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LCA-Vision Reports Third Quarter 2008 Financial Results

CINCINNATI, Oct. 28 /PRNewswire-FirstCall/ -- LCA-Vision Inc. (Nasdaq: LCAV), a leading provider of laser vision correction services under the LasikPlus(R) brand, today announced financial and operational results for the three months and nine months ended September 30, 2008.

Third Quarter 2008 Financial & Operational Results (all comparisons are versus the third quarter of 2007)

-- Revenue was $37.4 million compared with $74.6 million; adjusted revenue was $33.0 million compared with $66.9 million.

-- Procedure volume was 21,484 compared with 44,547.

-- Same-store revenue decreased 52.4%; adjusted same-store revenue decreased 53.5%. There were 68 vision centers included in same-store revenue.

-- Operating loss was $6.2 million compared with operating income of $14.1 million; the adjusted operating loss was $10.1 million compared with adjusted operating income of $7.2 million.

-- Net loss was $4.7 million or $0.25 per diluted share, compared with net income of $10.0 million or $0.51 per diluted share.

-- Opened new LasikPlus(R) vision centers in Nashville, Tennessee and Arlington, Texas and relocated LasikPlus(R) vision centers in Raleigh, North Carolina, and Orlando, Florida.

Year-to-Date 2008 Financial & Operational Results (all comparisons are versus the first nine months of 2007)

-- Revenue was $171.1 million compared with $222.9 million; adjusted revenue was $156.2 million compared with $221.8 million.

-- Procedure volume was 95,729 compared with 152,316.

-- Operating income was $1.4 million compared with $39.7 million; the adjusted operating loss was $12.1 million compared with adjusted operating income of $38.7 million.

-- Net income was $1.6 million, or $0.09 per diluted share, compared with net income of $28.4 million, or $1.41 per diluted share.

LCA-Vision is providing adjusted revenue and operating income as a means of measuring performance that adjusts for the non-cash impact of the accounting for separately priced extended warranties. A reconciliation of revenue and operating income (loss) as reported in accordance with Generally Accepted Accounting Principles (GAAP) is provided on the last page of this news release. Management believes the adjusted information is more reflective of operating performance and, therefore, more meaningful to investors.

"As previously announced, declining appointment volume led to a 52% decrease in total procedure volume for the third quarter of 2008, compared with the third quarter of 2007," said Steven C. Straus, Chief Executive Officer of LCA-Vision. "That said, we saw modest improvements in appointment show rates, conversion rates and treatment show rates in this year's third quarter compared to the second quarter, which we attribute to the implementation of business initiatives aimed at driving procedure volume.

"We also reported a $100 decline in our average price-per-procedure, excluding the impact of deferred revenue, compared with the second quarter of this year. The decline reflects the rollout of market-level pricing in July. An evaluation of this pricing program indicates that it has produced mixed results, with favorable changes in conversion in some markets and less effect on conversion in other markets. We have modified the pricing in those markets that were found to be inelastic, which is expected to result in an overall increase in average price-per-procedure in coming periods. We will monitor the relationship between price and conversion in each market on a monthly basis and make adjustments as appropriate to maximize revenue.

"In the third quarter, we reduced our media expenditures to $8.3 million, or by 46% as compared with the 2008 second quarter, as we aligned spending with the current tightening we are seeing in discretionary consumer spending. The resulting benefit was a marketing-spend-per-procedure saving of 25% to $386, compared with $514 in the 2008 second quarter," he said. "Our media programs are being consolidated under a proven, single lead agency with relevant industry experience to better integrate various marketing programs and leverage the best of our marketing agency partners. As part of this strategy, market research is currently being conducted. Our re-engineered program is designed to assist in maximizing our marketing and procedure volume results, with a goal of continuing to improve our marketing-spend-per- procedure over time. We expect marketing expenses for the fourth quarter of 2008 in the $8 million to $9 million range.

