LCA-Vision third quarter net loss decreases to $8.4 million

Oct 26 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 nine months ended September 30, 2010.

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

• Revenues were $20.3 million compared with $27.6 million; adjusted revenues were $18.8 million compared with $25.7 million.
• Procedure volume was 11,497 procedures (62 vision centers), compared with 15,335 procedures (71 vision centers) and 14,068 same-store procedures.
• Same-store revenues (62 vision centers) decreased 19.3%; adjusted same-store revenues decreased 18.3%.
• Operating loss was $8.5 million compared with operating loss of $10.4 million; adjusted operating loss was $9.8 million compared with adjusted operating loss of $12.1 million.  The reduced operating loss and adjusted operating loss reflected the impact from closing under-performing vision centers in 2009, a reduction in direct costs per vision center, and lower marketing and general and administrative expenses.  Direct costs per center for the 2010 third quarter averaged $63,000 per month, compared with $71,000 per month for the same period of 2009.  Included in the 2010 quarter were $1.8 million in impairment and restructuring charges and $266,000 in gain on sale of assets, compared with $4.4 million in impairment charges and $10,000 in gain on sales of assets in the corresponding 2009 quarter.  
• Net loss was $8.4 million, or $0.45 per share, compared with net loss of $19.9 million, or $1.07 per share.

Year-to-Date 2010 Operational and Financial Highlights (all comparisons are with the first nine months of 2009)

• Revenues were $80.6 million compared with $107.2 million; adjusted revenues were $75.8 million compared with $100.0 million.
• Procedure volume was 45,829 procedures, compared with 61,058 procedures and 55,703 same-store procedures.
• Operating loss was $14.6 million compared with operating loss of $26.4 million; adjusted operating loss was $18.9 million compared with adjusted operating loss of $32.9 million.  The reduced operating loss and adjusted operating loss resulted from closing under-performing vision centers, lower direct costs per vision center, lower marketing expense, lower general and administrative expense, and lower restructuring, impairment and consent revocation charges.  Direct costs per center averaged $67,000 per month for the first nine months of 2010 compared with $76,000 per month for the same period of 2009.  Marketing cost per procedure decreased to $421 for the first nine months of 2010 from $459 for the same period last year.  Operating loss and adjusted operating loss for the 2010 period included $2.5 million in impairment and restructuring charges and $1.6 million in gain on sale of assets, whereas the 2009 period included $6.9 million in impairment and restructuring charges, $804,000 in consent revocation solicitation charges and $26,000 in gain on sales of assets.
• Net loss was $13.3 million, or $0.71 per share, compared with net loss of $29.6 million, or $1.59 per share.
• Cash and investments were $56.4 million as of September 30, 2010, compared with $54.6 million as of 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.

"Consumer confidence during the third quarter declined to its lowest level in more than a year, negatively impacting procedure volume at LasikPlus® vision centers," stated Chief Operating Officer David L. Thomas.  "That said, our actions during the past year to maximize our business results in this very challenging economic environment have led to sustained improvements in key operational metrics.  Appointment and treatment show rates have been higher during the past three quarters compared with the prior year, and our conversion rate has shown substantial year-over-year improvement for the past two quarters.  Patient satisfaction, as measured by an independent customer survey, is very high, which is important because word-of-mouth referral is a considerable source of new patients."

Marketing expenses for the third quarter of 2010 were $5.1 million, down from $6.3 million in the preceding quarter, as spending was severely limited during July prior to rolling out the new 'Life in Focus' marketing campaign.  Marketing cost per procedure for the third quarter was $444, up from $413 and $415 for the first and second quarters, respectively, due mainly to lower demand for laser vision correction services.  Adjusted price per procedure for the third quarter increased to $1,634, up $15 from the second quarter, even with the strong contribution from the company's managed care business and a 15% network-wide discount that was reinstituted mid-quarter to support the launch of the new marketing campaign.  

"We have numerous activities underway to improve patient acquisition, including directing more of our marketing focus toward promoting our surgeons within their local markets," Thomas said.  "To this end, we have increased local print and radio advertising and are now profiling surgeons and optometrists at each LasikPlus® vision center on our recently launched, fully revamped website.  We also recently engaged a public relations agency to develop a promotional template that can be implemented in local markets throughout our LasikPlus® network.  Additional marketing activities include expanding efforts to develop affinity relationships with corporations and unions, as well as organizations whose members fit our demographic targets.  Our program with the Wounded Warrior Project and Fisher House to treat wounded veterans and their caregivers is garnering media attention that supports patient acquisition and enhances our corporate image."

LCA-Vision Chief Financial Officer Michael J. Celebrezze said, "As a result of efforts to balance operating costs and revenue generation at the center level, we have decided to consolidate center operations in four markets, and are closing centers in four additional markets.  We expect to record a charge of $4.3 million in the fourth quarter related to seven of the center closures in mid-December, with the eighth closure scheduled for April 2011 when that center's lease expires."

With the closing of these eight centers, the company expects the number of procedures companywide required for breakeven cash flow, after capital expenditures and debt service, to be approximately 73,000 per year, compared with 85,000 previously.  The company believes that it has sufficient cash and investments to fund its business beyond 2012 if it performs at least 52,000 procedures annually, compared with 61,000 previously.  The average number of procedures required for each vision center to reach breakeven remains at 95 per month.

"While we focus on improving our current and future laser vision correction operations, we also are making tangible progress in activities to diversify into related eye health businesses," added Celebrezze.  "Our objective in expanding our business model is to capitalize on our talented staff and our multi-site operations to support future growth and profitability, as well as to mitigate exposure to economic downturns.  We are currently rolling out a program to sell eye drops throughout our LasikPlus® network, following successful testing at several vision centers.  Eye drop sales are expected to generate modest revenue in future quarters.  This month, we began testing eye exams in several markets, incorporating the knowledge we gained from similar tests earlier this year.  This is an important program that could support future eye health expansion opportunities."

Near-term Financial Outlook

LCA-Vision intends to continue managing expenditures conservatively in 2010.  The company's plans and outlook for the year include:

• 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; it expects these will decline approximately 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 fourth quarter to range from $5 million to $6 million.
• The company expects capital expenditures of $1.2 million in 2010 for vision center renovations, relocations 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.

SOURCE LCA-Vision Inc.