VCA Inc.
Oct 28, 2015

VCA Inc. Reports Third Quarter 2015 Results

LOS ANGELES--(BUSINESS WIRE)-- VCA Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the third quarter ended September 30, 2015, as follows: revenue increased 10.4% to a third quarter record of $551.7 million; gross profit increased 11.2% to $137.7 million; operating income increased 81.5% to $97.1 million; net income increased 99.8% to $54.9 million; diluted earnings per common share increased 116.1% to $0.67.

Our results for the quarter included business interruption proceeds of $4.5 million, $2.8 million net of tax, or $0.03 per diluted common share. Our results for the 2014 quarter included a non-cash impairment charge of $27.0 million, $17.0 million net of tax, or $0.20 per diluted common share; debt retirement costs of $1.7 million, $1.0 million net of tax, or $0.01 per diluted common share. Excluding these items and acquisition-related amortization expense, our Non-GAAP gross profit increased 11.2% to $143.4 million; Non-GAAP operating income increased 14.7% to $98.4 million; Non-GAAP net income increased 14.2% to $55.6 million; and Non-GAAP diluted earnings per common share increased 21.4% to $0.68.

Bob Antin, Chairman and CEO, stated, "We had another excellent quarter. We continued to experience robust organic revenue growth rates in our Animal Hospital and Laboratory business segments. We remain very optimistic with respect to our results for the full year ended December 2015.

"Animal Hospital revenue in the third quarter increased 11.6%, to $441.9 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 5.4%. Our same-store gross profit margin was 17.3%, slightly down from 17.5% in the prior-year quarter and our total gross margin decreased to 17.0%, from 17.3% in the prior-year quarter. During the 2015 third quarter, we acquired 19 independent animal hospitals which had historical combined annual revenue of $43.6 million.

"Laboratory revenue increased 9.1%, to $100.3 million. Our Laboratory internal revenue growth increased 6.0% to $97.4 million from $91.9 million; laboratory gross profit margin increased 220 basis points to 51.2%, from 49.0%; and our operating margin increased 210 basis points to 41.7%, from 39.6% in the prior-year quarter.

"During the quarter we repurchased 1,030,000 shares of our common stock for $58.5 million. Since the Board authorized our repurchase programs in April 2013, through the end of the third quarter 2015, we have acquired 10.1 million shares for $424.2 million.

"Our financial results for the nine months ended September 30, 2015 are as follows: revenue increased 11.2% to $1.6 billion; gross profit increased 13.5% to $392.4 million; operating income increased 35.3% to $263.4 million; net income increased 37.7% to $147.5 million; and diluted earnings per common share increased 47.1% to $1.78. Our financial results for the nine months ended September 30, 2015, on a Non-GAAP basis, are as follows: gross profit increased 13.4% to $409.4 million, operating income increased 16.4% to $276.1 million, net income increased 15.2% to $155.2 million, and Non- GAAP diluted earnings per common share increased 23.7% to $1.88."

2015 Guidance

We reaffirm our previously provided guidance as follows:

• Revenue from $2.12 billion to $2.13 billion;

• Net income from $172 million to $181 million;

• Diluted earnings per common share from $2.08 to $2.18; and

• Non-GAAP diluted earnings per common share of $2.25 to $2.35

Non-GAAP Financial Measures

We believe investors' understanding of our total performance is enhanced by disclosing Non-GAAP financial measures including Non-GAAP net income, Non-GAAP gross profit, Non-GAAP operating income and Non-GAAP diluted earnings per common share. We define these adjusted measures as the reported amounts, adjusted to exclude certain significant items and amortization of intangibles acquired in acquisitions.

Management believes these adjusted measures are useful to management and investors in evaluating the Company's operational performance and their use provides an additional tool for evaluating the Company's operating results and trends. 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.

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."

