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VCA Antech (NASDAQ:WOOF)

Q2 2011 Earnings Call

July 28, 2011 4:30 pm ET

Executives

Tomas Fuller - Chief Financial Officer, Vice President and Secretary

Robert Antin - Co-Founder, Chairman, Chief Executive Officer and President

Analysts

Ryan Daniels - William Blair & Company L.L.C.

Kevin Ellich - Piper Jaffray Companies

Robert Mains - Morgan Keegan & Company, Inc.

Erin Wilson - Banc of America Securities

James McDonald

Arthur Henderson - Jefferies & Company, Inc.

L. Mitra Ramgopal - Sidoti & Company, LLC

Unknown Analyst -

Operator

Good day, ladies and gentlemen, and welcome to the VCA Antech Second Quarter 2011 Earnings Conference Call. This conference 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 abilities 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, July 28, 2011, 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 most comparable GAAP measures 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 will be available on our website for a period of 3 months. I will now turn the conference over to Mr. Tom Fuller, Chief Financial Officer.

Tomas Fuller

Thank you, Karen. And thank you, all, for joining us for the Second Quarter 2011 VCA Earnings Call. Today, I'm pleased to announce we reported second quarter 2011 fully diluted earnings per share, of $0.45, which is a $0.01 or 2% increase off of adjusted EPS in 2010 of $0.44 per share. You will recall, last year during the second quarter, we took a non-cash charge of $14.5 million or roughly $0.10 per fully diluted share, so last year we reported $0.34 for the quarter, but on an adjusted basis, it's $0.44. So for the $0.45 reported for the second quarter, it's slightly above we expected, although our internal growth rates were stable, which is great, they were slightly below what we expected for the quarter. However, by holding and cutting costs, we were able to hold margin. In fact, we did a great job. Adjusted operating margin decreased slightly 30 basis points down to 18.6%. So as a result of holding margin and the 6.3% increase in revenues due to acquisitions, we achieved a 4.7% increase in operating income.

We do continue to see weakness in the economy or, which is putting pressure on our growth rates, but we're pleased to see continued stability. Our hospital growth rate was negative 1.9%, which is an improvement off of the last 2 quarters where we saw a 2.2% negative growth. And the lab is very stable at 1.7% positive growth.

So for the quarter, revenue increased 6.3% to $376 million. Adjusted operating income decreased -- excuse me, increased 4.7%, and then we saw a 30 basis point decline in margin and 2% increase in fully diluted earnings per share. So I think this is our first positive quarter in many, many quarters. We're very pleased about that, particularly how we were able to hold margins in a difficult environment.

In Antech Diagnostics, revenue increased 1.7% to $84.4 million, all due to internal growth. Operating income was essentially flat, down 0.6%. Operating margin were down 90 basis points to 40.1%, and much of that 90 basis point decrease is due to increased energy costs during the quarter, roughly 60 basis points. So lab, doing a great job of holding margin on 1.7% growth. It's still a very healthy margin at almost a little over 40% operating margin in the lab division. In terms of the growth, 2.2% increase in average req. Requisitions down slightly for the 1.7% overall growth at which, like I said, we're pleased, though that is somewhat similar to what we saw in the preceding quarter. Number of reqs for the quarter both on a same-store basis and total reqs was 3,555,000. Average requisition was $23.73.

So overall, I think that Lab had a very good quarter. W continue to see stability in our growth rates, but for the increasing energy costs we did a great job holding margin at 1.7% internal growth. I think we're poised to see margin expansion when revenue picks up.

In the Hospital division, revenues increased 8.9% to $291 million, all from acquisitions. And same store revenue was down 1.9%, which as I said before, is a slight improvement after the down 2.2% in the preceding 2 quarters. Gross profit decreased 8%. Gross profit margins were down slightly 10 basis points to 18.2%, and our same-store margins were down 20 basis points from 18.5% last year to 18.3% this year.

As we've been digesting Pet Doctors , this is the, I guess, the fourth quarter we've owned it, good quarter for them. We're closing the gap as we expected, getting their margins close to our margins as the integration proceeds. It's going very, very well. In terms of the components of the growth, average order was up 2.4% to $160.42, and number of orders was down 4.2 million to 1,621,000 orders for an all-in 1.9% down same-store.

