LCA-Vision Inc Q1 2008 Earnings Call Transcript

May.19.08 | About: LCA-Vision Inc. (LCAV)

LCA-Vision Inc. (NASDAQ:LCAV)

Q1 2008 Earnings Call

April 29, 2008 10:00 am ET

Executives

Patty Forsythe - VP of Investor Relations

Steven C. Straus – Chief Executive Officer

Alan H. Buckey – Executive Vice President of Finance and Chief Financial Officer

David L. Thomas – Senior Vice President of Operations

Analysts

John Ransom - Raymond James & Associates Inc.

Peter Bye – Jefferies & Company

Anthony Ostrea - GMP Securities

Erik Chiprich - BMO Capital Markets

Jared Holz - Bear Stearns

Anthony Vendetti – Maxim Group

Anthony Petrone – Maxim Group

Stephen Willoughby - Cleveland Research Company

Jonathan Kay – Berman Capital, LLC

Kevin Ellich - RBC Capital Markets

Erin Blum - Goldman Sachs

Reif Mowhe - Renaissance

Christopher Cooley - FTN Midwest Securities Corp.

David Maris – BAM

Operator

Good morning. My name is Elizabeth and I will be your conference operator today. At this time, I would like to welcome everyone to the LCA-Vision's first quarter 2008 financial results conference call. All lines have been placed on mute to prevent ant background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Ms. Forsythe you may begin your conference.

Patty Forsythe

Great, thank you Elizabeth. I would also like to thank everyone for joining us on today's call to discuss LCA-Vision's first quarter 2008 financial results. Joining me on today’s call are Steve Straus, LCA-Vision's Chief Executive Officer; Alan Buckey, LCA-Vision's Executive Vice President of Finance and Chief Financial Officer and Dave Thomas who has recently joined the company as Senior Vice President of Operations.

I would like to remind listeners that comments made during this call will includes forward-looking statements within the meaning of Federal Securities laws. These forward-looking statements involve risks and uncertainties that could cause actual results to be materially different from any anticipated results. For a description of those risks and uncertainties, please review our filings with the Securities and Exchange Commission. LCA-Vision disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether as a result of new information, future events or otherwise. Please note that the content of this call contains time-sensitive information that is accurate only as of today April 29, 2008.

Now, I will turn the call over to Steve Straus. Steve?

Steve Straus

Thank you. Good morning to everyone on the call and webcast. Thanks for taking the time this morning to join us as we discuss LCA-Vision's financial and operating results for the first quarter of 2008. The fact that we face a challenging business environment is not new information. My comments this morning will be directed toward our current plans to improve our performance. Our expanded hours of operation -- as our patient’s lives are becoming exceedingly busy, we have changed our operating numbers in each of our 76 LasikPlus Vision Centers to better serve their needs. We now offer more hours and the times on patient’s want, early morning, (inaudible) and on weekends.

We are expanding our service culture of excellence. Our mission is to earn trust every moment and to transform lives every day. Our phenomenal staff continues to be what makes LasikPlus special. We are further investing in our people by providing increased training focused on building a more comprehensive experience for our patients. We're building and growing our Internet presence. Early in the first quarter we launched a new update lasikplus.com website. It’s best-in-class that provides improved functionality and valuable information on why people choose LasikPlus and then convenient means to schedule a free Lasik Vision exam. Since the re-launch page visits are up 24% and average time spends on the site is up 76%.

Those supplementing our regional marketing was national marketing. We continue to work towards creating leverage in our national marketing model and it further integrates our national television media strategies and stand. We are controlling our costs. Earlier this year we announced and implemented a reduction in our work force in the U.S. to align staffing levels with the current procedures volumes. We continue to manage our labor costs in relation to expect in procedure volumes and we are tightly managing other controllable expenses as well.

In the second quarter we are reducing our marketing spend by approximately 15% from the first quarter level in an effort to improve the return on investment of our marketing expenditures. We’re leveraging new media model and tools to improve our marketing efficiency as well.

We are utilizing the Intralase technology. Intralase is now installed and operational in 73 of our 76 Vision Centers. In March our Intralase utilization represented 55% of total procedures, this was up from the 31% from total procedures in December. We’re continuing to open and renovate Vision Centers. We opened four LasikPlus Vision Centers in the first quarter in Savannah, Georgia; Des Moines in Iowa; Tulsa, Oklahoma and Woodridge, New Jersey. We also relocated one existing center. We now operate 76 LasikPlus Vision Center in 59 markets in 33 States. We continue to implement on previously announced plans within Vision Centers and new and existing markets as well as relocating and renovating targeted older Vision Centers in the current markets.

Also during the quarter we announced the appointment of Dave Thomas; he was Senior Vice President of Operations. Dave’s brings nearly 20 years of experience in all areas of operations primarily in service oriented multi-site retail environments. Dave oversees the operational leadership of our LasikPlus Vision Centers. These have proven and demonstrated success in leading high performance teams throughout his career. His experience is a welcome complement to our existing skill hedge. Dave’s appointment reflects our commitments to further strengthen our leadership team, which includes me, Alan Buckey, Jim Brenner, Mike Celebrezze and Steve Jones.

I would like to turn the call over to Dave.

David Thomas

Thank you Steve. I am extremely excited to be part of the LCA-Vision and LasikPlus team. Three years ago my life was transform when I had a Lasik procedure at LasikPlus. As a former patient I have seen the business from a patient’s perspective and understand how we can positively impact people’s lives. It is just one of the many reasons why I decide to be a part of this team.

Since, joining the LCA-Vision a few weeks ago I have had a chance to visit above seven of our centers and that was a very passionate and committed group of people and I have had numerous conversations with members of field leadership team throughout the organization. I am extremely impressed with the quality of our people and the commitments in excellent patient care and building trust.

As strong as team is we’re focused on better adapting to current market realities. My leadership background in Myriad and operations experiences in multi-site service industries will add value to the LCA-Vision and LasikPlus teams. While I will go into detail about where we are going; I can assure you that we are leveraging our strong people to meet the changes in our environment.

On a final note I am pleased to announce that Marcello Celentano who will be joining the company as an Area Vice President of Operations. Marcello brings nearly 20 years of experience in service-oriented environments that also included overseeing the activities of 100’s of the employees.

