LCA-Vision Inc. Q1 2010 Earnings Call Transcript

| About: LCA-Vision Inc. (LCAV)


Q1 2010 Earnings Conference Call

April 27, 2010 10:00 AM ET


Jody Cain – IR, Lippert/Heilshorn & Associates

Mike Celebrezze – CFO

Dave Thomas – COO

Bharat Kakar – VP, Marketing


Andy O'Hara – William Blair

Steve Willoughby – Cleveland Research

Anthony Vendetti – Maxim Group


Welcome to the LCA-Vision 2010 first quarter conference call. At this time all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded today, April 27, 2010.

I would now like to turn the call over to Ms. Jody Cain. Please go ahead, ma’am.

Jody Cain

This is Jody Cain with Lippert/Heilshorn & Associates. Thank you for participating in today’s call to discuss the LCA-Vision’s 2010 first quarter financial results and business update.

Joining me from LCA Vision are Michael Celebrezze, Chief Financial Officer; David Thomas, Chief Operating Officer and Bharat Kakar, Vice President of Marketing.

I would like to remind listeners that comments made during this call will include forward-looking statements within the meaning of Federal Securities Laws. These forward-looking statements involve risks and uncertainties that could (inaudible) results to be materially different from any anticipated results. For a list and description of those risks and uncertainties, please review LCA-Vision’s filings with the Securities and Exchange Commission.

Please note that the content of this call contains time-sensitive information that is accurate only as of today, April 27, 2010. 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.

Now I’d like to turn the call over to Mike Celebrezze. Mike?

Mike Celebrezze

Thank you, Jody. Good morning, everyone, and thank you for joining us. I’d like to welcome Bharat Kakar to this quarter’s call. In a few minutes he will be providing an overview of our marketing activities.

We’re encouraged by the positive results from our actions to improve our business in the current economic environment while building a platform for future success and profitability. As previously discussed we are focused on three business priorities namely cash conservations, patient acquisition and retentions and organizational effectiveness, and our actions under these priorities are tied to performance measures.

Our procedure volume and operating results continue to be adversely affected by the general economic slowdown and the associated decline in consumer confidence levels and high-end discretionary expenditures for many consumers. Despite these difficulties as a direct result of previously instituted cash conservation measures, we are reporting a positive operating cash flow for the quarter. The cash flow statement shows a $6.3 million negative change in cash but this includes our transfer of more than $8 million from cash to investment accounts. So our total cash and investment balance actually increased by $1.7 million during the quarter.

We ended the quarter with more than $56 million of cash and investments. We also reduced our adjusted operating loss by $4.7 million from the 2009 first quarter despite performing 32% fewer procedures. Later in the call Dave will discuss improvements in key operational metrics that we attribute to patient acquisitions and organizational effectiveness measures.

We recently received some good news. The class-action lawsuit filed against the company in 2007 has been dismissed. You may recall that in March 2009 the US district court for the Southern District of Ohio in a summary judgment dismissed all claims in the suit with prejudice. The lead plaintiff in this action (inaudible) subsequently filed a motion with the court for reconsideration. The court denied this motion last November and the plaintiff filed an appeal the following month with the U.S. Court of Appeals for the sixth circuit. This appeal was voluntarily dismissed in January 2010.

Many of you are probably wondering about the impact of the new healthcare legislation on our business, some of which is yet to be determined. Under the current legislation framework, LASIK remains a reimbursable expense under flexible healthcare spending accounts. However, the major impact item from the new law is that the annual maximum limits for flexible spending account will be reduced from $5000 to $2500 in 2013. As such patients will not be able to cover the entire procedure cost with pretext FSA money, which may negatively affect our business. Additionally, like other employers we are likely to see an increase in our health insurance costs as well.

Now I’d like to review our 2010 first quarter financial results. As in the past we are providing both GAAP and adjusted revenues and operating loss as a means of measuring performance. The adjusted results account for the non-cash impact of the accounting for separately priced extended warranties. A reconciliation of revenues and operating loss as reported in accordance with GAAP is provided at the end of the news release we issued this morning. For the first quarter of 2010, revenues were $34 million compared with $47.9 million for the 2009 first quarter and adjusted revenues were $32.3 million compared with $44.9 million for the 2009 first quarter.