In terms of acquisitions, we acquired 4 hospitals for the quarter with annual revenues of $7 million, which takes our year-to-date total to 6 hospitals with $11.8 million in annual revenues. And that's in addition to the BrightHeart acquisition, which we completed at the beginning of July. So I think, again, good quarter for the hospitals, great margins and improving growth rates in the Hospital division.

Medical Technologies increased $1.6 million or 11% to $16.2 million, and gross profit increased 10.2%, reflecting margins down slightly 20 basis points due mostly to mix to 29.6%. And we saw increase in operating income of 29% and 100 basis improvement in operating margins as we leverage G&A.

In terms of the balance sheet, we ended the quarter with $156 million in cash, which is up $26 million from $130 million at March 31. And I'll remind you that we did use $50 million in cash early July for the BrightHeart acquisition. So we ended the quarter with $513 million in debt, which includes $481 million in senior bank debt plus $32 million in other debt, and that's currently LIBOR plus 225 basis points. We did mention, with the release of VetStreet acquisition, we are in the process of increasing our debt by $100 million as we exercise our accordion on our credit facility.

So that's the results for the quarter, I think. Again, stability in the growth rates, great job holding margins.

Turning to our outlook for the remainder of the year. Over the past several years, we have been saying that there's been a lot of uncertainty in the market's ability around the timing and degree of the recovery in our business sector. It appears to us that the recovering economy is not gaining the traction many economists forecasted at the beginning of the year. We prepared our most recent guidance for 2011. Our guidance provided then reflected our expectation that we would see our animal hospital same-store growth as going positive in the second half of the year, but we are pleased to see continued stability and growth -improvement in the growth rates in the Hospital division. It does not appear we will make that -- achieve that goal in the back half of 2011. So with the uncertainty in the business environment continues to present challenges for us and make it difficult to predict demand for our services and provide guidance, we will continue to focus on executing our business plan. We will take advantage of opportunities that we believe we have in the long term. But in light of the uncertainty, we decided to discontinue providing guidance for the remainder of this year.

Robert Antin

Thank you, Tom. This is Bob. I think our quarter was a very solid one. I was very pleased that, on the Lab side, we had growth of 1.7% and did a good job on margins in spite of a very, very competitive market. I think our Lab continues to do a great job in the marketplace. On the Hospital side, as Tom mentioned, our margins stayed relatively flat compared to last year. And our 1.9% decrease in comps, while still on the negative side, was the best performance we've had in 6 quarters. We have been hit by the economy, and it does appear to be improving. And in fact, some of the areas where we have seen some light is in the most intense hospitals that we have that provide the broadest array of specialty services. We've seen very nice growth in those areas, which we think suggests that the consumers are now coming back and are certainly spending money on curative services and the more intense services for pets. We still see a little weakness on wellness services in the general practices, which puts pressure on us. And at the same time, we also see a little weakness on retail sales, which I think amounts and accounts for some of the slight decline in traffic.

On the technology side, I'm really pleased that we saw a growth in the revenue side, and at the same time, were able to increase our margin slightly. So it appears that most veterinarians in the community for us and other capital providers are willing to spend money because they do have the encouragement of what's coming. So we're very positive.

On the development side, we announced that we purchased BrightHeart, which has 9 hospitals did roughly $53 million last year, and paid about $50 million for the BrightHeart hospitals, 8 of them specialty hospitals, which gives us the ability to leverage our training programs, and they as well provided internship programs. And we expect to increase our residency programs in those hospitals as well, adding to our educational component that exists in the company. In addition, we also announced that we signed an agreement to buy VetStreet, which is the largest provider of communications in the veterinary industry and dovetails very, very nicely with our company. They are the largest provider of educational services and when we believe the combination of our assets has the largest provider of postgraduate education for veterinarians in the United States, we think, as a database, it will give us a greater ability to serve veterinarians throughout the United States on an educational basis. It will provide us a phenomenal database, which to draw in addition to theirs, to the consumer, and they also touch over 4,500 hospitals in providing business-to-business service to remind clients how important it is for them to bring their pets to the hospitals for wellness programs, reparative programs, vaccines and other baseline diagnostics. We're very pleased with the agreement and the management team that's there. So we've had a good quarter in development, continue to invest in it and see positive results.

So I'd now like to turn it open to questions.

Question-and-Answer Session

Operator

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

James McDonald

Could you talk a little bit more of how you -- if you expect the margin improvement to continue. And I guess you're not giving guidance, maybe you could talk a little bit about whether you do expect some improvement from these hospital same-store trends?