Marcello will report directly to me and we will closely work with our other area Vice President of Operations. Again I am very excited to be here and I look forward to the contributing the success of LCA-Vision. Now I am going to hand the call over to Alan.

Alan Buckey

Thank you Dave. For the first quarter of 2008 revenue was $79.6 million compared with $78.7 million in the first quarter of 2007 and adjusted revenue was $74 million compared with $84.3 million last year. We performed just over a 44,100 procedures in the first quarter of 2008 compared with the prior of 59,100 procedures performed in the first quarter of 2007.

Same-store revenue decreased by 8% while adjusted same-store revenue was up by 21%. There were 63 Vision Centers included in the same-store account. Operating income was $10.5 million compared with $15.5 million a year ago and adjusted operating income was $5.4 million compared with $20.6 million in the first quarter of last year.

Net income and earnings per diluted share were $6.9 million or $0.37 compared with $10.9 million or $0.54 in the first quarter of 2007. We’re providing adjusted revenue and operating income as a means of measuring the performance that adjusts for the non-cash impact of accounting for separately priced extended warranties. A reconciliation of revenue and operating income as reported in accordance with Generally Accepted Accounting Principles is provided on the last page of the news release that we issued this morning.

Net-cash provided by operating activities in the first quarter of 2008 was $9.49 million and as of March 31 cash and investments were $57.7 million. Last week we borrowed $19.2 million to finance the majority of our IntraLase placements. The monthly payments for this loan will be spread over five years and the interest is fixed at the rate just under 5%. This decision to finance the IntraLase lasers is consistent with our prior strategy on how we finance our excimer lasers.

At this point I would like to turn the call back over to Steve.

Steven Straus

When I joined LCA-Vision in November of.2006, there were five key drivers that I believed contributed to the Company’s success. The Company has a correct strategy, a proven business model, dedicated employees and surgeons and impressive balance sheet and a large and the large and under penetrated U.S. market. These key drivers remain firmly in place at LCA-Vision today and feels confident about our Company’s solid foundation now when I did in November 2006, even at our current stock price.

We believe that overtime the multi site provider model in the U.S. will be performing the majority of the procedures and we intend to lead the way. We’re managing our business from the long-term and we remain focused on improving our operating performance and enhancing the overall experience for each of our patients. Operator, we’re now ready to take question.

Questions-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of John Ransom with Raymond James Associate.

John Ransom - Raymond James Associate

More questions here. Your ASP has been moving up quite a bit and it would appear from the information that’s out there you guys are gone from taking market share pretty consistently to where, from our calculations, you have been growing slower than the market and I think this quarter, if the market estimates are down somewhere around 15%, we calculate your same-store volumes were down in between 35% and 40% and my question is do you think there is a correlation to the ASP that the reach for ASP and the fact that market share seems a little tougher to come by or do you think we’re missing something in that assessment? Thanks.

Alan Buckey

John, this is Alan. I think your a little higher than 35% to 40% because it’s probably low 30’s but still we don’t think the category was down 33, so we agree with your assessment that we think we’ve lost some market share in the first quarter, but as we look at the business, there remains a strong interest in the procedure has measured by phone calls, scheduled eye exams. Our scheduled eye exams were actually up on a year-over-year basis, but attended exams were down and our treatments were down even more. So, we’re not as efficient at converting the people who are expressing interest into satisfied treatment patients, so. We share the concern that on pricing that , we know that fear and affordability are the two most common things that keep people back from having the procedure done and one of the downsides of IntraLase is that’s a more expensive procedure and they are a strong consumer interest and people want it but not everybody can afford the additional $600 that we’re charging for a bilateral procedure for IntraLase. So, we think that’s the way the industry is going. We think more and more people are going to want to come to second laser in the future and we’re looking in certain markets that ways to bundle IntraLase pricing and make it more affordable for patients. We’ve got some IntraLase options that lead the industry right now from the value in proposition standpoint. For a lot of providers they are keeping it at the very high end of the market $2000 or more and we know that there is a significant part of the market that can't afford $4000 for a bilateral procedures so, we are not pleased with including market share We want to grow market share, and that is why was focused on the initiatives that Steve talked about.

John Ransom - Raymond James Associate

Okay. My second question is can you talk about how many -- I mean obviously it was public the issue in Minneapolis with your doctor up there, but how many physicians have you lost over the past six months?

Steven Straus

John, good morning this is Steve. We have lost about half a dozen and lost really is a misnomer. No surgeons have left amicably at our request or they have moved on in their career. We haven't missed a heartbeat in any of the markets that we’re serving as it relates to surgeon capacity.

John Ransom - Raymond James Associate

Okay. I mean I know for example you have one doctor covering Charlotte and Savannah, well that just seems like risk at spreading that got pretty tensed and my last question is the Company’s projection that will be cash flow positive this year, or you’re not in the projection business on that basis?

Steven Straus

No, we haven’t provided guidance on that John

Operator

Your next question comes from the line of Peter Bye with Jefferies & Company.

Peter Bye – Jefferies & Company

Hi, thanks guys. Just talking on the fact that what turns this around in terms of your ability to return to the form of gaining share in the industry or at least growing with it?

Steven Straus

Peter this is Steve. There is no turnaround that we’re talking about, we’re looking at – we’re finding our business model our key operating initiatives. We’ve talked about service culture, excellence improvement and that really gets down to improving our candidacy and improving our conversion at the center levels and also making sure that we’re providing a range of affordable prices in each of the markets we’re serving and we’re continuing to fine-tune those initiatives market-by-market and you will see improved trends over time in each of the markets we’re serving.

Peter Bye – Jefferies & Company

Well, hasn't this been an issue for a little bit now that where you have got -- you stated that you have had higher call volumes, you’ve had this and it has been the conversion, so can you maybe give us a little more specifics on what exactly the initiatives are that are going to that turn this around, because it seems to be getting worse, not better?