We performed 1956 procedures at 62 vision centers during the 2010 first quarter compared with 27,859 procedures at 75 Vision centers during the 2009 first quarter. We attribute the lower procedure volumes to a 37% year-over-year decline in preoperative appointment bookings which we believe is primarily due to reduced consumer confidence, a 40% year-over-year decline in spending on marketing activities and a decrease in the number of vision centers from 75 to 62.

Same store revenues decreased 23% for the first quarter while adjusted same store revenues decreased by 22%. We reported an operating loss of $681,000 and adjusted operating loss of $2.2 million for the 2010 first quarter. Operating loss and adjusted operating loss included $1.3 million from the gain on the sale of equipment and $338,000 in restructuring charges including charges related to the previously announced closure of one vision center in January.

In the 2009 first quarter we reported an operating loss of $4.2 million and adjusted operating loss of $6.9 million, which included $916,000 in restructuring and $804,000 in consent revocation charges.

Medical professional and license expense decreased by $2.4 million or 23% from the first quarter of 2009. The decrease is primarily due to lower laser use fees and physician fees associated with lower revenues. Direct costs decreased by $4.7 million for 26% compared with the prior year. This decrease was principally the result of expense reduction made as a result of lower procedure volume.

General and administrative expenses decreased by $629,000 or 40% from the first quarter of 2009 resulting primarily from headcount reductions and lower professional services and contract services. Marketing and advertising expenses of $7.9 million decreased $5.2 million or a 40% compared with the prior year. Net investment income increased by $328,000 primarily due to an unrealized loss on investment in the first quarter of 2009 that did not recur in 2010. For the first quarter of 2009, we had $1.5 million in income tax benefits. For 2010 we are affirming our expectation that our effective tax rate this year will be around 1% and we will receive a federal tax refund during the second quarter of 2010 of $10 million to $11 million. The effective tax rate for the first quarter of 2010 was 11%, but the tax amount was minimal at $59,000.

For the quarter, we reported a net loss of $554,000 or $0.03 per share compared with a net loss of $2.8 million or $0.15 per share for the first quarter of 2009. Cash and investments totaled at $56.3 million at March 31st, 2010 an increase of $1.7 million and $54.6 million as of December 31st, 2009. During the first quarter, we paid $2.1 million of debt service.

Our average per procedure price excluding the impact of deferred revenues was $1,694, this is down $25 from the 2009 fourth quarter and up $84 from the 2009 first quarter. We attribute the sequential declines and increased contribution from our managed care relationships that generally receives a 15% discount.

We anticipate an additional decline in the average revenue per procedure in the second quarter due to a network-wide 15% procedure discount promotion that we implemented in an effort to drive more traffic to LasikPlus.

Internally, finance patient accounts receivables ended March at $4.5 million compared with $5.4 million as of December 31st, 2009. Bad debt expense for the first quarter of 2010 was 2.4% of revenue compared with 2.5% in the 2009 fourth quarter and 2.6% for the full-year 2009. The percentage of revenues financed by CareCredit were consistent with last year.

I would now like to turn the call over to Dave Thomas.

Dave Thomas

Thanks Mike. The first quarter has historically been our seasonally strongest as patients take advantage of flexible spending dollars and yearend bonuses for the year just ended. This year was no exception. Our first quarter procedure volume increased 63% sequentially from the 2009 fourth quarter which compares favorably with the 43% increase in the 2009 first quarter compared with the 2008 fourth quarter.

We were impacted by harsh weather conditions at centers in eastern cities during the quarter. However, our call center staff successfully rescheduled many of the missed appointments. Although market scope has yet to report based on data on other industry sources, we believe we grew market share in the first quarter compared with the fourth quarter. Given our consumer marketing emphasis, we typically grow share in the first quarter as we attract savvy, flexible spending consumers.

As we have said in past calls, consumer confidence correlates fairly closely with procedure volumes for LCA-Vision and throughout the laser vision correction industry. Preliminary results from the April Reuters University of Michigan Consumer Sentiment Index are not encouraging with future expectation showing a decline from already low levels in March and February.