Robert Antin

Well, we think that's a difficult one to suggest. We have continuously said that on a service business at the levels of the expectations, our abilities to hold costs are constrained, even though in this quarter, we did a great job. The operating team did a phenomenal job in holding expenses. We still look and need an increase in revenue to be able to gain some additional margin. So we give no guidance in that area right now.

James McDonald

Okay. Anything on the hospital same-store improvement. I mean, do you expect to improve at all from here?

Robert Antin

We certainly are hopeful, and the trend has been in that direction. If we look back over the last 6 quarters where we had negative same-store sales peaking at minus 4 in this quarter, which is the best in 6 quarters of minus 1.9. We see the trend improving. Whether or not that can be forecasted with the politics that's going on, the economy in discussion, we don't now. We've seen no shift. We still feel enthusiastic that the back half of the year is going to be positive. We have no reason not to believe that. On the other hand, it's so hard to forecast right now. And our business isn't one where you know in advance what's going to happen in September, October, November. And we don't see any change from today to yesterday, but it is the expected, as Tom said, the expected improvement at the end of the year is going to be difficult, given the economic environment. But on the positive side, we certainly do see, on the specialty hospitals, the willingness to treat their pets and pay the larger dollars, as being a good indication. So we're positive but cautious.

James McDonald

And then one technical question probably for Tom. The interest expense went up sequentially here, but I don't know that, that much changed from the first quarter to the second quarter. So anything going on?

Tomas Fuller

You will probably notice that minority interest actually went down as well, about $500,000, $600,000. It actually went down $600,000 -- $800,000. There's a little bit of change in accounting for mandatory redeemable interest where some of costs which used to be in minority interest is now in interest expense, that accounts for much of it.

James McDonald

Okay. Can you give us an idea, is that going to continue and how much? Is that like $0.5 million?

Tomas Fuller

Yes, I think it's -- no, maybe $0.25 million per quarter, give or take.

Operator

And our next question comes from the line of Kevin Ellich from Piper Jaffray.

Kevin Ellich - Piper Jaffray Companies

Just a couple of questions. Other than a few months from the last quarter, is there anything specific that you saw in the field that caused you to discontinue the guidance? Is this really more just macro-related? Or are you seeing other things such as like increased competition?

Robert Antin

No, no, I think it's really macro-related. It's what we're watching play out every single day. There's hesitation, and we've gotten to the point that we were running a business, we're growing it. We see a lot of positive things, so it's nothing. Our Lab division is very competitive, and the companies in that area are very competitive now. We don't see that. That's not the reason. It's really just the macro environment.

Kevin Ellich - Piper Jaffray Companies

I mean, has it actually picked up over the last, let's say, 6 to 12 months? I mean, we've kind of been experiencing the same weakness, wouldn't you say?

Robert Antin

Our ability to see forward is just a little bit more challenged right now, so we would rather focus on the business. We do not see anything different. So we decided to do what we've announced we were going to do. It's to hold off on guidance for the rest of the year. We don't see any individual elements that have changed.

Kevin Ellich - Piper Jaffray Companies

Got it, got it. And then is there anything specifically or strategically that you can do to offset some of this weakness? I mean, outside of the acquisitions like VetStreet.

Robert Antin

So it's a great -- You know something? I think the addition of VetStreet is a great opportunity for us. It will, over time, enhance our ability to communicate to our own pet owners inside of our hospitals but also build a platform inside the industry for greater communications. So I think that's one. The other part of it is we're actively investing in communicating now, and in fact, this past quarter, we saw a nice rise in new clients. So it's a very, very encouraging part. Our new clients was up a little less than 3% for the quarter, which shows that some of the marketing efforts that we're making. And I'm sure in the industry, we're starting to see new clients look for veterinary care. So its -- that part is very positive.

Kevin Ellich - Piper Jaffray Companies

Okay. And then just going over to the Lab business. Obviously, glad to see 1.7% growth, but what are your expectations with Abaxis expected to enter the market later this year?

Robert Antin

I don't. I've said previously, I respect the company. We are a heck of a competitor, and there's 2 very strong companies in this segment. And while Abaxis has done a very good job on in-house chemistry diagnostics, they're entering a new market. So I'm -- I feel confident that our team will be in a great position. We have distribution, which is very hard, and transportation network across the United States, which is very, very, very hard to break in. I've seen their announcements, as you have. I feel confident in our own abilities to compete.