Steven Straus

Well, first of all the pricing side, the ASP did creep up and a lot of that had to do with the accelerated ramp up of IntraLase in virtually all of our centers and also we’re saying more custom being performed in a lot of our centers. So, you're right, there was an increase in ASP and on today's economic climate a lot of patients are struggling with purchasing as they are dealing with their own economic pressures. The interest in the procedure remains very high but as we manage the issues of fear and cost, the two primary drivers that people don't buy, we’re very well aware of both of those issues. We’ve implemented and accelerated training program on the service excellence for all of our center level employees and call center people to be more effective in dealing with a new profile of interested candidates in today’s economic environment and we’re continuing to do just in model the different ranges of pricing in a variety of markets to make sure that we find that affordable and attractive range of pricing that is appealing to patients in today’s climate.

Peter Bye – Jefferies & Company

Okay, okay. I appreciate that fact, but you didn’t open up a fair number of more centers I guess in Q1 than we had assumed. Are you still -- do you still sort of maintain your prior guidance for centers for the year on that front with considerable tail off in the next three quarters?

Steven Straus

Our guidance for this year remains intact Peter.

Peter Bye – Jefferies & Company

For the center front?

Steven Straus

Yes

Peter Bye – Jefferies & Company

Okay and then just -- how much you step up the marketing and then the returns I guess -- I guess the way you measure returns which is somewhat correlated to our exams and the like is still like a season, but the way we look at it is more about how many eyes you convert. Are you going to ramp that back down, you think you’re getting wasted dollars, to a good dollars spent. Any channel about your philosophy there, on the sales and marketing dollars stuff?

Steven Straus

Sure. In the press release, we talked about a 15% sequential reduction in Q2 from Q1. So, that would be about $17 million in spend and we’ll obviously cut it from the least efficient places that we’re spending today. So we would expect to improve the return on investment on marketing in the second quarter relative to the first quarter and with that, we’ll monitor the second-half of the year to say, was that a good idea, not a, should we cut even more, should we spend more, but we’re attempting to optimize that marketing spend and at the same time we continue to accelerate some of our national media purchases; when it’s from regional media purchases I tend to gain more efficiency there.

Operator

Your next question comes from the line of Anthony Ostrea, with GMP Securities.

Anthony Ostrea - GMP Securities

Hi, Good morning guys. Just had a few questions; maybe just going back to an earlier question on conversion, because Steve I know you spoke about pricing and how that’s crept up because of custom and IntraLase, but I guess the first question is, have you actually increased individual pricing of products?

Steven Straus

No, we haven’t, but as I mentioned earlier, IntraLase is now fully operational in our system and that adds an increase due to the pricing during first quarter and also, when you look at conversions, Anthony, we need to become more effective in meeting the patient’s needs, both clinically and economically. We’ve got the widest variety of excimer choices and as lower as flap creation choices both mechanical and with the Femtosecond and we’re working with our center level teams to make sure that we meet the needs both clinically and economically for all those patients that are interested in having the procedure with us.

Anthony Ostrea - GMP Securities

Okay. Maybe a just going from what you just said, does it actually -- I know it probably helps you theoretically in terms of having the widest array of choices for the patient, but do you really need -- I mean, its worked in the past, where you had the multi-laser platform for each of your centers, but is there a way maybe to cut -- maybe scale that back a bit given the current economy? Or is that really a viable strategy going forward? I’m just trying to think of ways, where you can cut costs in the midst of the environment, and the fact that you’re actually -- that the market actually not growing as fast and your growing worse in the environment than the market itself.

Steven Straus

We think your multiLazer platform is a key part of the business model, and we’re committed to that, whether it’s two lasers or three lasers, might be tweaked, but we’re committed to having the best available technology for our patients.

Anthony Ostrea - GMP Securities

Okay and maybe just specific on the direct cost of services line, it was actually lighter than I expected pleasantly. did anything funky happened in the quarter in that line item?

Steven Straus

Well, I don’t whether I’ll call it funky, but we did a reduction force that we announced in February, and so we had the benefits that have been February and March and associated with that is a onetime reduction in stock-based compensation from restricted stock and option that will not vest. So, on the cash-flow statement you’ll see that either actually a negative expense for the quarter versus $1 million or $1.2 million of expense same quarter a year ago, that won’t repeat going forward so, you’ve already seen a lot of a cost affect reduction of the reduction of force sailing in the first quarter, because that stock-based compensation more than offset the severance cost of that was about $0.5 million in the quarter.

Anthony Ostrea - JMP Securities

And then my last question is on marketing expenses; it spiked up. I know your plan is to get that to about $17 million Q2, but it’s a double edged sword right now basically, when you are -- it looks like your marketing per eye is about $400. Maybe can you just talk a little about whether or no you can actually afford to scale that back, but $3 million into the some marketing expand and what you think that will do for your procedure volumes in Q2?

Alan Buckey

We have become a lot more sophisticated over the past several quarters and how we determine to manage our marketing investments As I mentioned earlier, we are leveraging our new media modeling tools to improve that marketing efficiency and we look at what we are spending by medium by market constantly and can measure each of the spends. So we are continuing to reduce expense or eliminate the spends where we are getting the poorest returns or the more inefficiencies in the spend in a given week, month or quarter. So, we believe with this modeling tool end leveraging more of our national media presence as a supplement to our regional marketing spend. Overtime can then just spend less and see those metrics improve as we move forward with each center in our patient acquisition initiatives.

Operator

Your next question comes from the line of Chris Cooley with FTN Midwest Securities.

Christopher Cooley - FTN Midwest Securities Corp.

Just a couple of quick operational questions and then one on the balance sheet if I may; could you maybe just talk about at this single level you are employee retention. I mean what we are seeing is you clearly added link to your hours late in the evening, early in the morning, week ends now. I believe you guys have changed how number these kind of center level type employees or comp from historical volume focused profitability. Talk to us about maybe what kind of retention right you had at that level over the last six months and then also from an operational standpoint I don’t know if you went to this or not, Alan but could you maybe give us a feel for what the split is in terms of your marketing dollars national versus local or regional. As you talk about leveraging that national message so, they can maybe get a better understanding of how those dollars are spent and I just to have a one quick follow-up on the balance sheet. Thanks.