We use the future expectation index among other factors in an attempt to align marketing expense with consumer demand and a low levels in the first quarter contributed to our decision to reduce marketing expense to $7.9 million from our previously announced projections of $9 million. We lowered marketing expense per procedure to $413 from $468 for the 2009 first quarter and $493 in the 2009 fourth quarter. Importantly, during the first quarter, we saw some improvement in key business metrics, which we attribute mainly to our operational efficiency and patient acquisition measures. Appointment show rates and treatment show rates improved both sequentially and year-over-year and conversion rates increase sequentially.

To touch on a few of our operational efficiency measure, we implemented our business intelligence dashboard which allows our Regional Directors and Center Directors real-time assessments of each metric at each business center from initial patient call through the entire LASIK treatment process.

We recently conducted a leadership training sessions for our regional and other key Directors and we also held a training program for new LasikPlus Optometrist and our Optometric Advisory Board. Our optometrist like our service rep have an elevated role within our organization as they are often the first point of patient contact.

We are gaining important insights from our expanded Leadership Advisory Committee which now includes a three surgeon Executive Medical Director team. Moreover, our surgeons have recently collaborated on cutting edge research involving prospective analyses of surgical outcomes in order to refine treatment option.

LCA surgeons will present results from an advanced multi-finish study of modern laser vision correction outcomes that is unprecedented in the US at this year's American Academy of Ophthalmology Annual Meeting in October.

Additionally, we are taking actions to improve our call center operation. Our call center is now under the direction of a newly hired Call Center Director, which brings extensive retail experience in customer-centric sales approach. We are moving away from the use of written scripts by call center reps to a more consulting approach. We are creating a database of excellence. This data base will include recordings of best-in-class patient interactions that we will use as a continuous improvement tool. And our customer service reps have been directed to book appointment in shorter timeframes, which is improving our appointment entries and show rates.

Our managed care business continues to perform very well, which is somewhat expected given the employment status of managed care members. We are capitalizing on this trend by dedicating additional resources to managed care such as outbound contact from our call center to managed care members and we are considering additional action.

Now, I will provide an update on several ongoing innovative programs. Insured Lasik, which offers patients up to a $600 benefit in addition to the customary discount. Currently includes about 150,000 covered live and we treated 39 eyes during the first quarter.

With our Delta Airlines Sky Miles Partnership, which provides frequent flyer miles to members who book appointments and additional miles to those who have the procedure, we performed 367 procedures in the first quarter, up from 318 in the fourth quarter. Under our lifetime fitness program, which provides members reduced out of pocket cost, we performed 243 procedures, up from 165 procedures for the fourth quarter with all operational metrics exceeding company averages. We look forward to announcing more partnership programs going forward.

Also, we announced last December that we had joined forces with the Wounded Warrior Project. As of today, we have provided laser vision corrective surgery at no cost to six wounded US military veterans and one primary caregiver under an initial pilot program. All are extremely satisfied with our service and their outcome. We are delighted to be working with the Wounded Warrior Project and look forward to sharing experiences from this program on our website and in our LasikPlus vision centers.

Turning to our Advanced Eye Health Analysis or AEHA, we continued testing this program in 14 LasikPlus Centers. We have now replaced the more expensive original equipment in all 10 centers with newer equipments that caused only about 10% of the original equipment cost. Given the equipment swaps, we expect to continue testing this program into the second half of this year.

We also continue test marketing Latisse in 10 LasikPlus Vision Centers. We are charging $150 for the Latisse exam, which is free if the patient has the LASIK procedure. We will make a decision on Latisse also in the second half of the year.

With those comments, I would like to turn the call over to Bharat Kakar. Bharat?

Bharat Kakar

Thanks Dave. On the last quarter's call, we announced that we were embarking on a new marketing approach that includes targeting 30 to 45-year old with household income levels above $50,000 particularly those with active lifestyle. As a first step, we have completed extensive market research and analytical work with the advertising agency Element 79. We are now in the next phase, which is using this information to develop the messages, creative concepts, and media plans under our new theme Life in Focus. We plan to begin with a controlled rollout of our new messaging concepts during the second quarter and expect a full rollout in the third quarter. Meanwhile, we have instituted a 15% discount on procedures throughout our LasikPlus network to invigorate our business during the second quarter.