Kevin Ellich - Piper Jaffray Companies

I see. And then just one quick one for Tom. Once you finish the VetStreet acquisition, what are the primary uses of your free cash flow? Will it be for future acquisitions or deleveraging?

Tomas Fuller

We will continue to focus on acquisitions.

Operator

And our next question comes from the line of Ryan Daniels from William Blair.

Ryan Daniels - William Blair & Company L.L.C.

Tom or Bob, question on the margins during the quarter. I just want to go back to that and get more color, if you could, on anything in particular that drove strength there. Maybe you were staffing at higher levels within anticipation of this return to growth? Did you kind of reverse any staffing trends or maybe fill some open positions? Again, I'm just curious. After the compression we've seen in the last few years, how, on the negative growth, you have such good cost controls in the quarter?

Tomas Fuller

I think, for many, many quarters, I've been saying that it's difficult to hold margins through cutting costs as each sequential quarter goes on, particularly in labor, which is our #1 controllable cost. And every quarter, I get a little surprised, to be honest. This quarter, I'm very surprised and very, very pleased that operating people just keep pressuring, and so I think it's really not anticipation-cutting, it's really just continuing to cut more when they need to. But as in the past, common sense would suggest that the more you cut, the closer to the bone you get, which is more difficult to deal with, which I think is part of the influence on our decision on guidance and that because we can't predict the growth rates in the top line with the pressured economy. It's also hard to predict margins and have the ability to [indiscernible] particularly in the service businesses as Bob said. We don't want to cut too deep and deteriorate your service levels.

Ryan Daniels - William Blair & Company L.L.C.

Okay, no that's fair enough. And then I think you mentioned retail sales weakness as having some of the impact on the same-store volume metrics in the Hospital segment. Do you have or can you disclose how much revenue maybe as a percentage of annual hospitals sales, retail sales are? I believe it's pretty small.

Tomas Fuller

It depends on how you define retail. I mean, there's over-the-counter, there's some efficacy products that are not prescription but still over-the-counter. So it's somewhere between 5% and 10%, depending on what you include in that category.

Ryan Daniels - William Blair & Company L.L.C.

Okay. And then if we look at the M&A front -- I just want to get your impression of the remainder of the year. I think you guys were guiding $60 million to $70 million. Do you effectively consider having met your guidance after doing the BrightHeart deal? Or is the big-chain-type acquisition not included so you still think there's more to be had in the back half of the year? Just what's the thought process there?

Robert Antin

We're going to continue doing acquisitions aggressively for the rest of the year. We also are digesting not only BrightHeart but also VetStreet. So we will continue. We think that was a good addition, and I think you'll see more acquisitions to come.

Ryan Daniels - William Blair & Company L.L.C.

Okay. And then last one, I'll get off. I'm just curious if you guys have gotten any early feedback, if you will, from your client base or the industry on the VetStreet acquisition? Just any more color there, since it's been publicly released.

Robert Antin

Yes, we have gotten feedback, and it's actually been very, very, very positive, very enthusiastic. Many of the manufacturers who have supported VetStreet are also manufacturers that we have a very close relationship to our core businesses on the Hospital side. And so they've echoed and offered a lot of confidence in it. In terms of the communication and education part of it, I think there's some excitement to that. We bring some additional capability and asset to what they do. They have a history of, an enormous library of papers and research that the practical side for our specialist looking for a way to take their expertise and funnel that out into the industry. So the feedback has been great. It's been great on all levels.

Tomas Fuller

And then just getting back quickly to your supply. I think what you may be focusing on the set that we're vulnerable on to other prescription channels. It's probably closer to 5%, as opposed to 5% to 10%.

Robert Antin

And then that includes the retail category of pet food and the supplies. But to add to what Tom said, somewhere there, as you know, the retail products have -- as an example, Bayer decided to take and change channels and went out to retail. So that has a marginal impact on the traffic.

Operator

Our next question comes from the line of Jonathan Block from SunTrust Robinson Humphrey.

Unknown Analyst -

It's actually Maggie Lovatt in for Jon. I've a couple of questions, first on the Lab business. We'd heard from some of your competitors that it seems like on the point of care side, specifically hematology, just the machine seemed to have been getting faster. You've got IDEXX ProCyte, and Abaxis recently said their hematology was pretty strong. So just wondering if you'd seen anything particular on the Lab business, any additional pressure specific to hematology testing?

