Growing market share in a fragmented market can certainly boost financial performance. It's working for VCA Antech (NASDAQ:WOOF) in veterinary medicine, and it's definitely working for LCA-Vision (NASDAQ:LCAV) in the laser vision correction market.
The good times apparently just keep rolling, as the company reported that third-quarter sales grew 51% over last year's level. Growth was fueled by torrid performance in procedure volume (up 47%) and a slight increase in revenue per procedure of 3%. Suggesting that this isn't just another expansion-fueled dog-and-pony show, same-store revenue growth was up 48%. Now, put that all in the context of an overall market that's likely growing somewhere in the high single digits, and you can appreciate how well this company is doing.
As the company's top line gets bigger, the margins keep getting fatter. Operating margin expanded to 25.6% this quarter from 17.7% last year, and operating income grew 117%. This, in turn, largely fueled the 121% growth in net income. Skeptical as I am about high-growth stories, a look at the cash flow statement shows that both operating and free cash flow are tracking ahead of reported net income -- a good sign.
There were a couple of interesting data points in the quarter. First, it appears that there is some seasonal effect here, because revenue, procedures, and operating margin were all better in the second quarter (though net income grew sequentially). To a point, this might make sense -- do you want to go sign up for elective surgery during the summer vacation season? Second, the company offers financing to about 10% of its patients, but the growth in allowances for doubtful accounts has lagged sales growth. This really isn't an issue to me, but I find it to be an interesting bit of financial minutiae.
Despite the presence of publicly traded competitors like TLC Vision (NASDAQ:TLCV) and NovaMed (NASDAQ:NOVA), there is plenty of room left to grow. LCA operates only 47 sites right now, and it would seem that at least two-thirds of the market is still private-practice clinics. Although I'd imagine that the demand for an elective procedure like laser vision correction is economically sensitive, this isn't a casual purchase. I would imagine that potential customers would scrimp and save as needed to get the procedure.
Interesting, isn't it? Many companies blame high energy costs or inflationary concerns for sales shortfalls. Even though its services aren't cheap (about $1,400 in per-procedure revenue) or essential, LCA-Vision doesn't seem to be suffering that same fate. With such strong growth, I really wish I had bought these shares a while back. In the meantime, though, I'm still holding out hope that a momentary stumble will allow me to pick up some shares at a temporary discount.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