Alan Buckey

As it relates to the employees and retention as you know we reduced our levels of employment and our center level employee base as well as in our national call center and here in our corporate offices, rather significantly in early February and each of the centers there was a reduction in force, these are small employee work groups and the retention of employees following the reduction force remains intact. We have had a few voluntary people believe and that was down at their choice. We are continuing to manage our levels of employment when we look at labor per procedure, we look at headcount, we look at full-time versus part-time and we’re continuing to manage that labor expense, but equally as important to stay very close to employees in the communication, leadership management and as I mentioned earlier we’re increasing our investments in training to make sure that we are giving the people the right tools to be used as effective as possible. Also I think just the overall economy has an impact on all employees as well. So, it’s just not our targeted audience that we are appealing to for laser vision correction, that are feeling the pinches of the economy, but our employees feel that as well. So, that has an impact I think on some attitudes and behavior, but overall employee retention remains solid and consistent with what we expected. Dave, do you have any further comment on that?

David Thomas

Yes, I wanted to point out and again I’m fairly new to team here, but in the time that I have been out. Visiting our centers, one of the things that’s just so exciting for me, so encouraging into the love and passion that folks have for the brand and I think, given that that is where we are seeing people wanting to adjust to changes, because they love the brand so much. I think that that makes the think that we need to be able to drive our business given changes in the conditions is a real leveraging point for us because we have very positive people environments and very positive attitudes about what the brand is and what it does. So, from that aspect I think that’s a very strong component of our people for us.

Unidentified Company Representative

Okay, your second question on marketing spend I would say national is less than half of the current allocation and – but we don’t already break it out medium by medium.

Christopher Cooley - FTN Midwest Securities Corp.

Okay thanks Alan and if I could just quickly on the balance sheet. One could give us an update on the option rate securities that you had at the end of calendar year, last year kind of what those status of those funds are; if you thought about any impairment charges and then just so I think about the timing of cash flow going forward. If you look at your release its looks like those additional IntraLase systems didn’t appear in the March quarter, because your gross asset and your CapEx, everything looks like that 193 wouldn’t foot back so, could you maybe give us an update on how many systems you had actually at quarters end so we can get a feel for the transition that’s taken place here quarter-to-date in the 2Q in terms of getting up to the 73 of the centers with IntraLase. Thank you.

Steven Straus

We are going to final the Q2 probably tomorrow and we added a lot of disclosure around auction in the Q, but still on the balance sheet there’s about $10.5 million at the end of the quarter, classified as long-term investments, those are not auction rates but have failed. Then majority of that is…..

Chris Cooley - FTN Midwest Securities Corp

Alright, I am sorry could I just clarify -- you said 10.5, so that’s up from the side 4.5 at the end of the calendar year end, is that correct?

Steven Straus

It was 2.2 at end of December.

Chris Cooley - FTN Midwest Securities Corp

Didn’t you have two trenches that had failed at one point, if I’m not mistaken the 18/3 that you had an option rate securities at that time.

Steven Straus

Two failed at year-end, more failed in the first quarter

Chris Cooley - FTN Midwest Securities Corp

Okay I just want to make sure that. Thanks Okay.

Steven Straus

They are largely in municipals and they have been refinancing the majority of those because of the penalty interest rates that are associated with the failed auctions. So, our view is that over the next three to six months we think the majority of that with the exception of the $2.2 million that is in corporate taxable will probably refinance the outer part, but we did record a small -- I don't know it’s a small about a $0.5 million of impairment charge and other comprehensive income because we viewed the reduction to be temporary in nature not permanent.

Christopher Cooley - FTN Midwest Securities Corp.

Okay.

Steven Straus

But you will see the disclosure when the Q gets filed this week. We have added a lot of detail in that for you.

Christopher Cooley - FTN Midwest Securities Corp.

Okay, sorry. I will get back in queue, could you maybe just address the IntraLase question as well just in the capital spend?

Steven Straus

Sure, the $19.2 million loan funded last week, so that was a subsequent event to that quarters and that cash was not on the balance sheet at the end of March. The total number of total number of laser placements by the end April was 73, so…

Christopher Cooley - FTN Midwest Securities Corp.

I guess again I am just trying to look back, from the balance sheet it looks like your gross assets didn’t improve, but I guess it was just like roughly back here $10 million, so I am assuming all of those lasers could not have been in the system at that time. I am going to be trying to get as what was the…

Steven Straus

That’s -- a majority of them were -- because a big chunk of those happened in last year as well. I think we were at 45 at December 31.

Christopher Cooley - FTN Midwest Securities Corp.

Okay, okay almost…

Steven Straus

They’re been showed in our IR presentation that’s on the website that shows how many the installed basis by month. I am just not recalling the March numbers because I know the current numbers is 33.

Operator

Your next question comes from the line of Ryan Daniels with William Blair.

Ryan Daniels – William Blair & Company

Guys good morning, a couple quick questions first off Steve you did a good job outlining in the press release and in you comments kind of all the initiative, the changing hours of operation, the IntraLase rollout, etc that the Company is putting in place to help drive growth and I am curious how much of that was kind of already in place in the first quarter and we are seeing the benefit of that i.e., were the hours and the sales force training done early on and in the year so we have already seen some of that. Can you just comment on that quickly?

Steven Straus

Sure, we implemented a fair amount of change in the first quarter and I will say all of it is incremental, nothing drastic in terms of redirecting or repositioning our business model. They expanded in hours of operations what we call patient from the hours. We are implemented in about half of our centers in February and the other half in March. So, we will store at the back end of the quarter. In the training, we had some testing going on with the training model and the first quarter and that’s really been ramped up in April. So, those initiatives if you will in terms of expanded hours of operation and improving our investment and training for service culture excellence really had minimal if any positive impact on operating performance in the first quarter. The interrelations we have talked about was virtually completed in the quarter and the national marketing was picking up pace throughout the quarter.

Ryan Daniels – William Blair & Company

Okay. That’s helpful color and then I guess a derivative question there; Alan you mentioned earlier that for the first time in a while we have actually seen some market share loses for LCA-Vision and maybe these initiatives that were started to the quarter and going to Q2 will help stabilize those loses, but is there anything particular that you have looked at your individual markets, certainly some or more competitive than others whether it’s other chain operators or maybe large doctor groups and maybe more aggressive marketing by competitors, what have you seen, maybe looking at markets where you have loss share that has driven that market share loss, even with some of these initiatives rolling out?

