LOS ANGELES, California, July 22, 2010 - VCA Antech, Inc. (NASDAQ NM SYMBOL: WOOF), a leading animal healthcare company in the United States, today reported financial results for the second quarter ended June 30, 2010 as follows: revenue increased 2.6% to a second quarter record of $353.9 million; and diluted earnings per common share of $0.44.
For the three and six months ended June 30, 2010 and 2009 diluted earnings per share were $0.44 and $0.81, respectively. The second quarter of 2009 included a non-cash charge of $5.3 million, or $3.2 million after tax, related to the abandonment of an internally developed software project. Excluding this charge, adjusted diluted earnings per share for the three and six months ended June 30, 2009 were $0.48 and $0.85, respectively.
Bob Antin, Chairman and CEO, stated, "We continued to grow revenue during the quarter as a result of acquisitions. However, the economy continues to negatively impact internal revenue growth in both our Animal Hospital and Laboratory business segments. The pace of the economic recovery slowed during the second quarter which impacted both our Animal Hospital and Laboratory business segment's organic growth. We remain optimistic with respect to our ability to grow revenue through acquisitions. On July 1st, we acquired a majority interest in Pet DRx Corporation, which operated 23 animal hospitals in California.
"Animal hospital revenue in the second quarter increased 2.4% to $267.6 million driven by acquisitions made in the past twelve months. The combination of lower margins at acquired animal hospitals, and a decline in same-store margins due to a decline in same-store revenue, has caused our animal hospital gross margin to decrease to 18.3% compared to 20.3% for the comparable prior year quarter, and our animal hospital operating margin to decline to 16.2% compared to 18.2% for the comparable prior year quarter. Our same-store revenue declined by 2.0% and our same-store gross profit margin declined to 18.6% from 20.4%. During the quarter, we acquired seven animal hospitals which had historical combined annual revenue of $9.5 million.
"Laboratory revenue in the second quarter decreased 0.2% to $83.0 million. Internal revenue growth was negative 0.5% driven by a decline in the number of requisitions. Our laboratory gross profit decreased by 50 basis points to 48.9% and our operating margin was down slightly at 41.0%.
"Sound-Eklin revenue in the second quarter increased 42.3% to $14.6 million and gross profit increased 23.3% to $4.3 million. Gross profit margin was 29.8% compared to 34.3% in the prior year primarily due to product mix and the operating margin decreased to 6.4% from 11.0%."
2010 Financial Guidance
We revise our financial guidance as follows:
Our senior term notes are scheduled to mature in 2011, although they are currently scheduled to be refinanced in August, 2010. The guidance above is based on our capital structure after the effect of our debt refinancing, which we expect to have approximately $0.01 to $0.02 negative impact on diluted earnings per common share. Accordingly, the attached Consolidated Balance Sheet reflects these senior-term notes in the current portion of long-term obligations.
Current uncertainty in the economy and the lack of visibility regarding the timing and degree of any recovery in our business sector makes it particularly difficult to predict consumer demand for our services and makes it more likely that our actual results could differ materially from expectations.
Non-GAAP Financial Measures
We believe investors' understanding of our total performance is enhanced by disclosing adjusted operating income, adjusted net income and adjusted diluted earnings per common share. We define these adjusted measures as the reported amounts, adjusted to exclude certain significant items. Adjusted diluted earnings per common share are adjusted net income divided by diluted common shares outstanding.
Management uses adjusted measures because they exclude the effect of significant items that we believe are not representative of our core operations for the periods presented. As a result, these non-GAAP financial measures help to provide meaningful comparisons of our overall performance from one reporting period to another and meaningful assessments of related trends. For the three and six months ended June 30, 2009, we adjusted our reported amounts for the non-cash charge of $5.3 million, or $3.2 million after tax, and $0.04 per diluted share related to the abandonment of an internally developed software project.
There is a material limitation associated with the use of these non-GAAP financial measures: our adjusted measures exclude the impact of these significant items, and as a result, our computation of adjusted diluted earnings per common share does not depict diluted earnings per common share in accordance with GAAP.
To compensate for the limitations in the non-GAAP financial measures discussed above, our disclosures provide a complete understanding of all adjustments found in non-GAAP financial measures, and we reconcile the non-GAAP financial measures to the GAAP financial measures in the attached financial schedules titled "Supplemental Operating Data."
We will discuss our company's second quarter 2010 financial results during a conference call today, July 22nd, at 4:30 p.m. Eastern Time. You can access a live broadcast of the call by visiting our website at http://investor.vcaantech.com. You can also access the call by dialing (877) 280-7473. Interested parties should call at least 10 minutes prior to the start of the call to register.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may and likely will differ materially from this forward-looking information. Our animal hospital and laboratory revenues have been materially adversely impacted by the current economic recession. We are unable to forecast the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause actual results to differ from this forward-looking information. Among other factors that could cause our actual results to differ from this forward-looking information are: an increase in the level of direct costs or a failure to increase revenue at a level necessary to maintain our expected operating margins, a material adverse change in our financial condition or operations; the level of selling, general and administrative costs; the effects of our recent and future acquisitions (including Firehouse Ventures, LLC and Pet DRx Corporation) and our ability to effectively manage our growth and achieve operating synergies; a decline in demand for any of our products and services; any disruption in our information technology systems or transportation networks; the effects of competition; any impairment in the carrying value of our goodwill and other intangible assets; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risks are discussed in our Report on Form 10-K for the year ended December 31, 2009 and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.
We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, and we supply diagnostic imaging equipment to the veterinary industry.
Chief Financial Officer