LCA-Vision second-quarter revenues decrease to $26.3 million

LCA-Vision Inc.Jul 27 2010

LCA-Vision Inc. (Nasdaq: LCAV), a leading provider of laser vision correction services under the LasikPlus® brand, today announced financial and operational results for the three and six months ended June 30, 2010.

Second Quarter 2010 Operational and Financial Highlights (all comparisons are with the second quarter of 2009)

• Revenues were $26.3 million compared with $31.7 million; adjusted revenues were $24.7 million compared with $29.4 million.
• Procedure volume was 15,266 procedures (62 vision centers) compared with 17,864 procedures (71 vision centers) and 16,144 same-store procedures.
• Same-store revenues (62 vision centers) decreased 9.2%; adjusted same-store revenues decreased 7.3%.
• Operating loss was $5.4 million compared with operating loss of $11.8 million; adjusted operating loss was $6.8 million compared with adjusted operating loss of $13.9 million.  The significant improvement in operating loss and adjusted operating loss for the second quarter of 2010 reflected the impact from the closure of under-performing vision centers, a reduction in direct costs per vision center, and lower marketing and general and administrative expenses.  Included in the second quarter of 2010 results was $0.4 million in restructuring and impairment charges, compared with $1.6 million in restructuring and impairment charges in the second quarter of 2009.
• Net loss was $4.3 million, or $0.23 per share, compared with net loss of $6.9 million, or $0.37 per share.

First Half 2010 Operational and Financial Highlights (all comparisons are with the first half of 2009)

• Revenues were $60.3 million compared with $79.6 million; adjusted revenues were $57.0 million compared with $74.2 million.
• Procedure volume was 34,332 procedures compared with 45,723 procedures and 41,635 same-store procedures.
• Operating loss was $6.1 million compared with operating loss of $16.0 million; adjusted operating loss was $9.0 million compared with adjusted operating loss of $20.8 million.  The $9.9 million improvement in operating loss for the first half of 2010 was a result of the closure of under-performing vision centers, lower direct costs per vision center, lower marketing expense, lower general and administrative expense, and less restructuring, impairment and consent revocation charges.  Direct costs per center were $70,000 per month for the first half of 2010 compared with $80,000 per month for the same period of 2009.  Marketing cost per eye decreased to $413 for the first half of 2010 from $492 for the same period last year.
• Net loss was $4.9 million, or $0.26 per share, compared with net loss of $9.7 million, or $0.52 per share.
• Cash and investments were $59.8 million at June 30, 2010, compared with $54.6 million at December 31, 2009.

Since the first quarter of 2007, LCA-Vision has provided both adjusted revenues and operating losses as a means of measuring performance that adjusts for the non-cash impact of accounting for separately priced extended warranties.  A reconciliation of revenues and operating losses as reported in accordance with U.S. Generally Accepted Accounting Principles (GAAP) is provided at the end of this news release.  Management believes the adjusted information better reflects operating performance and, therefore, is more meaningful to investors.

"Despite continued low consumer confidence and cautious discretionary spending that continues to adversely impact our business, we are reporting improved performance for the second quarter," said LCA-Vision Chief Financial Officer Michael J. Celebrezze.  "We reduced our operating loss as a result of actions to conserve cash and align expenses with anticipated demand.  We also generated $4.4 million in cash from operations during the quarter, which included the receipt of an $11.8 million tax refund related to the utilization of net operating losses generated in 2009.  Our cash and investment balances improved to approximately $60 million as of June 30, 2010, an increase of more than $5 million since December 31, 2009.

"We continue to evaluate all aspects of our operations to support our objective of managing them effectively.  As a result of our evaluation, we will be closing our vision center in Birmingham, Alabama.   In addition, we recorded contract termination costs resulting from the closure of our licensed operation in Savannah, Georgia because that location was unable to develop business sufficient to support the combined operation.  The licensing arrangement in Oklahoma City is progressing well, and we continue to believe this type of arrangement could play a role in our future expansion plans," he added.

Chief Operating Officer David L. Thomas commented, "We are reporting improvements in our year-over-year and sequential-quarter appointment show rate, conversion rate and treatment show rate.  Importantly, our second quarter operations yield, which measures our ability to convert the initial call to a treated patient, was higher than any quarter in the past three years.  Marketing spend per procedure in the second quarter of 2010 was $415, compared with $413 in the first quarter of 2010 and $531 in the second quarter of last year, as we held our quarterly marketing expenses to $6.3 million in our attempt to match spending with perceived consumer demand.

"We attracted increased traffic at our LasikPlus® vision centers during the second quarter through a network-wide 15% discount on procedure pricing.  As anticipated, this discount together with our strong managed-care business reduced adjusted price per procedure to $1,619, down $75 from the first quarter of 2010 and down $26 from the second quarter of 2009.

"We began rolling out our new 'Life in Focus' marketing campaign late in July.  This campaign is targeting demographic audiences we believe are most likely to be near-term candidates for laser vision correction surgery and clearly differentiates LasikPlus® from other laser vision correction providers.  We also continue to focus systematically on additional results-oriented measures to improve patient acquisition and operational efficiencies, as well as to enhance our patients' experience – all of which are aimed at supporting our business in the present environment while building a foundation for a strong future."

Near-term Financial Outlook

LCA-Vision intends to continue managing cash flow conservatively in 2010.  The company provided its plans and outlook for the year, as follows:

• The company does not plan to open any new vision centers in the near term.  LCA-Vision will consider restarting its de novo new center opening program when market conditions improve.
• The company will continue managing general and administrative expenses aggressively, which it expects will decline between 5% and 10% in 2010 from 2009.
• The company expects direct costs per center to decline in excess of 10% in 2010 from 2009.
• The company expects marketing and advertising spend for the 2010 third quarter to range from $6 million to $7 million.
• The company expects capital expenditures of $1.2 million in 2010 for vision center renovations and equipment replacement.
• The company anticipates an effective tax rate of approximately 1% for 2010 driven in part by a full valuation allowance on net deferred tax assets.

As a result of aggressive efforts to reduce costs, the company's improved cash position and a reduction in the number of vision centers, LCA-Vision has revised its estimated number of procedures companywide required for breakeven cash flow, after capital expenditures and debt service, to approximately 85,000 per year, compared with 95,000 previously.  The company now believes that it has sufficient cash and investments to fund its business beyond 2012 if it performs at least 61,000 procedures annually, compared with 65,000 previously.  The number of procedures per vision center required to reach breakeven remains at 95 per month.

The company has placed its priorities on cash conservation, organizational development, and patient acquisition and retention.  The company also is evaluating opportunities for business expansion that could facilitate growth.  These opportunities include additional service and product options that both complement LCA-Vision's existing business and heighten the company's involvement in the eye care sector.