Alan Buckey

I’d say there is still a more price competition in a softer market than its best trade markets specific, some markets have more heightened price competition than others. One way I tried to look at the business was just comparing our TLC overlap markets versus non-overlap markets. We arrived about 60% of our locations and I would like to say more than half of those performed at or better than the non-overlap markets but there were a list of market where they were down more than the Company average, so I would say the heavy spending by TLC in those markets by -- but we think more of the issue is our ability to convert to people who are calling today and they happy to treat a patient than we do from a competitive landscape. I think there is plenty of opportunity, (inaudible) that both TLC and LCA can succeed in the market and we need to do so and put pressure on the independent promoters.

Ryan Daniels – William Blair & Company

Okay and then I guess one more follow-up on that one, another derivative. If we think about the model if rolling out more IntraLase you said, you feel if there is more demand in the market for that, consumers are looking for that so you are going to roll it across your entire book of business. Then on the other hand you are seeing more price competition at the more sensitive environment at the same time you are rolling this out and kind of taking up prices so, how you dealt with that conundrum? It seems like that’s a pretty challenging time to be rolling this out now given the price competition in the consumer environment, so how are you balancing between those two and how comfortable are you that this roll out is going to be successful, over the next several quarters to kind of drive your growth?

Steven Straus

As well as my grading our paper honestly for the first quarter, I would say not very well. So we have to look at how to maintain a good solid value in this model and I talked earlier about how we are going to offer IntraLase to all our patients regardless if -- I mean we are not going to say yrs by a custom procedure to get IntraLase because we know that probably might not be walking in the door asking for it once you explain the options to them. It’s an interactive option and its comforting to them and as we get more and more experience we think that there is also some clinical benefit on when it’s better and so that was the reason that we did the extended tests of it last year and trying to expand to it to international program but wherever you make it more expensive we feel like the market opportunity gets smaller; not everybody can afford a $4,000 bilateral procedure. So, we have got out some attractive price points less than that for those folks that not able -- they just can’t afford the monthly payment crossing certain thresholds. I mean, so not only are we competing with the competitors but we are competing for that discretionary dollar spend when there is higher gas prices and mortgages rates that are resetting up and it just doesn’t fit in the family budget and so I don’t know. It is a tough time to be raising prices so I wouldn’t, as I mentioned earlier we we’re -- we’ve got a number of markets where we are testing slightly lower prices and in some markets it is working great and other markets it hasn’t caught on yet, so you want to taste that (inaudible) promoters working great and share that with the ones where they might be struggling more or just tweak that market-by-market to say maybe this market does need a more aggressive price but that’s an ongoing test that we have, that we started in the first quarter.

Ryan Daniels – William Blair & Company

Okay and then one final follow-up and I will hop off. Given the workforce reduction have you guys seeing any operational issues at the center levels with, the lower conversion rates perhaps being, longer wait times to see an optometrist or maybe if you are down to one in the center of that person is sick all of a sudden there is nobody there to kind of visit the patients for the pre-opt schedules. We’ve heard a little of noise here in that the Chicago area that, people have showed up and been unable to get screenings and things, so is that a risk you guys worry about because of the reduction in staffing at some of those centers?

Steven Straus

We have to manage through a reduction enforce and address them around issues to make sure that the team is left and still energized and excited about their future and, they may have lost a friend or two, their coworker that they liked working with, but I think it’s up to us as managers to explain, “here what’s going on and here is why we needed to do it” and it maybe a patient friendly hour, but that might cause some personal heart ach for me if I have done child care relationship or they -- the day shifters close at six and you are asking me to work to sever, so for some of the individuals that’s a lot of pain and we understand that but we also understand that our patient’s are telling us, “my life is busy. I can’t necessarily take out 90 minutes out of the middle of my day for that pre-op exam, but if you can do it somewhere in the morning that sure would be nice or in the other parts of the country if you can do it in the evening or on the weekend, now I will come so and change is never easy, but we understand that we need to make some changes, so and they have to understand that.

Alan Buckey

I would think your point is well taken. One of the things (inaudible) is we understand anytime you do something like that it’s going to be some upheaval; that’s what change does, but I keep saying if we were defining some of the techniques we have to be able to manage maybe better some of those things will be rolled out here fairly shortly in terms of being able to refine where we schedule for a field support in your patient friendly hours. So, we think that’s also going to help, maybe some of what happened in February.

Operator

Your next question comes from the line of Erik Chiprich with BMO Capital Markets

Erik Chiprich - BMO Capital Markets

The question; a lot of discussion on pricing; I was wondering if you could just provide a little granularity on I think you guys and some of the service that you do -- what percentage of patients are you loosing to competitors due to pricing and what is that price difference that did -- causing the patient to want to go through with the delta?

Steven Straus

Of the survey work that we have done maybe 20% to 25% of the patients that had signed up for treatment didn’t show up and then told patients had gone somewhere else, largely based on price and it could be a little lower than $100 to $300. So, it’s not like it’s a $1000 or its not -- it’s still a relatively small percentage of the industry procedures from what we see here getting done at less than $1000 in that.

Erik Chiprich - BMO Capital Markets

Okay and then just curious, the 15% reduction in marketing expense, can you pass that a little bit. How much of that change in just seasonality and how much goes to just trying to really earn in on getting more efficient in changing from your strategies?

Steven Straus

Base to latter area.

Erik Chiprich - BMO Capital Markets

Okay.

Steven Straus

As we mentioned earlier we are really focusing on bringing out the inefficient spends as we use our new media modeling tools to improve that marketing efficiency by media, by market, so it’s really focusing on what’s not working in a particular medium in every market.

Erik Chiprich - BMO Capital Markets

And I think in the last call you guys had talked a little bit about what your thoughts were for the for the overall Lasik industry. Any thoughts on what you think industry volumes will be down and how you guys -- how that will affect you going forward?

Steven Straus

Erick as you know since midyear, last year Alan and I were communicating caution in the category and seeing the slow down and some negatively in procedure volume over comparable prior year periods and we see no improvement in the category at this point in time.

Erik Chiprich - BMO Capital Markets

Okay and then finally can you spreads some updates on your internal financing. I think last time you had discussed about rating upfront collection amounts and has that made any difference, well how much are you requesting upfront? And what was your bad debt as a percent of revenue in that quarter?