Robert Antin

No. In fact, I probably concur with their -- with the companies that are selling it, good machines. It's that the diagnostic labs are going to do the confirmatory test for those kinds of tests. I think they're actually expanding the market with it. Now some of it might be competitive on a wellness baseline basis, but the diagnostics, you're going to get confirmatory test and additional workups that will lead to greater revenues. So we haven't seen it. I think it's going to expand the market.

Unknown Analyst -

Okay, great. And then also on your Lab business, we saw that you recently launched your own Cardiopet proBNP. Just wondering if you were -- if the thinking was you might be seeding some shared IDEXX because of that test? Is this the answer to that? And if there's anything else on the horizon that you feel like could help preserve share or gain some share?

Robert Antin

Well, I think they've done a good job in introducing products, and they've got a good pipeline and historically in R&D, and we're focusing a little bit more on that. So this is our first, and we hope to come out with some others not just as a market share to them but to expand the market in diagnostic tests, in a number specialties, in a number of organ-related circumstances. So I think you'll hopefully see more.

Unknown Analyst -

Okay, great. And then just on the guidance, is it -- am I hearing you right, that what you're seeing so far -- I mean, I know you don't give monthly guidance, but what we've seen so far in July, things are stable. You're not seeing things deteriorating. It's just visibility is a lot more uncertain, and that's kind of why you're pulling back on guidance. It's not that you're seeing a decline, it's still stable, or is that not?

Robert Antin

No, you're 100% correct. It is stable. In some respects, the business has been improving. But looking out to the end of the year and answering constant questions about the guidance is very difficult. It becomes -- it puts us in the role of having to look at the macroeconomics, the politics, the deficit, the budget. So I think it's -- because it's such small numbers in sensitivity, we decided not to give guidance. But it's not a reflection because our business is exactly what I said it is, and you said it well.

Unknown Analyst -

Okay, great. And then Tom, I always bother you for this, can I just get the same-store total orders for -- sorry, the total order for hospitals, not the same-store?

Tomas Fuller

1,798,000.

Operator

And our next question comes from the line of Art Henderson from Jefferies.

Arthur Henderson - Jefferies & Company, Inc.

Tom, could you remind us in the Lab business just what percentage of the testing done is what you would characterize as specialty testing versus sort of routine testing? And with that, is the margin differential there, between those tests, fairly significant?

Tomas Fuller

By specialty, I'm assuming you're talking about the sector of work that's typically not done in the hospital, so things like pathologies [indiscernible].

Arthur Henderson - Jefferies & Company, Inc.

Right, exactly, yes.

Tomas Fuller

On a revenue basis, I think it's somewhere around 35% to 40% and typically lower margin because there's a lot more handling cost, supplies, labor, commissions and such, whereas chemistry is very highly automated, so it's much higher margin.

Arthur Henderson - Jefferies & Company, Inc.

And is the growth rates between those segments different? Are they...

Tomas Fuller

That, I don't know.

Arthur Henderson - Jefferies & Company, Inc.

Okay. You mentioned in your prepared remarks that, in terms of cash, as far as where the quarter ended, we needed a net of $50 million for -- was that BrightHeart that you were saying?

Tomas Fuller

Right, right.

Arthur Henderson - Jefferies & Company, Inc.

Okay, and then you're expanding out...

Tomas Fuller

You start at $150 million, use $50 million for BrightHeart, borrow another $100 million, use $154 million for VetStreet suite and we would -- and by the end of sometime we closed the BrightHeart deal, we would be somewhere in the $50 million cash plus $100 million unused revolver. So plenty of liquidity and plenty -- plus roughly $100 million in free cash a year. So plenty of liquidity and cash flow to continue our scheduled acquisition...

Arthur Henderson - Jefferies & Company, Inc.

And Tom, all your debt is floating, did you say?

Tomas Fuller

Yes.

Arthur Henderson - Jefferies & Company, Inc.

Okay. And then going back on the margin, the way you were able to preserve it. So if I understand you correctly, what you're saying is, is that your operating team was able to flex. Was it on the labor side or...

Tomas Fuller

Primarily labor. But we're always looking for opportunities to cut and hold costs, but labor is our most, both doctor labor and lay staff labor is our largest, most adjustable variable cost.

Arthur Henderson - Jefferies & Company, Inc.