To support our next phase rollout, we conducted focus groups to test messaging concept across various mediums to determine attention index and purchase index. From our research, we learned that we are competing for customers’ dollars against spending decisions outside of laser vision corrections as well as against other LASIK providers. Our messaging tactic is to educate customers about the LASIK category and convince them of the life altering benefits of LASIK and then differentiate LasikPlus and tell them why LasikPlus is best choice for the procedure.

Our differentiation factors revolve around technology, doctors, and coverage and include the availability of the latest safest technologies for exams and procedures, the choice between multiple type lasers at each center to achieve the best outcomes, the extensive combined knowledge base and experience of our ophthalmologist and optometrist network, our nationwide coverage, our partnership with seven of the top health and vision plan providers, our lifetime satisfaction plan, and our commitment to the community through programs such as our Wounded Warrior Partnership. We will make full use of our media, call center, and vision center to educate customers about how we are differentiated from our competition.

We recently engaged Empower Marketing Media, a world class full service media and interactive agency to support our media placement and Internet strategies. Empower takes the quantifiable approach to media placement using metrics such as return on investment, which makes the group ideal for LCA-Vision and our focus on measureable results. Working with Empower we have segmented markets into four tiers based on the levels of competition within a market and at the same each LasikPlus Vision Center to a tier. Our media strategy for each market will be dictated by that centers to your assignments. This strategy is in keeping with our Think Global, Act Local mantra.

Empower is all also assisting us to evolve our Internet strategy to reflect a better balance between search engine marketing, which is advertising placements on the Internet and search engine optimizations, which makes LasikPlus information more readily accessible through Internet searches.

Additionally, we are working on a social media program to capitalize on word of mouth a main driver for LasikPlus. An e-mail with a share with your friends and family message will be sent to patients, so they can easily post positive LasikPlus experiences on websites such as Facebook and Twitter.

As discussed on last quarter's call, we conducted our first direct mail campaign with Merkle in January. We found that this campaign produced an average response and we are testing additional direct mail strategies beginning this quarter including multi-mailing programs to add frequency to the mix.

We continue to make progress revamping the LasikPlus website. We will be revising the content to align with our marketing creative and will be adding individual LasikPlus surgeon pages to provide patients with a human connection aimed at reducing preoperative fear. We are also adding a new Q&A section called myth busters that rebukes common misperceptions about LASIK.

Finally, we are testing alternative media and messaging and will be taking advantage of a program that advertises the best doctors in various airline magazines. Two of our ophthalmologists have been selected by independent third parties as the top doctors in America. We will be placing advertising profiling LASIK in the coming months in the Delta Airlines magazine that will prominently display our two ophthalmologists. Given our Delta partnership, we see this as a very productive way of reaching sky miles members.

I will now turn the call back to Mike.

Mike Celebrezze

Thanks Bharat. We are making progress with our center level profit improvement measures, which cover the full range of results including reducing expenses, increasing procedure price in certain markets, improving operational metrics, gaining marketing efficiency, and enhancing staff performance. We have a plan in place for each vision center that is tied to monthly actionable goals and we are achieving a level of success.

We are also seeing early success from licensing arrangements with our surgeons in Oklahoma City and Savannah to operate combination LasikPlus centers and private ophthalmology practices. Both centers provided positive EBITDA for the first quarter. This shared relationship defrays overhead expense making it a potential tactic for future expansion into markets that are too small to support stand-alone LasikPlus operations.

In reviewing our near-term financial outlook, we intend to continue to manage cash flow conservatively in the current year. We do not plan to open any new vision centers in the near term. We will consider restarting our de novo new center opening programs, when our cash flow improves.

We will continue to manage general and administrative expenses aggressively which we now expect will decline slightly in 2010 from 2009 levels. We expect center direct cost per center to decline modestly in 2010, compared with 2009. We expect the capital expenditures to be approximately $1.2 million in 2010. And as stated earlier, we anticipate an effective tax rate for 2010 of approximately 1%.

For the second quarter, we plan to spend approximately $6.5 million to $7.5 million on marketing. We expect a decrease in adjusted revenue per procedure, excluding the impact of deferred revenues to about $1,610 due to our 15% discount promotion. And we anticipate receiving during the quarter, our 2009 tax refund of $10 million to $11 million.

