VCA Inc.
Oct 26, 2016

VCA Inc. Reports Third Quarter 2016 Results and Re-Affirms Financial Guidance for 2016

LOS ANGELES, Oct. 26, 2016 (GLOBE NEWSWIRE) -- 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, 2016, as follows: revenue increased 19.1% to a third quarter record of $656.9 million; gross profit increased 13.7% to $156.6 million; operating income increased 10.2% to $107.0 million; net income increased 6.2% to $58.2 million; and diluted earnings per common share increased 6.0% to $0.71. Excluding transaction expenses related to the acquisition of Companion Animal Practices, North America ("CAPNA"), and acquisition-related amortization expense, our results for this quarter are as follows: Non-GAAP operating income increased 19.8% to $117.8 million; Non-GAAP net income increased 15.7% to $64.4 million ; and Non-GAAP diluted earnings per common share increased 16.2% to $0.79. Our results for the prior-year quarter included business interruption proceeds of $4.5 million, $2.8 million net of tax, or $0.03 per diluted common share.

We also reported our financial results for the nine months ended September 30, 2016 as follows: revenue increased 17.1% to $1.9 billion; gross profit increased 16.5% to $457.3 million; operating income increased 17.4% to $309.1 million; net income increased 14.3% to $168.5 million; and diluted earnings per common share increased 15.7% to $2.06. Excluding acquisition-related amortization expense and other items detailed in the supplemental tables included in this press release, our financial results for the nine months ended September 30, 2016, on a Non-GAAP basis, are as follows: gross profit increased 17.8% to $482.1 million; operating income increased 22.8% to $339.1 million; net income increased 21.7% to $188.8 million; and Non-GAAP diluted earnings per common share increased 22.9% to $2.31.

Bob Antin, Chairman and CEO, stated, "We had an outstanding quarter highlighted by 16.2% growth in our adjusted diluted earnings per common share.  We continue to experience healthy organic revenue growth and increasing gross margins in both our core Animal Hospital and Laboratory businesses.  Given our results relative to our expectations and our future acquisition pipeline, we remain optimistic with respect to our results for the full year ended December 31, 2016.

"Animal Hospital revenue in the third quarter increased 25.2%, to $553.4 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 5.4%.  Our same-store gross profit margin increased 50 basis points to 17.5%, and our total gross margin remained flat at 17.0%. Excluding acquisition-related amortization expense, our Non-GAAP same-store gross profit margin increased 40 basis points to 18.4%; and Non-GAAP Animal Hospital total gross profit margin increased 50 basis points to 18.5%. During the 2016 third quarter, we acquired 12 independent animal hospitals which had historical combined annual revenue of $38 million bringing our year to date total, excluding CAPNA, to 49 independent animal hospitals with historical combined annual revenue of $146 million.

"Our Laboratory internal revenue in the third quarter increased 5.5% to $105.1 million; laboratory gross profit margin increased 40 basis points to 51.6% and our operating margin increased 60 basis points to 42.3%. Excluding acquisition-related amortization expense, Non-GAAP Laboratory gross profit increased 20 basis points to 51.9%; and Non-GAAP Laboratory operating margin increased 60 basis points to 42.7%."

2016 Guidance

We reaffirm our previously provided guidance as follows:

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 2016 financial results during a conference call today, October 26th, 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 (domestic) or (720) 545-0007 (international) and referring to conference ID 82975258. Interested parties should call at least five minutes prior to the start of the call to register. Replay of the webcast will be available for one year 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 2016 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; a material adverse change in the financial condition or operations of the company; the ability to successfully integrate CAPNA into VCA and achieve expected operating synergies following the acquisition; 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. 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,
  2016 2015 2016 2015
Revenue:        
Animal hospital $553,378  $441,924  $1,552,377  $1,270,326  
Laboratory 105,140  100,309  323,927  300,503 
All other 22,987  30,838  65,797  93,734 
Intercompany (24,651) (21,354) (68,319) (64,608)
  656,854  551,717  1,873,782  1,599,955 
         
Direct costs 500,277  414,051  1,416,477  1,207,580 
         
Gross profit:        
Animal hospital 94,136  74,941   262,232  203,810 
Laboratory 54,206  51,408  171,469  156,093 
All other 8,921  11,761  24,748  34,574 
Intercompany (686) (444) (1,144) (2,102)
  156,577  137,666  457,305  392,375 
         
Selling, general and administrative expense:        
Animal hospital 15,541  10,677  41,903  32,351 
Laboratory 9,728  9,542  29,726  27,894 
All other 6,064  7,660  17,385  24,088 
Corporate 18,010  16,981  58,647  49,410 
  49,343  44,860  147,661  133,743 
         
Business interruption insurance proceeds, net   (4,523)   (4,523)
Net loss (gain) on sale or disposal of assets 236  250  528  (234)
Operating income 106,998  97,079  309,116  263,389 
Interest expense, net 9,300  5,455  24,262  15,396 
Debt retirement costs     1,600   
Other (income) expense (121) 59  (985) 88 
Income before provision for income taxes 97,819  91,565  284,239  247,905 
Provision for income taxes 37,040  35,097  109,312  95,961 
Net income 60,779  56,468  174,927  151,944 
Net income attributable to noncontrolling interests 2,548  1,614  6,419  4,490 
Net income attributable to VCA Inc. $58,231   $54,854  $168,508  $147,454  
         
Diluted earnings per share $ 0.71  $0.67  $2.06  $1.78 
         
Weighted-average shares outstanding for diluted earnings per share 81,812  81,795  81,695  82,744 
             