Okay. And then last question. Bob, I know you've referenced the politics and things that are going on. I mean, as you think about the outlook for the rest of the year, where we stand today with these discussions on Capitol Hill, I assume you're concerned that this could conceivably tilt us into an environment where margin -- I guess, growth, top line growth, volume growth could suffer. I'd just be curious to get your sort of take on all of this and how you're looking at the macro environment.

Robert Antin

Well, I think we learned from the past couple of years that pet owners may be one of the last to be affected by the economy. And they've shown that they have been wounded in different parts of the country and have been affected so they've hesitated coming in to the veterinarian as frequently as they have in the past. Now we're talking about very, very, very small numbers, though. We're off 1.9% of same-store, and I imagine even in terms of the traffic, it's from the retail side. But the overall economy is -- jobs are incredibly important, and it has a marginal impact. And you -- our feeling is just that our consumers all over, and we're in 41 states, our consumers all over feel what's going on. So we're just a little hesitant to try to forecast around what's going on. We're still operating a business, and it's one of the questions we're always, we still see in what in we're doing. We don't see any fall-off, but it becomes a visibility with everything that goes on day-to-day, makes providing guidance a little bit more difficult as I'm sure it does for you. So we're operating the business with the same enthusiasm in the same metrics that you see from other folks in the industry. We're just a little bit more hesitant to continue to guide in a very, very turbulent time. So we don't see anything different in our business. In fact, we couldn't be more excited about the acquisitions and the growth. We think, with the addition of VetStreet, we may in fact have a additional leg to our business that will provide a very agnostic manner in which to communicate to pet owners throughout the United States and hopefully internationally. So we're very encouraged, but just as you say, the outside is very difficult to forecast.

Operator

And our next question comes from the line of Rob Mains from Morgan Keegan.

Robert Mains - Morgan Keegan & Company, Inc.

Tom, could you give us a rundown of any labs or hospitals that you closed or relocated, just so we get the ending count on each?

Tomas Fuller

I'm sorry, nothing in the Lab area. 4 acquired , 2 closed so net 2 increase to, I think, $560 million.

Robert Antin

In hospitals.

Tomas Fuller

530, excuse me, 530 hospitals. So net to [indiscernible]. Right. I mean, no change on labs.

Robert Mains - Morgan Keegan & Company, Inc.

Okay. On the Lab side, can you give us an update on where you see market share, whether you've seen movement in it?

Robert Antin

I see battle. And I think all the companies in it will say that the market for the reference lab side of it is very competitive. And I think we're holding our own. We lose some battles, we win others. I think, when you look at the growth in the market with our same-store sales on the hospital side down 1.9% but our revenue on the lab side up 1.7%, I think we're staying relatively flat. We could be losing some because we're the largest in the marketplace. So we're still getting chipped away in some areas, but I think we're in a battle, and it's a tough one. So I think we're holding pretty well.

Robert Mains - Morgan Keegan & Company, Inc.

Okay. And then in reference to the 1.9% on the Hospital side. Based on your comments that you made about Pet Doctors, can you just remind us if the recently acquired hospitals are performing as expected, i.e. margins are improving in that portfolio. It's the same-store portfolio where there's margin pressures simply because of the negative 1.9% top line.

Robert Antin

You can. The margins are improving in the acquisitions.

Operator

And our next question comes from the line of Erin Wilson from Bank of America Merrill Lynch.

Erin Wilson - Banc of America Securities

You spoke to the consolidated margin trends, but as it pertains to just the Laboratory side, what was maybe the more specific dynamics there contributing to a decline in Laboratory margins?

Robert Antin

Well, the margin was down 1% year-over-year, and the margin for the quarter was 40.1%, so it was down 90 basis points, and Tom had mentioned that 60 of that, 60 of the basis points, came from just the fact that the energy cost, the transportation, which is such a big part of the Lab because you're moving samples all over the country, and that's the benefit of our logistics. But that's where we took the hit on the margin which is down.

Erin Wilson - Banc of America Securities

Okay, that was just on the lab side, then. Okay. And then can you elaborate, I guess, on the synergies you can extract from BrightHeart, bringing up those margins and the timing on that progress as well as, I guess, any residual margin improvements from Pet Doctors?

Robert Antin

Well, I think Pet Doctors is actually -- the team has done very, very well. We're actually a little bit ahead of where we thought we would be on Pet Doctors. On BrightHeart, I think it's a well-run company, and some of the hospitals do better than others. They have 8 specialty hospitals and investment in those in the past had been probably not as aggressive as we would invest in our specialty hospitals and our larger hospitals. So I think, over a period of time, we will see some improvements on there as well.