Steven Straus

We didn’t rolling out the increase in the down payment requirement early in April, from $300 to $600 and that is per patient. Too soon to know -- to see that in collection rates as that will take a while over time to see on the collection side, but bad debt expense in the first quarter was right about 2.5% of revenues.

Operator

Your next question comes from the line of Jared Holz with Bear Stearns.

Jared Holz - Bear Stearns

Thanks for taking the call. Could you just talk about -- it seems like IntraLase is really not helping to drive procedural volumes. So as these systems anniversary in 2009 at some point, what is going to happen to the organic growth at that point and then just in terms of dry eye, can you talk about the percentage of patients you are getting dry eye products prescribed as an adjunct post Lasik? Thanks a lot.

Steven Straus

I would agree with your assessment that IntraLase doesn’t necessarily drive volume. The consumer doesn’t necessarily -- they are coming in for Laser Vision correction, they’re not coming in for any joint procedure per se. So that is more an in center education option issue that gets explained once they have shown up in the center. So, I’m not sure the anniversary of the systems is going to be a significant milestone and percent dry eye, I would say frequently the doctors are prescribing drops post-operatively during the recovery period. I don’t know the exact percentage there, but it’s not uncommon to it, but people want a period of time, but if you really needing some more detail on that one, I could try to talk some of our surgeons.

Jared Holz - Bear Stearns

Okay, yeah that will be great and then just lastly are you looking at any other Femtosecond laser options? I know there are a couple of smaller companies that have been trusting products. Is that a possibility of longer return? Have you had discussions with any of those manufactures?

Alan Buckey

As we were evaluating our Femtosecond options last year, we have some conversations with those manufacturers, but at this point in time we only logical choice for us with IntraLase will continue to monitor the evolution of those other symptom second technologies and we will look at price, service and distribution, but at this point in time we are continuing to embrace our current femtosecond technology.

Operator

Yours next question comes from the line of Anthony Vendetti with Maxim Group.

Anthony Vendetti – Maxim Group

Okay good. Just a couple of quick questions; your share repurchase -- you didn’t purchase any shares this quarter; is that temporarily suspended?

Steven Straus

No, it will -- till that authorization remains in place I think we were just monitoring cash, wanting to stay cash flow positive.

Anthony Vendetti – Maxim Group

Okay, okay. So, if possibly you look to opportunistically potentially purchase shares this quarter or are you still conserve in cash?

Alan Buckey

We generally don’t preannounce when we are going to be in the marker or not in the market Anthony.

Anthony Vendetti – Maxim Group

How many of the same -- how many to the 76 stores were part of your same-store calculation?

Steven Straus

63.

Anthony Vendetti – Maxim Group

63?

Steven Straus

Yeah.

Anthony Vendetti – Maxim Group

Okay and you don’t have any plans going forward to actually own the real estate, correct?

Steven Straus

No current plans to own the real estate.

Anthony Vendetti – Maxim Group

Okay and last question on the new center openings; are you still able to reach breakeven in 90 days or is that going to extend of altitude of your current environment?

Steven Straus

It’s a little longer in a current environment, but virtually all are still hitting it within six months.

Operator

Your next question comes from the line of Anthony Petrone with Maxim Group.

Anthony Petrone – Maxim Group

A couple questions on the marketing programs; how many current programs and I guess on the national side you walked in Q4 through the remainder of the year. How many of those are annual programs?

Steven Straus

None of them are annual programs and depending on available media and during our certain courses for the year, we monitor and manage that. Some mediums that we utilize have longer lead times from a commitment standpoint but nothing is on an annual basis.

Anthony Petrone – Maxim Group

Okay great. A couple on Intra lease. You have any impact on price there and it’s seems it’s more of a pricing mechanism in volumes so you know how much more is that continued to allow in term so total procedures what do you pricing to go I guess over the next year?

Steven Straus

We’re going to continue to monitor our pricing, market-by-market to make sure in each market we offer a valued proposition to be viewed as the affordable brand and as I mentioned earlier in my comments we’re carefully watching our two largest controllable expenses as well labor and marketing and we want to make sure that we continue to have a very good cost position to be able to have flexibility in our, to drive the appropriate contribution margins and drive as much volumes as they possibly can in each of the markets we’re serving?

Anthony Petrone – Maxim Group

Two quick ones, I guess on expense side, then the medical and professional license means they kicked up a bit here in the quarter and then trying up I know there is some seasonal impact there but with procedure volumes being down is the variable portion of which you pay physicians increasing or is the fees to suppliers increasing and I guess based on in purchasing IntraLase equipment?

Steven Straus

Ht’s completely in the fee for the IntraLase equipment, the doctors arrangements do not change.

Anthony Petrone – Maxim Group

Okay, so would you expect that -- is that being offset by any I guess reductions anywhere else or you would expect that just to continue to increase?

Steven Straus

It’s going to be a function of the IntraLase penetration as a percent of total procedures, the higher it goes that sort of a majority of the expense would be incurred by you’re also seeing it in ASP as well.

Anthony Petrone – Maxim Group

Sure and I guess the last thing on GES is the percentage of procedures they fund, has that changed at all during the quarter. Thanks for taking my questions.

Steven Straus

No, not significantly no.

Anthony Petrone – Maxim Group

Okay great.

Operator

Your next question comes from the line of Steve Willoughby with Cleveland Research.

Stephen Willoughby - Cleveland Research Company

Good morning. Quick question; kind of a follow-up to -- you guys are saying that you haven’t seen any improvement in the category yet; can you comment at all on how volume progress through the quarter. I know January is obviously the seasonally strongest, but any comment on how the rest of the months ended up?

Steven Straus

I would characterize it as a discipline in quarter for a pretty much long quarter.

Stephen Willoughby - Cleveland Research Company

Okay and then just more recently the news last week with the FDA panel, have you seen any impact in the week or two either in cancellations or decrease in pre-op appointments being scheduled because of that, any impact from the FDA?