The number of procedures per vision center required to reach breakeven continues to be 95 per month. We also estimate that the number of procedures companywide per year required for breakeven cash flow, excluding any tax refunds and after capital expenditures and debt service is approximately 95,000. Importantly, we continue to believe that we have efficient cash and investments to last beyond 2012 at 65,000 procedures annually.

Our cash and investment position remains strong with more than $56 million and we are taking actions to improve our operations in the current economic environment and build a platform for growth and profitability when the economy improves. As always, we are dedicated to providing positive patient experiences and exceptional clinical outcome and earning trust every moment to build relationships for a lifetime.

With these comments, I would like to open the call to questions.

Question-and-Answer Session


(Operator Instructions).

David Thomas

While we are waiting for questions, I want to mention that Mike and I will be presenting at the Jefferies 2010 Global Life Sciences Conference being held June 8th through 10th in New York City. We look forward to see those of you in attendance and a webcast of our presentation will be posted to our website.

Operator, we are ready for the first question.


Our first comes from the line of Ryan Daniels with William Blair. Please state your question.

Andy O'Hara – William Blair

Hi guys, this is Andy O'Hara for Ryan today. Just a couple quick questions on the 15% network-wide discount. So far in April, I was wondering what kind of traction you guys have seen with this discount. And then a follow-up to that would be, is there any possibility of extending that beyond the second quarter?

Mike Celebrezze

This is Mike. It’s probably too early to call April as to whether or not that the discount is going to have a impact or not. Obviously we anticipate that we will get some lift from it or we wouldn’t be doing it. But it would be early to call the numbers.

Our current plan is to have the – the program expire at the end of June and we may replace it with other promotional programs. But if you remember what Bharat was saying, we are using this as a bridge to drive traffic during the second quarter.

The team is completing their new creative and their new placements for what’s we anticipate to be an improved message to our target consumers that we have recently identified as a slightly different group than the past.

So while we are finalizing that material, we are using a direct response type of promotion to drive additional traffic.

Andy O'Hara – William Blair

Okay, thanks. And then just another follow-up on the marketing initiatives. The more normalized environment – do you guys have a sense for what the marketing spend per procedure will be?

Mike Celebrezze

Yes, it’s Mike again. I mean, we – it’s really hard to call that as well. If you look at our history, I mean we have had some quarters where we had very low marketing cost per eye and we have had some that have exceeded $500, et cetera. We strive for efficiency, we are targeting, trying to get in the $400 range.

In the current environment, we don’t think we can get there. We don’t anticipate being there in the second quarter for example. But we were pleased with the $413 performance per eye in the first quarter and we do believe though that given the headwinds that we are facing that is going to be difficult to replicate that type of performance.

Andy O'Hara – William Blair

Okay, sure. Okay, and then just one final one here. You guys said you have rescheduled many of the appointments that were canceled due to the weather. Can you qualify that a little bit further, roughly what percentage are we talking?

David Thomas

Yes, we were able to get about 50% or so of those folks into our centers. And the part of their problem is is the weather made it difficult for people to get to the centers. So we made a concerted effort to make every attempt to get people to come back. And again with no effort, nothing would have happened. So we think we did well in getting what we got.

Andy O'Hara – William Blair

Okay, great, thanks guys.


Our next question comes from the line of Steve Willoughby with Cleveland Research. Please state your question.

Steve Willoughby – Cleveland Research

Hi good morning, thanks guys. Just wondering if you were able to quantify what the impact on the quarter was from the lost procedures I would guess in February. And then if you can maybe also talk about how trends rebounded in March, if they were in line with your expectations and then also maybe here in April so far as well?

Mike Celebrezze

Okay, this is Mike again. It’s impossible to quantify the exact impact of the weather, because we believe, for example, the phone wasn’t ringing as much because people were just showing the driveways or whatever they were doing. We do believe that we were able to reach back and capture a fair number of the patients that had called that didn’t show up. But as the ones that didn’t call that we really can’t measure.

We did see some rebound in March, so that does sort of speak of the fact that yes, there was a decline in February, so March was stronger than February. And pretty close to what we had expected March to be. April is starting out kind of where we would expect it to be. Remember, our business closely tracks with consumer confidence. And consumer confidence is still quite low. We are pleased that our same-store revenues, I guess shrunk less than they did in the fourth quarter and that gives us some optimism that that gap is starting to close.