"During the third quarter, we opened new LasikPlus(R) vision centers in Nashville, Tennessee and Arlington, Texas, and relocated existing centers in Raleigh, North Carolina, and Orlando, Florida," said Mr. Straus. "In October, we closed our vision center in Boise, Idaho after a year of operation, and we recently converted our vision center in Alpharetta, Georgia to a pre-operation / post-operation facility, with actual procedures to be performed at the three other nearby LasikPlus(R) vision centers in Atlanta. These decisions were based on a number of factors that included an evaluation of the anticipated timing of improvement in procedure volume and the extent of that improvement, as well as the costs associated with center closing. We expect to report a charge of $600,000 related to the Boise center closing in the fourth quarter of this year. We will continue to monitor the financial performance of all vision centers on a monthly basis."

LCA-Vision's Interim Chief Financial Officer Michael Celebrezze commented, "Our cost control and cash conservation measures are having the desired results as we continue to take actions that we believe are prudent given the current economic environment. Among these, we reduced headcount in the vision centers, national call center and corporate office during the quarter, reduced marketing expense significantly, and are reducing costs in all other discretionary areas. Capital expenditures are being minimized by halting new center openings and center relocations for the rest of 2008 and dividend payments for the time being. Working capital is also being closely managed. During the third quarter we adjusted payment terms with most vendors to 30 days and generated $4.5 million of cash through accounts payable management. As we have reduced expenses and spending to a low level, cash flow in the fourth quarter and beyond will largely be dependent on the level of procedure volume and changes in working capital."

Cash & Investments

Net cash provided by operating activities in the first nine months of 2008 was $9.9 million. Cash and investments totaled $67.1 million as of September 30, 2008, compared with cash and investments of $62.4 million as of December 31, 2007, and $67.9 million as of June 30, 2008. In late April, the Company borrowed $19.2 million to finance the majority of its IntraLase(R) lasers. The loan requires monthly payments over a five-year period at a fixed interest rate of 4.96%. As of September 30, 2008, the remaining outstanding balance of this loan was $17.8 million.

The par value of auction rate securities as of September 30, 2008 was $6.2 million, compared with $18.3 million as of December 31, 2007. LCA-Vision redeemed $12.1 million of auction rate securities at par value during the nine months ended September 30, 2008 and has redeemed another $500,000 at par value since the beginning of the fourth quarter of 2008. Based on a valuation of the remaining auction rate securities, certain instruments with a par value of $2.3 million were deemed to have other-than-temporary impairment, and LCA- Vision has recorded a $1.1 million loss on these investments within the consolidated statement of operations as of September 30, 2008. The remaining portfolio of auction rate securities, with a par value of $3.4 million, was deemed to have temporary impairment; for these, LCA-Vision has recorded an unrealized loss of $220,000, or $132,000 on an after-tax basis, within other comprehensive income, a component of stockholders' investment, as of September 30, 2008. Due to the continuation of the unstable credit environment, the Company believes the recovery period for auction rate instruments will exceed 12 months. Accordingly, it has classified the fair value of the auction rate instruments that have not been redeemed subsequent to September 30, 2008, as long-term. The fair value and par value of the Company's long-term auction rate instruments were $4.4 million and $5.7 million at September 30, 2008, respectively.

Share Repurchase

LCA-Vision did not repurchase any shares of its common stock during the first nine months of 2008 under the $50 million share repurchase plan that the Board of Directors authorized in August 2007. Approximately $40 million remains available for repurchase under this plan.

Conference Call and Webcast

As previously announced, a conference call and webcast will be held today, Tuesday, October 28, 2008, beginning at 10:00 a.m. (ET). To access the conference call, dial 866-322-1352 (United States and Canada) or 706-758-1564 (international callers). The webcast will be available at the investor relations section of LCA-Vision's website. A replay of the call and webcast will begin approximately two hours after the live call has ended. To access the replay, dial 800-642-1687 (United States and Canada) or 706-645-9291 (international callers) and enter the conference ID number: 679 31 057.