Steven Straus

As a result in the FDA panel on Friday and some of the preceding and subsequent press covering that event, it -- as expected instilled some concern in some people that are considering the procedure and as you know one of the two major reasons for people not moving ahead with the procedure was fear, that of being cost. So, we have seen in some centers a little softness on appointments, but one or two days doesn’t really create a trend. We are monitoring it and we are working with a reflective industry councils to manage through this matter, but we take it seriously but don’t see at as a key negative event over the long haul.

Stephen Willoughby - Cleveland Research Company

Okay and then the follow-up on the GE financing question, regarding the percentage of your revenue that’s financed internally. Is that also fairly stable?

Steven Straus

Yes.

Operator

Your next question comes from the line of Jonathan Kay with Berman Capital.

Jonathan Kay – Berman Capital, LLC

Hi guys, good morning; thanks for taking the call. Just a quick question relating to the price increase and the conversion again. Those patients who were not willing to step up for the extra money for the IntraLase are they still offered the option of the lower price surgery?

Steven Straus

Yes.

Jonathan Kay – Berman Capital, LLC

And is that kind of before or after the education has happened?

Steven Straus

It’s going to vary center by center, but generally that -- once the cat is out of the bag and people learn about IntraLase it tends to hurt your conversion rate then if they don’t signup for it.

Jonathan Kay – Berman Capital, LLC

Alright and then…

Steven Straus

They will finally go back to the widened procedure.

Operator

Your next question comes from the line of Kevin Ellich with RBC Capital Markets.

Kevin Ellich - RBC Capital Markets

Thanks for taking my questions. Steve, I have got a question about the stimulus rebate checks that are coming out from the government. We have seen some retailers run promotions as an attempt yet consume at this time of checks. Have you guys considered or though of any promotions that you might have boost volumes?

Steven Straus

Our marketing team is considering that.

Kevin Ellich - RBC Capital Markets

Okay, thank you and then I believe it as if -- I believe from attempt in working with the optometrists and getting patients referrals, do you get any update or information and how that is progressing?

Steven Straus

We work with optometrists in some markets and a lot of optometrists refer, to their normal practice parents; patients interested in this procedure to us.

Kevin Ellich - RBC Capital Markets

But, historically the company is done more direct consumer marketing, is that right? You haven’t necessary gone out to the optometrists association intend of those tradeshows, is that right?

Steven Straus

Yes, you are correct. Our primary patients acquisition model is direct to consumer, direct response market Kevin, but as you know a lot of our surgeons across the country have and continue to manage OD relationships, and their own network. So that happens informally on a center by center basis.

Kevin Ellich - RBC Capital Markets

Okay that makes sense and then just on IntraLase, AMOs discussed the update of a new better laser coming out later this year, about 150 hertz. Have you thought about upgrading when that’s available?

Steven Straus

We are monitoring that technology upgrade through the systems of our Medical Advisory Board and as you know we like to embrace upgrades of the existing technology that we have in our laser suites and at appropriate time under the guidance of our Medical Advisory Board Kevin we will take a look at that advanced technology.

Kevin Ellich - RBC Capital Markets

Okay and then last question Alan, just wondering what led to the decision to actually take on some debt, which I believe this is the first time in recent memory you guys have viewed debt because you have always had such a clean balance sheet and good cash flow. Why you borrow $19 million for the IntraLase placements rather than use the existing cash?

Alan Buckey

Well, in the past we’d use vendor financing to our excimer lasers, but as we negotiated the IntraLase deal, basically my approach is to try to get the most total cost of ownership over the life of the deal, and we felt like we were -- we got a better deal by doing it this way and when I looked at it, five-year fixed-rate money under 5%, it seemed like pretty good -- I mean an attractive offer to me; interest rates were -- the Feds low now, but my personal view is that inflation hasn’t gone away and that we could see higher rates in the future once the economy starts improving.

Kevin Ellich - RBC Capital Markets

Right and then, what you thought on the dividend given, the weakening of cash flow? I mean are you guys still committed to paying that dividend?

Steven Straus

That the Board’s decision that they will discuss at every board meeting, so.

Operator

Your next question comes from the line of Erin Blum, with Goldman Sachs.

Erin Blum - Goldman Sachs

I was just wondering whether you thought Easter falling in the first quarter had any impact on the year-over-year decline in procedure?

Steven Straus

Yes it did, because not only in the week of Easter, but typically with week after Easter is the spring break, so it was probably two or three percentage points off the revenue, because of that Easter effect.

Operator

Your next question comes from the line of Ken Bucat [ph] with Bam [ph]

Ken Bucat - Bam

Question actually have been answered. Thank you.

Operator

Your next question comes from the line of Reif Mowhe with Renaissance

Reif Mowhe - Renaissance

A question about the IntraLase CapEx and in particular why the CapEx was done prior to receiving with the loan. If you could help me understand the timing there or if there was some residual CapEx payment to be made to the vendor this quarter that would be great?

Steven Straus

We were at 65 lasers end of the February, 73 at end of March and the timing of those payments some could have been in accounts payable at March 31st, but there aren’t residual payments on the capital side, the residual payments are on the per use fee of the laser or the maintenance of the equipment. We just thought and kind of described on a -- to a lot of color that getting five year of fixed rate money at 5%, was a pretty attractive loan. I mean I…

Reif Mowhe - Renaissance

Okay and that decision was made though recently as a result of market conditions or it was made at the time that you guys decided to rollout IntraLase and you just executed it after you actually rolled out IntraLase?

Steven Straus

Well, we started rolling out IntraLase on a national basis in October of last year. So the decision to finance them was made subsequent to the IntraLase rollout.

Operator

Your next question comes from the line of John Ransom, with Raymond James Associates.

John Ransom - Raymond James & Associates Inc.

Alan, one thing and I may have missed this, I apologize, but we were a little surprised to see the bad debt number comedown sequentially. Was there anything going on there from a timing of your accrual standpoint, or is it just kind of a number we should use going forward? Thanks.

Steven Straus

Unless conditions worse that should be a good number going forward. We had -- it was a little high in the fourth quarter and so that’s season it came down sequentially.

John Ransom - Raymond James & Associates Inc.

Okay and when you look at your mix of receivables, let’s go back maybe a year ago, what’s the mix of a short-term versus long-term today versus maybe a year ago?

Steven Straus

More longer-term today than a year ago, but as I look at spending with $14 million in short-term this year to a $12.7 million last year, the long-term was 5.1 versus 4.6, so it goes up…

John Ransom - Raymond James & Associates Inc.