Conference Call

We will discuss our third quarter 2015 financial results during a conference call today, October 28th, at 9:00 a.m. Eastern Time. A live broadcast of the call may be accessed by visiting our website at investor.vca.com. The call may also be accessed by dialing (877) 293-5492. Interested parties should call at least ten minutes prior to the start of the call to register. Replay of the webcast will be available for ninety days by visiting the company's website.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Among the forward-looking statements in this press release are statements addressing our 2015 guidance and plans, expectations, future financial position and results of operation. These forward-looking statements are not historical facts and are inherently uncertain and out of our control. Any or all of our forward-looking statements in this press release may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Actual future results may vary materially. Among other factors that could cause our actual results to differ from this forward-looking information are: the continued effects of the economic uncertainty prevailing in regions in which we operate; our ability to execute on our growth strategy and to manage acquired operations; changes in demand for our products and services; fluctuations in our revenue adversely affecting our gross profit, operating income and margins; and the effects of the other factors discussed in our Annual Report on Form 10-K, Reports on Form 10-Q and our other filings with the SEC.

About VCA Inc.

We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, additionally we are the largest provider of online communication, professional education and marketing solutions to the veterinary community. We also supply diagnostic imaging equipment to the veterinary industry.

 
VCA Inc.
Condensed, Consolidated Income Statements
(Unaudited)

(In thousands, except per share amounts)

       
Three Months Ended
September 30,
Nine Months Ended
September 30,
2015     2014 2015     2014
Revenue:
Animal hospital $ 441,924 $ 395,820 $ 1,270,326 $ 1,134,184
Laboratory 100,309 91,903 300,503 276,392
All other 30,838 30,081 93,734 81,914
Intercompany (21,354 ) (18,227 ) (64,608 ) (53,934 )
551,717   499,577   1,599,955   1,438,556  
 
Direct costs 414,051 375,820 1,207,580 1,092,933
 
Gross profit:
Animal hospital 74,941 68,537 203,810 180,673
Laboratory 51,408 45,024 156,093 137,147
All other 11,761 10,136 34,574 27,753
Intercompany (444 ) 60   (2,102 ) 50  
137,666   123,757   392,375   345,623  
 
Selling, general and administrative expense:
Animal hospital 10,677 9,269 32,351 28,261
Laboratory 9,542 8,610 27,894 24,909
All other 7,660 8,023 24,088 23,782
Corporate 16,981   16,890   49,410   47,211  
44,860   42,792   133,743   124,163  
 
Impairment of goodwill and other long-lived assets 27,019 27,019
Business interruption insurance proceeds, net (4,523 ) (4,523 )
Net loss (gain) on sale or disposal of assets 250   470   (234 ) (173 )
Operating income 97,079 53,476 263,389 194,614
Interest expense, net 5,455 4,367 15,396 12,564
Debt retirement costs 1,709 1,709
Other expense 59   188   88   178  
Income before provision for income taxes 91,565 47,212 247,905 180,163
Provision for income taxes 35,097   18,261   95,961   69,389  
Net income 56,468 28,951 151,944 110,774
Net income attributable to noncontrolling interests 1,614   1,499   4,490   3,695  
Net income attributable to VCA Inc. $ 54,854   $ 27,452   $ 147,454   $ 107,079  
 
Diluted earnings per share $ 0.67   $ 0.31   $ 1.78   $ 1.21  
 
Weighted-average shares outstanding for diluted earnings per share 81,795   87,360   82,744   88,665  
 

VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)

(In thousands)

       
September 30,
2015
December 31,
2014
Assets
Current assets:
Cash and cash equivalents $ 74,992 $ 81,383
Trade accounts receivable, net 74,654 60,482
Inventory 51,597 56,050
Prepaid expenses and other 30,827 36,924
Deferred income taxes 30,329 30,331
Prepaid income taxes   18,277  
Total current assets 262,399 283,447
Property and equipment, net 492,532 468,041
Other assets:
Goodwill 1,489,843 1,415,861
Other intangible assets, net 100,939 88,175
Notes receivable 2,345 2,807
Deferred financing costs, net 6,568 7,874
Other 76,564   65,815  
Total assets $ 2,431,190   $ 2,332,020  
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 34,043 $ 19,356
Accounts payable 45,512 46,284
Accrued payroll and related liabilities 82,966 64,359
Income tax payable 1,827
Other accrued liabilities 75,179   67,219  
Total current liabilities 239,527 197,218
Long-term debt, less current portion 847,112 775,412
Deferred income taxes 104,425 103,502
Other liabilities 31,969   33,190  
Total liabilities 1,223,033 1,109,322
Redeemable noncontrolling interests 11,273 11,077
VCA Inc. stockholders' equity:
Common stock 81 83
Additional paid-in capital 16,135 155,802
Retained earnings 1,211,612 1,064,158
Accumulated other comprehensive loss (43,909 ) (19,397 )
Total VCA Inc. stockholders' equity 1,183,919 1,200,646
Noncontrolling interests 12,965   10,975  
Total equity 1,196,884   1,211,621  
Total liabilities and equity $ 2,431,190   $ 2,332,020  
 

VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)

   
Nine Months Ended
September 30,
2015     2014
Cash flows from operating activities:
Net income $ 151,944 $ 110,774
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill and other long-lived assets 27,019
Depreciation and amortization 60,634 59,659
Amortization of debt issue costs 1,306 957
Provision for uncollectible accounts 6,723 4,388
Debt retirement costs 1,709
Net gain on sale or disposal of assets (234 ) (173 )
Share-based compensation 12,086 12,234
Excess tax benefit from stock based compensation (8,008 ) (3,808 )
Other (431 ) 381
Changes in operating assets and liabilities:
Trade accounts receivable (20,568 ) (9,678 )
Inventory, prepaid expense and other assets (931 ) (8,233 )
Accounts payable and other accrued liabilities (2,451 ) 2,920
Accrued payroll and related liabilities 18,892 14,761
Income taxes 28,054   12,137  
Net cash provided by operating activities 247,016   225,047  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (119,336 ) (65,415 )
Property and equipment additions (61,470 ) (50,093 )
Proceeds from sale of assets 6,469 4,464
Other (434 ) (202 )
Net cash used in investing activities (174,771 ) (111,246 )
Cash flows from financing activities:
Repayment of debt (20,174 ) (563,976 )
Proceeds from issuance of long-term debt 600,000
Proceeds from revolving credit facility 97,000
Payment of financing costs (7,987 )
Distributions to non-controlling interest partners (3,810 ) (3,577 )
Purchase of non-controlling interests (1,493 ) (326 )
Proceeds from issuance of common stock under stock option plans 1,571 926
Excess tax benefit from stock based compensation 8,008 3,808
Repurchase of common stock (161,117 ) (139,910 )
Other 2,210   (838 )
Net cash used in financing activities (77,805 ) (111,880 )
Effect of currency exchange rate changes on cash and cash equivalents (831 ) (443 )
(Decrease) increase in cash and cash equivalents (6,391 ) 1,478
Cash and cash equivalents at beginning of period 81,383   125,029  
Cash and cash equivalents at end of period $ 74,992   $ 126,507  
 

VCA Inc.
Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

               
Table #1
Reconciliation of net income attributable to Three Months Ended
September 30,
Nine Months Ended
September 30,
VCA Inc., to Non-GAAP net income attributable
to VCA Inc. (1) 2015 2014 2015 2014
 
Net income attributable to VCA Inc. $ 54,854 $ 27,452 $ 147,454 $ 107,079
Impairment of goodwill and other long-lived assets (2) 27,019 27,019
Tax benefit on impairment charge (2) (9,978 ) (9,978 )
Debt retirement costs (3) 1,709 1,709
Tax benefit from debt retirement costs (3) (669 ) (669 )
Business interruption proceeds (4) (4,523 ) (4,523 )
Tax expense on business interruption proceeds (4) 1,771 1,771
Acquisitions related amortization (1) 5,811 5,231 17,195 15,605
Tax benefit from acquisitions related amortization (1) (2,274 ) (2,047 ) (6,730 ) (6,108 )
Non-GAAP net income attributable to VCA Inc. $ 55,639   $ 48,717   $ 155,167   $ 134,657  
 
Table #2 Three Months Ended
September 30,
Nine Months Ended
September 30,
Reconciliation of diluted earnings per share to
Non-GAAP diluted earnings per share (1) 2015 2014 2015 2014
 
Diluted earnings per share $ 0.67 $ 0.31 $ 1.78 $ 1.21
Impact of impairment charge, net of tax (2) 0.20 0.19
Impact of debt retirement costs, net of tax (3) 0.01 0.01
Impact of business interruption proceeds, net of tax (4) (0.03 ) (0.03 )
Impact of acquisitions related amortization, net of tax (1) 0.04   0.04   0.13   0.11  
Non-GAAP diluted earnings per share $ 0.68   $ 0.56   $ 1.88   $ 1.52  
Shares used for computing diluted earnings per share 81,795   87,360   82,744   88,665  
 