Operator

And our next question comes from the line of Mitra Ramgopal from Sidoti.

L. Mitra Ramgopal - Sidoti & Company, LLC

Bob, I know you mentioned you intend to be aggressive on acquisitions in the second half. And I was wondering if you could help in terms of what the strategy is in terms of, is it going to be purely focused on the domestic or you might be tempted to go international? Also, given the sizes of the recent ones, at Vetstreet and BrightHeart, can we expect similar-sized acquisitions or more tuck-in, so to speak?

Robert Antin

Well, our plan and our history I think as you know is always to do single hospitals. We don't plan on large chains. There's no control over that at all because most of the large chains are venture-owned or private equity-owned. So we plan mostly on individual hospitals. As you know that we do have an interest in a Canadian company. And we keep our eyes open oversees. I think, right now, our focus is digesting the acquisitions that we've just made, continuing to grow, and that's where our focus will be right now, on the individual side.

L. Mitra Ramgopal - Sidoti & Company, LLC

And again with the recent acquisitions, when do you -- again, the integration process, I know there's probably no definite timeframe, but as you -- by the end of the year, do you think that it should be pretty much behind you?

Robert Antin

Absolutely. I mean, BrightHeart, the management team, the person who ran it, Gino Volpacchio, has been in the industry for a long time. So he's done a good job. And to the benefit is the hospitals are spread out throughout the United States, so it is not concentrated in one region, which would demand an awful lot of resources in one area, from Calgary to Chicago to South Carolina, North Carolina. It cuts on a lot of areas. So we have the capability to absorb them, and I think that's going very well right now.

L. Mitra Ramgopal - Sidoti & Company, LLC

And Tom, just quickly on the SG&A. Clearly you've made a lot of progress if we look at the first half here. How sustainable is the kind of SG&A we're seeing going forward?

Tomas Fuller

I think you'd expect it to be somewhere tracking where it is now.

L. Mitra Ramgopal - Sidoti & Company, LLC

Okay. And quickly, it looked like you've bought back some stock...

Tomas Fuller

Both for additions in G&A due to the major acquisitions. So BrightHeart as we look at particularly for business integration costs onetime to close up their office the next 2 quarters. And then as we bring in VetStreet, there will be an increase, obviously, but the base G&A you see today would be roughly stable going forward.

L. Mitra Ramgopal - Sidoti & Company, LLC

And just quickly, I noticed you bought back some stock in the quarter, how much do you have remaining under your share buyback authorization?

Tomas Fuller

No, we did not buy back stock. Actually, that was just stocks surrendered as part of some option exercises in registered stock...

Robert Antin

You might have seen that I brought back stock -- that I bought stock.

Operator

[Operator Instructions] Okay, our final question comes from the line of Jim MacDonald from First Analysis.

James McDonald

Just a couple of quick follow-ups. The specific close date for BrightHeart, was that July 1 or a couple of days later?

Tomas Fuller

A few days after, so roughly in the middle of the month.

James McDonald

Middle of the month, okay. And you had a number of other management-restricted stock and stock issuances. What will be the impact of that? And how will that be accounted for?

Tomas Fuller

The value of the stock, which is computed as the number of shares times the value at the date of issue, will be amortized over the vesting period, which is 4 years.

James McDonald

Okay, give us kind of a rough...

Tomas Fuller

So make it like $1.5 million to $2 million. Let me get back to you. You can compute it, but I don't want to misspeak. I think it's around $1.5 million to $2 million a quarter, but let me just verify that. That sounds high, I'll get back to you.

Operator

And we have no further questions. I'd like to turn the conference back to our host for any closing remarks.

Robert Antin

Thank you. And I'd like to thank everybody for joining us. We believe we had a good quarter. There was a lot of effort to the margin, as we've said repeatedly, and we're incredibly excited about the addition of VetStreet to VCA. We think it provides us a phenomenal growth opportunity. It provides us avenues to work with other companies' constituencies, from veterinarians to staff members; and also our first opportunity to communicate in a very, very effective way electronically to consumers. So we're very excited. We don't see, as someone pointed out, we don't see a major change taking place. We're still excited, and we still continue to grow. So I thank you very much.

Operator

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

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