Not big that much yeah?

Operator

Your next question comes from the line of Chris Cooley, with FTN Midwest Securities.

Christopher Cooley - Ftn Midwest Securities Corp

Thank you just two quick follow-ups, if I may. Alan, could you maybe touch on custom mix -- I know you had given a hard percentage there but could you just maybe talk about how that trended sequentially and year-over-year as we think about your ASP and then I apologies, I’m just -- one other; going back to the balance sheet I'm looking at your gross PP&E and the increase there out for the year end quarter and if I'm thinking about four new centers and the addition of the IntraLase systems, I guess I am just having difficultly reconciling all of those boxes coming on during the March quarter, if I can may just get some clarity there if not, I can take that up off-line thanks.

Alan Buckey

Okay, well the second one first; there were about $10 million of capital spending in the first quarter. So more than half of it would have been IntraLase related and the balance being new center related and so we were at 45 units at the end of December and so I’d say it was probably well over $6 million worth of IntraLase purchases in the quarter, first question on spacing.

Christopher Cooley - Ftn Midwest Securities Corp

On a new breakout between IntraLase and which is this…

Alan Buckey

The custom mix was up both sequential and year-over-year and if you take the change in ASP about -- we are getting about $300 procedure for IntraLase and the other big component of the increase in ASP was because of higher customer utilization, but that tends to be $500 up charge for that and at the end those numbers still don't get you to reconcile on. It may help when we file with the Q tomorrow and if you're still stuck, let me know

Operator

Your next question is come from the line Anthony Vendetti with Maxim Group.

Anthony Vendetti - Maxim Group

My follow-up here; I'm just trying to get my hands around the rate of contribution from new centers which I'm trying to just work through some numbers here. It seems obviously that has come down, but if you could just guide me through there, so you had an 8% year-over-year same-store procedure decline. If you try to separate that out, it just seems that the rate at which new centers has been the contributing has declined I would say since the third quarter, so why the decision to I guess kind of accelerate new center openings in the beginning of the year, despite the outlook your guidance for obviously bringing down the rate at which you open centers, but again just if you could help me in terms of what is the contribution of new center openings I guess in the year ago period and what it has been over the past three months? Thanks.

Alan Buckey

That 8% you were referring to was revenue rather than procedures and that was GAAP revenue, which includes the amortization of…

Anthony Vendetti - Maxim Group

Amortization yes..

Alan Buckey

So…

Anthony Vendetti - Maxim Group

Using the 21% obviously would be…

Alan Buckey

Once again that’s a revenue number not a procedure number.

Anthony Vendetti - Maxim Group

Okay, so is there any I guess the rate of contribution

Alan Buckey

What we said on -- the centers are taking a little longer to ramp up the new centers, but we still think can get them to profitability in a reasonable amount of time and the lead time from deciding to go to a market to when it opens can be six plus month, so with the centers that we opened in the first part of the year we have been planning on since July of last year.

Anthony Vendetti - Maxim Group

I see and net evaluation process has not changed in terms of when you look at geographies and where you decide to open a new center that has not changed?

Alan Buckey

Correct, it remains to be the top 100 markets in the U.S., and we're in 59 of those currently.

Operator

Your next come from the line of Ken Bucac [ph] with Bam [ph]

David Maris – BAM

Well it’s David Maris. There’s a couple of questions. First, can you talk about volumes in March versus February and what you're saying so far directly following the FDA? You mentioned that as expected you would see a cancellation but -- a rate increase; has -- is it dramatic increase or is it a minor increase, is it too early to tell. What historically have you seen when these types of things flare up in the press. I know you see a higher cancellation rate but to what degree is it. Is it no, it’s usually modest, but added to the economy or it’s worse, or it’s usually dramatic and short-lived or maybe any color you can give on that and separately, to follow-up on someone’s question on the zymer speto, how flexible is your system if you do see that the flaps are better or that your physicians preferred at that system, can you just give them back to IntraLase? Do you have to sell them in the secondary market, or what goes on there?

Steven Straus

Okay. I will take the first one and Steve can take the second one. Whenever there is negative news that’s not good for the category or our company, so I think as we monitor in the situation, there were some patients with unfortunate outcomes that testified on Friday; one of the common themes though across the number of patients were, they were treated on older generation technology with fixed optical zone at 6 millimeters and they had large pupils. We know those are patients that are greater risk of clear or night vision halo problem and we haven’t been treating those patients on that particular laser platform for eight years. So I mean, so that one patient was from 1998 before the B&L laser was on the market. As you are aware the B&L laser has a variable optical zone that can be expanded out to 9 millimeters and it was pretty custom as well. I know that AMO has said that their custom VISX platform does not have the same exposure to glare halo problems as the prior generation traditional platform, so technology has changed that doesn’t change the lives of the folks ho have had unfortunate outcomes and their stories are emotionally compelling, so I am not going to major conclusion off the data point of one days worth of data, but it is something that is a potential risk to the industry and to our company and we just have to do a good job communicating why picking an experienced surgeon with the full range of technologies is a safe choice and it’s a good choice for them to make and let them place their trust on us for their vision.

Steven Straus

Regarding your question on technology, our business model is designed to accommodate a variety of technologies and like the past if we choose to adopt or change technology going forward you will find us to do it very cost effectively.

David Maris – BAM

Then just as a follow-up to that first question, volumes in March versus February and April versus the first quarter; are you are seeing continuation of the softness or has there been rebound.

Steven Straus

We have not seeing any rebound to this point…

Operator

And at this time, I do show there are further audio question in queue. Are there any closing remarks?

Steven Straus

I think I’ll make a few final comments. In closing I would like to repeat what we stated in this morning new release. Although our first quarter financial results don’t reflect the expected benefit improvements we are implementing, I firmly believe that LCA-Vision has the right strategy, the right business model, the right balance sheet, the right focus along with the right Vision Center Teams and the right management team to create long-term sustainable shareholder value as well as employee and patient satisfaction. I remain positive about our short and long-term business prospects. Thank you.

Operator

Thank you. This concludes today’s LCA-Vision first quarter 2008 financial results conference call. You may now disconnect.

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