But Bob, you're always invited to all of our events.

Robert L. Antin

I appreciate it. Thank you.

Operator

Our next question will be coming from the line of Ryan Daniels from William Blair.

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

Yes. I just have one final one, I guess, on the wellness plans. Obviously, that seems like a favorable trend. And I'm curious, with regards to your comment, Bob, about targeting customers. Does that mean you're going to roll out the wellness plans only in certain locations, or you think it could be advantageous given the volume there? Or can you actually try to target these to specific customers within a given facility to try to expand your same-store growth there?

Robert L. Antin

Well, I think it's -- obviously, it's a very good question, and I think you know the background. Wellness programs have a few -- certainly, a few benefits to them, a few characteristics. One is by providing a wellness, you're trying to provide a little bit more stickiness to the hospital. The other part is you're trying to -- you're playing music to this. I don't know if it's good night. The other part of it is you're trying to get the client to come in more often, which is very, very positive, and you're doing it through, basically, a discount program. And ultimately, you want to make sure that you don't take your highest and most utilized clients and have them come into the hospitals at a lower rate. So there's a little balance, and it takes a little analysis. And I think we're paying attention to it. So this probably -- we need to pay attention to that.

Operator

Thank you. That concludes our Q&A session for today.

Robert L. Antin

All right. I'd like to -- if everybody is still there given that beautiful music that we just had, I'd like to sum it up. I think we had -- living in Southern California and looking back East, I think we had a great quarter. I think it was surprisingly good. And one last piece, I think, if most of the shareholders have followed, we have asked the shareholders and they approved a name change to go back to the original name of the company, which is just VCA. It won't change Antech Diagnostics. It's not going to change Sound or Vetstreet. But we are going to take the company, and we're going to be a little bit more aggressive in the future in branding the company, particularly to the consumers because we touch so many consumers in so many ways. And the brand in some markets has had a spectacular reception. So I'm very excited about it. I think it's going to give us some tremendous opportunities, whether it's on the SEO basis, which we've done a very good job of, but just to become that consumer-driven company out there that people look to pet care. So I'd like thank everybody. I appreciate it, and have a great day. Bye-bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.

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