Forward-Looking Statements

This news release contains forward-looking statements based on current expectations, forecasts and assumptions of LCA-Vision that are subject to risks and uncertainties. These forward-looking statements in this release are based on information available to us as of the date hereof. Actual results could differ materially from those stated or implied in our forward-looking statements due to risks and uncertainties associated with our business, including, without limitation, those concerning economic, political and sociological conditions; the acceptance rate of new technology, and our ability to successfully implement new technology on a national basis; market acceptance of our services; the successful execution of marketing strategies to cost-effectively drive patients to our vision centers; competition in the laser vision correction industry; an inability to attract new patients; the possibility of long-term side effects and adverse publicity regarding laser vision correction; operational and management instability; legal or regulatory action against us or others in the laser vision correction industry; our ability to profitably operate vision centers and retain qualified personnel during periods of lower procedure volumes; the relatively high fixed cost structure of our business; the continued availability of non-recourse third- party financing for our patients on terms similar to what we have paid historically; and the future value of revenues financed by us and our ability to collect on such financings which will depend on a number of factors, including the worsening consumer credit environment and our ability to manage credit risk related to consumer debt, bankruptcies and other credit trends. In addition, an ongoing FDA study about post-Lasik quality-of-life matters could potentially impact negatively the acceptance of Lasik. For a further discussion of the factors that may cause actual results to differ materially from current expectations, please review our filings with the Securities and Exchange Commission, including but not limited to our reports on Forms 10-K, 10-Q and 8-K. Except to the extent required under the federal securities laws and the rules and regulations promulgated by the Securities and Exchange Commission, we assume no obligation to update the information included in this news release, whether as a result of new information, future events or circumstances, or otherwise.

About LCA-Vision Inc./LasikPlus(R)

LCA-Vision Inc., a leading provider of laser vision correction services under the LasikPlus(R) brand, operates 77 LasikPlus(R) fixed-site laser vision correction centers in 33 states and 59 markets in the United States and a joint venture in Canada. Additional Company information is available at and .

Earning Trust Every Moment.

Transforming Lives Every Day.

LCA-Vision Inc.

Condensed Consolidated Statements of Operations (Unaudited)

(Dollars in thousands except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007

Revenue -- Laser refractive

surgery $37,397 $74,584 $171,147 $222,933

Operating costs and expenses

Medical professional and license

fees 8,201 12,344 34,222 37,738

Direct costs of services 17,686 23,304 62,532 72,399

General and administrative

expenses 4,869 4,637 15,914 15,225

Marketing and advertising 8,294 17,208 43,744 50,100

Depreciation 4,508 2,961 13,375 7,758

Operating (loss) income (6,161) 14,130 1,360 39,713

Equity in earnings from

unconsolidated businesses 132 244 453 598

Net investment (loss) income (724) 1,474 842 4,900

Other income (expense), net - - 18 (31)

(Loss) income before taxes (6,753) 15,848 2,673 45,180

Income tax (benefit) expense (2,036) 5,830 1,088 16,822

Net (loss) income $(4,717) $10,018 $1,585 $28,358

(Loss) income per common share

Basic $ (0.25) $0.51 $0.09 $1.43

Diluted $ (0.25) $0.51 $0.09 $1.41

Dividends declared per share $ - $0.18 $0.24 $0.54

Weighted average shares outstanding

Basic 18,537 19,521 18,519 19,834

Diluted 18,537 19,754 18,572 20,147

LCA-Vision Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)

Assets September 30, 2008 September 30, 2007

Current assets

Cash and cash equivalents $24,669 $17,614

Short-term investments 37,993 42,534

Patient receivables, net of

allowance for doubtful accounts

of $1,945 and $2,987 10,957 12,712

Other accounts receivable 2,260 5,941

Prepaid professional fees 1,105 1,872

Prepaid income taxes 2,880 6,391

Deferred tax assets 3,385 3,450

Prepaid expenses and other 5,238 5,076

Total current assets 88,487 95,590

Property and equipment 122,080 106,788

Accumulated depreciation and

amortization (66,139) (52,872)

Property and equipment, net 55,941 53,916

Long-term investments 4,406 2,250

Patient receivables, net of allowance

for doubtful accounts of $1,931 and

$2,130 3,499 4,556

Deferred compensation plan assets 3,106 5,540

Investment in unconsolidated businesses 398 590

Deferred tax assets 14,044 13,561

Other assets 2,398 3,644

Total assets $172,279 $179,647

Liabilities and Stockholders'


Current liabilities

Accounts payable $8,077 $10,396

Accrued liabilities and other 9,961 13,219

Deferred revenue 11,050 18,719

Income taxes payable 1,308 642

Debt obligations maturing in one

year 7,281 3,941

Total current liabilities 37,677 46,917

Long-term debt obligations (less

current portion) 15,331 2,012

Deferred compensation liability 3,067 5,516

Insurance reserve 9,689 8,493

Deferred revenue 15,830 23,110

Stockholders' Investment

Common stock ($0.001 par value;