 
Table #3 Three Months Ended
September 30,
Nine Months Ended
September 30,
Reconciliation of consolidated gross profit to
Non-GAAP consolidated gross profit (1) 2015 2014 2015 2014
 
Consolidated gross profit $ 137,666 $ 123,757 $ 392,375 $ 345,623
Impact of acquisitions related amortization (1) 5,750   5,166   17,013   15,406  
Non-GAAP consolidated gross profit $ 143,416   $ 128,923   $ 409,388   $ 361,029  
Non-GAAP consolidated gross profit margin 26.0% 25.8% 25.6% 25.1%
 
Table #4 Three Months Ended
September 30,
Nine Months Ended
September 30,
Reconciliation of consolidated operating income to
Non-GAAP consolidated operating income (1) 2015 2014 2015 2014
 
Consolidated operating income $ 97,079 $ 53,476 $ 263,389 $ 194,614
Impact of impairment charge (2) 27,019 27,019
Impact of business interruption proceeds (4) (4,523 ) (4,523 )
Impact of acquisitions related amortization (1) 5,811   5,231   17,195   15,605  
Non-GAAP consolidated operating income $ 98,367   $ 85,726   $ 276,061   $ 237,238  
Non-GAAP consolidated operating margin 17.8% 17.2% 17.3% 16.5%
 

_________________________________________________

(1)

   

Management believes that investors' understanding of our performance is enhanced by disclosing adjusted measures as the reported amounts, adjusted to exclude certain significant items and acquisition-related amortization. Non-GAAP net income, Non-GAAP diluted earnings per common share, Non-GAAP consolidated gross profit and Non-GAAP consolidated operating income measures are not, and should not be viewed as substitutes for U.S. generally accepted accounting principles (GAAP) net income, its components and diluted earnings per share.

 

(2)

We recognized a non-cash impairment charge of $27.0 million related to the write-down of goodwill and other long-lived assets in our Vetstreet business.

 

(3)

We incurred debt retirement costs of $1.7 million related to the refinancing of our senior credit facility.

 

(4)

We received insurance proceeds related to the fire that damaged the headquarters of our Medical Technology business resulting in a net gain of $4.5 million.

 

VCA Inc.
Supplemental Operating Data (cont)

(Unaudited - In thousands, except per share amounts)

       
As of
Table #5     September 30,
2015
    December 31,
2014
Selected consolidated balance sheet data
Debt:
Senior term notes $ 592,500 $ 600,000
Revolving credit 232,000 135,000
Other debt and capital leases 56,655   59,768  
Total debt $ 881,155   $ 794,768  
 
Three Months Ended
September 30,
Nine Months Ended
September 30,
Table #6
Selected expense data 2015 2014 2015 2014
 
Rent expense $ 19,140   $ 17,476   $ 56,761   $ 51,284  
 

Depreciation and amortization included in direct costs:

Animal hospital $ 16,465 $ 15,044 $ 48,808 $ 44,573
Laboratory 2,701 2,650 7,852 7,709
All other 968 1,505 2,871 4,907
Intercompany (549 ) (479 ) (1,602 ) (1,417 )
$ 19,585 $ 18,720 $ 57,929 $ 55,772

Depreciation and amortization included in selling, general and administrative expense

886   1,142   2,705   3,887  
Total depreciation and amortization $ 20,471   $ 19,862   $ 60,634   $ 59,659  
 
Share-based compensation included in direct costs:
Laboratory $ 144 $ 154 $ 468 $ 437
 

Share-based compensation included in selling, general and administrative expense:

Animal hospital 644 470 1,981 1,411
Laboratory 364 340 1,106 1,073
All other 226 232 626 605
Corporate 2,439   2,467   7,905   8,708  
3,673   3,509   11,618   11,797  
Total share-based compensation $ 3,817   $ 3,663   $ 12,086   $ 12,234  
 

VCA Inc.
Tomas Fuller, 310-571-6505
Chief Financial Officer

Source: VCA Inc.

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