But the gap has closed not all the way and consumer confidence hasn’t improved to an extent where we would expected to do so. But we are taking every action we can to continue to improve the performance of our vision centers. And we are starting to get some optimism out of the media at least in terms of general economic condition. But it hasn’t yet translated into full recovery in our business as it’s demonstrated by our divisional decline or a reduced decline in our same center procedure buying.

Steve Willoughby – Cleveland Research

Okay, that makes sense. And then a question on the discount this quarter, I guess I was surprised at what the 15% would mean in terms of your ASP. I believe you said around $1,610 for the second quarter is kind of what you are pegging at. Is that right?

Mike Celebrezze

Yes, that’s correct.

Steve Willoughby – Cleveland Research

And then, I guess with it, what percent of your business today is managed care where you have been providing a similar type discount in the past?

Mike Celebrezze

Okay. We don’t disclose the breakdown between the different media or the different patient sources. But I guess it’s important to understand that first of all, the managed care patients were getting 15%. Now they will get 5%. So they get 5% on top of this promotional prices generally and 15% off lift. So they will get an additional discount. But many of our other patients are provided in-center discounts as well. So we won’t see a 15% reduction in our average price, because some of our patients are already discounted in the managed care and others. We feel pretty safe with the $1,610.

Steve Willoughby – Cleveland Research

And then one final question for Dave. I am kind of curious regarding the negative impact we saw from the weather in the quarter. How were your conversion metrics able to improve both sequentially and year-over-year and do you think those trends are sustainable going forward?

Dave Thomas

Well, I think that what we have done really is worked more on the engagement with our patients. And so, what we go into the center is we did a lot better with. But a lot of that has to do with some additional training and work that we have done with our center personnel. If you remember, we strategically changed some responsibilities with Marcello Celentano and Dr. Jason Schmidt and recently the work with those two gentlemen have come to fruition. We have done a wonderful job in terms of getting our ODs more adept at being able to really do well and align with patients and convert them. So we believe that this is something that we will continue to keep getting better at and moving forward with.

One other piece as we talk about again this issue of the February impact, we lost 17 vision center days during that time period. So I think you also have to understand that we were literally not open for business. And so, we lost that amount of impact on the business.


(Operator Instructions) Our next question comes from the line of Anthony Vendetti with Maxim Group. Please state your question.

Anthony Vendetti – Maxim Group

Thanks. Just in terms of the asset sales, this quarter – is that from – is that old LASIK machines, what were the sales for this quarter and do you expect that to be just onetime event this year or are there asset sales?

Mike Celebrezze

Okay, it’s a good question. We have – we closed about 10 vision centers in the fourth quarter and one of which fell over January. And we had a excess laser equipment. So we sold some of the lasers that we had. Remember we own the LASIKs and the Intralase. The Alcon WaveLight units are on operating leases. So for the centers that closed on the operating leases, we returned those assets but for the centers that – rather the lasers that we owned, we have a warehouse and we were able to sell a fair number of those lasers. We still have a handful of lasers in the warehouse. So you will see some asset sales traveling into future quarters. But we did move the bulk of them in the first quarter.

Anthony Vendetti – Maxim Group

Okay, so there might be some carryover into the next quarters?

Mike Celebrezze

Yes, there will be.

Anthony Vendetti – Maxim Group

Oh, there will be, okay? And in terms of closings, there weren't any in the first quarter, is that correct?

Mike Celebrezze

Well, it’s not quite correct but yes, it’s generally correct. We had the one center in California that we couldn’t get closed in December, that closed in January. But it was part of the fourth quarter program. So in our reports, we do report that one center closed in January but it was just the one that we didn't quite finish in December.

Anthony Vendetti – Maxim Group

And I know de novo opening schedule for this year but now that you are at 62 centers, is that program – the closing program pretty much complete or are you still looking at some underperforming centers that could be closed this year?