25,193,866 and 25,114,244 shares

issued and 18,547,417 and 18,482,658

shares outstanding as of September 30,

2008 and December 31, 2007,

respectively) 25 25

Contributed capital 173,540 172,965

Common stock in treasury, at cost

(6,646,449 and 6,631,586 shares

at September 30, 2008 and

December 31, 2007) (114,632) (114,427)

Retained earnings 31,735 34,597

Accumulated other comprehensive

income 17 439

Total stockholders' investment 90,685 93,599

Total liabilities and stockholders'

investment $172,279 $179,647

LCA-Vision Inc.

Condensed Consolidated Statements of Cash Flow (Unaudited)

(Dollars in thousands)

Nine Months Ended September 30,

2008 2007

Cash flow from operating activities:

Net income $1,585 $28,358

Adjustments to reconcile net income

to net cash provided by operating


Depreciation 13,375 7,758

Provision for loss on doubtful accounts 4,303 4,383

Loss on investment 1,074 -

Deferred income taxes (50) 9,927

Stock based compensation 966 3,623

Insurance reserve 1,196 1,684

Equity in earnings of

unconsolidated affiliates (453) (598)

Changes in operating assets and


Patient receivables (1,491) (9,617)

Other accounts receivable 3,681 (2,934)

Prepaid income taxes 3,511 (5,365)

Prepaid expenses and other (162) 1,400

Accounts payable (2,319) (1,313)

Deferred revenue, net of

professional fees (13,454) (1,059)

Income taxes payable 666 -

Accrued liabilities and

other (2,499) 2,505

Net cash provided by operations $9,929 $38,752

Cash flow from investing activities:

Purchase of property and equipment (13,597) (13,012)

Purchases of investment securities (297,128) (258,415)

Proceeds from sale of investment

securities 297,433 260,328

Other, net 645 (77)

Net cash used in investing activities $(12,647) $(11,176)

Cash flow from financing activities:

Principal payments of capital

lease obligations and debt (4,328) (3,873)

Proceeds from loan 19,184 -

Shares repurchased for treasury stock (205) (34,943)

Tax benefits related to stock-based

compensation (624) 1,107

Exercise of stock options 193 3,402

Dividends paid to stockholders (4,447) (10,658)

Net cash provided by (used in)

financing activities 9,773 (44,965)

Increase (decrease) in cash and cash

equivalents 7,055 (17,389)

Cash and cash equivalents at

beginning of period 17,614 24,431

Cash and cash equivalents at end of

period $24,669 $7,042

LCA-Vision Inc.

Effect of the Change in Our Accounting for Deferred Revenues on Financial


(dollars in thousands)

To supplement its condensed consolidated financial statements presented in accordance with accounting principles generally accepted in the United States, LCA-Vision discusses adjusted revenues and operating income. Management utilizes this information as a means of measuring performance that adjusts for the non-cash impact of the accounting for separately priced extended warranties and believes that including this additional disclosure is meaningful to investors for the same reason.

Accordingly, this news release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. A reconciliation of the differences between the non-GAAP measures with the most directly comparable financial measures calculated in accordance with GAAP follows:

Three Months Ended Nine Months Ended

September 30, September 30,

2008 2007 2008 2007


Reported $37,397 $74,584 $171,147 $222,933


Warranty revenue deferred

into future - - - 20,054

Amortization of prior

deferred revenue (4,404) (7,706) (14,950) (21,231)

Adjusted revenue $32,993 $66,878 $156,197 $221,756

Operating Income

Reported $(6,161) $14,130 $1,360 $39,713


Impact of warranty revenue

deferral (4,404) (7,706) (14,950) (1,177)

Professional fees deferred

into future - - - (2,005)

Amortization of prior

professional fees 440 771 1,495 2,123

Adjusted operating (loss)

income $(10,125) $7,195 $(12,095) $38,654

For Additional Information

Company Contact: Investor Relations Contact:

Barb Kise Jody Cain

LCA-Vision Inc. Lippert/Heilshorn & Associates

513-792-9292 310-691-7100

SOURCE LCA-Vision Inc.
Copyright©2008 PR Newswire.
All rights reserved

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