Mike Celebrezze

We don’t want to say that there is a guarantee that we won’t close any more centers. We don't want to close vision centers. We would – our best option is to continue to have all vision centers open and as the economy improves, be able to drive profits to our vision centers. We have an ongoing program that entails analyzing the performance of all of our vision centers with particular emphasis on ones that are making the least amount of money that involves a full analysis of their operating expenses every month, their marketing performance, the staff performance, the operating metrics, price, competitive pricing and those efforts have really helped us to improve the profitability of many, many vision centers. There are still some vision centers that are underwater, not material issues but we still have some opportunity to continue to improve the performance of some of our vision centers. But as of right now, we have no plans to close centers right now but if we can't get these centers to profitability, we will have to consider that option in the future.

Anthony Vendetti – Maxim Group

Okay, so some of the centers still are below the 95 per month necessary to get to breakeven, you got programs in place to try to improve that at this point.

Mike Celebrezze

Yes, and those programs are effective.

Anthony Vendetti – Maxim Group

Okay. And you had said for some of the centers you were considering, I think you mentioned this during the third and fourth quarter, considering leasing them or licensing them to a – back to a ophthalmologist, is that still being considered if – is that happening at any – to any extent?

Mike Celebrezze

It is being considering and it is happening, not to a great extent. We have licensed two visions centers to ophthalmologists so far. In the fourth quarter, we licensed our Oklahoma City center to our surgeon there and that was our first test and it turned out great, a positive EBITDA from that center.

In the first quarter, we licensed our Savannah center to our surgeon in Savannah and that center is producing positive EBITDA for us. Both centers were loser for us prior to the change.

So as kind of learn from these two test centers, we will consider this as a potential option to expand our business into B-markets or smaller markets, but can’t drive enough volume for our LASIK plus center. And we will continue to consider it as an option for underperforming vision centers if we want turn them around.

Anthony Vendetti – Maxim Group

Okay. Are there any of the ophthalmologist based on the downturn in the economy, they are unhappy with their current situation, are any of them causing problems in the sense of trying to get out contracts, you are having to replace some, anything going on there that’s a little bit more than the norm?

Dave Thomas

Actually I am very pleased to say that after we established our executive medical director team, our relationships with the surgeons is extremely good right now. We are bringing them into the fall, they are participating as Mike talked about these meetings that we do, we do a rigorous analysis of our different centers and their performance. We have an EMD member, executive medical director that participates in that. And then we monthly have a separate meeting with them. We are regular communications with them to make sure that we are having dialog with them. And I can tell you that specifically one of key executive medical director said the surgeons are very pleased and happy with what’s going on right now. So that’s something that we feel very proud of right now.

Anthony Vendetti – Maxim Group

Are there any ongoing law suits between the ophthalmologist and LCAV at this time or no?

Mike Celebrezze

There is one.

Dave Thomas

Yes, we do have one in Wisconsin through the former ophthalmologist and that is an ongoing situation. So I couldn't get under details on that but we do have one that –

Mike Celebrezze

I think there is another one too, former ophthalmologist. I don’t know if we have been sued but there has been a – there is a claim. These are wrongful discharge type employment matters, nothing we could speak about at this time.

Anthony Vendetti – Maxim Group

Okay. And then lastly, in terms of visibility, I know it’s tough but still with the economic environment we are in and still consumer confidence being shaky or still low as you were saying, is visibility still difficult at this point? Do you feel that procedure volume is still deteriorating or do you feel like it’s stabilized? Any comments on the overall market?

Mike Celebrezze

Yes, it’s Mike. I will comment first. Our visibility still remains about 30 days, Anthony. So it’s really to try to – we would love to be able to give you great guidance and tell exactly what's going on. But we don’t have great visibility. So it doesn’t make sense for us to give guidance on something we are not certain of. So we don’t have the visibility that we would wish – we all wish we would have. We are continuing to monitor the consumer confidence index, which is still quite distressed. At the same time we are continuing to take actions to improve our business, including the changes we are making in the marketing area, our changes to improve the performance in our call center, some of these service expansion tests that we are running. So we are working hard to try to continue to improve the business and we are optimistic about the future but we don’t have good data to be able to present to you yet today.


At this time there are no further questions. I will turn the conference back over to management for any further remarks.

Mike Celebrezze

Thank you for joining us this morning. We are making progress with actions to support improved operations in the current economic environment while positioning LCA Vision for growth and profitability when the economy improves. We look forward to providing a progress report on our next conference call. Have a great day.


Ladies and gentlemen, this does conclude today’s conference. Thank you for participating. You may now disconnect.

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