     
VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands)
     
  September 30,
 2016
 December 31,
 2015
Assets    
Current assets:    
Cash and cash equivalents $72,914  $98,888 
Trade accounts receivable, net 82,166  76,634 
Inventory 60,811  51,523 
Prepaid expenses and other 33,905  30,521 
Prepaid income taxes   24,598 
Total current assets 249,796  282,164 
Property and equipment, net 582,840  507,753 
Other assets:    
Goodwill 2,063,494  1,517,650 
Other intangible assets, net  209,095  97,377 
Notes receivable 2,142  2,194 
Other 101,695  93,994 
Total assets $3,209,062  $2,501,132 
Liabilities and Equity    
Current liabilities:    
Current portion of long-term debt $32,512  $33,623 
Accounts payable 54,150  52,337 
Accrued payroll and related liabilities 70,213  75,519 
Income tax payable 8,359   
Other accrued liabilities  85,607  70,828 
Total current liabilities 250,841  232,307 
Long-term debt, net 1,246,122  832,718 
Deferred income taxes 127,104  131,478 
Other liabilities 39,509  36,084 
Total liabilities 1,663,576  1,232,587 
Redeemable noncontrolling interests 12,079  11,511 
VCA Inc. stockholders' equity:    
Common stock 81  81 
Additional paid-in capital 32,958  19,708 
Retained earnings 1,443,715  1,275,207 
Accumulated other comprehensive loss (41,028) (50,034)
Total VCA Inc. stockholders' equity 1,435,726  1,244,962 
Noncontrolling interests 97,681  12,072 
Total equity 1,533,407  1,257,034 
Total liabilities and equity $3,209,062  $2,501,132 
         


  
VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  
 Nine Months Ended
September 30,
 2016  2015
Cash flows from operating activities:   
Net income$174,927  $151,944 
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation and amortization74,072  60,634 
Amortization of debt issue costs1,247  1,306 
Provision for uncollectible accounts4,949  6,723 
Debt retirement costs1,600   
Net loss (gain) on sale or disposal of assets
528  (234)
Share-based compensation13,669  12,086 
Excess tax benefit from share-based compensation(7,588) (8,008)
Other7,668  (431)
Changes in operating assets and liabilities:   
Trade accounts receivable(8,033) (20,568)
Inventory, prepaid expense and other assets(11,684) (931)
Accounts payable and other accrued liabilities11,142  (2,451)
Accrued payroll and related liabilities(7,783) 18,892 
Income taxes36,168  28,054 
Net cash provided by operating activities290,882  247,016 
Cash flows from investing activities:   
Business acquisitions, net of cash acquired(599,655) (119,336)
Property and equipment additions(90,546) (61,470)
Proceeds from sale of assets1,699  6,469 
Other(7,634) (434)
Net cash used in investing activities(696,136) (174,771)
Cash flows from financing activities:   
Repayment of long-term debt(1,263,394) (20,174)
Proceeds from issuance of long-term debt1,255,000   
Proceeds from revolving credit facility465,000  97,000 
Repayment of revolving credit facility(65,000)  
Payment of financing costs(3,817)  
Distributions to noncontrolling interest partners(4,752) (3,810)
Purchase of noncontrolling interests(4,239) (1,493)
Proceeds from issuance of common stock under stock option plans3,949  1,571 
Excess tax benefit from share-based compensation7,588  8,008 
Repurchase of common stock(9,887) (161,117)
Other(1,310) 2,210 
Net cash provided (used) in financing activities379,138  (77,805)
Effect of currency exchange rate changes on cash and cash equivalents142  (831)
Decrease in cash and cash equivalents(25,974) (6,391)
Cash and cash equivalents at beginning of period98,888  81,383 
Cash and cash equivalents at end of period$72,914  $74,992 
        


        
VCA Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)
        
Table #1       
Reconciliation of net income attributable toThree Months Ended Nine Months Ended
VCA Inc., to Non-GAAP net income attributableSeptember 30, September 30,
to VCA Inc. (1) 2016   2015   2016   2015 
        
Net income attributable to VCA Inc.$58,231  $54,854  $168,508  $147,454 
Adjustments to Other Long-term liabilities, net of tax (2)      2,040   
Discrete tax items (3)      1,045   
Transaction costs related to the CAPNA acquisition, net of tax (4)89     817   
Debt retirement costs, net of tax (5)      974   
Business interruption proceeds, net of tax (6)    (2,752)   (2,752)
Acquisitions related amortization, net of tax (1)6,030  3,537  15,449  10,465 
        
Non-GAAP net income attributable to VCA Inc.$64,350  $55,639  $188,833  $155,167 
        
Table #2Three Months Ended Nine Months Ended
Reconciliation of diluted earnings per share toSeptember 30, September 30,
Non-GAAP diluted earnings per share (1) 2016   2015   2016   2015 
        
Diluted earnings per share$0.71  $ 0.67  $2.06  $1.78 
Adjustments to Other Long-term liabilities, net of tax (2)      0.02   
Discrete tax items (3)       0.01   
Transaction costs related to the CAPNA acquisition, net of tax (4)       0.01   
Debt retirement costs, net of tax (5)      0.01   
Impact of business interruption proceeds, net of tax (6)   (0.03)   (0.03)
Acquisitions related amortization, net of tax (1)0.07  0.04  0.19  0.13 
Non-GAAP diluted earnings per share (7)$0.79  $0.68  $2.31  $1.88 
        
Shares used for computing diluted earnings per share81,812  81,795  81,695  82,744 
        
Table #3Three Months Ended Nine Months Ended
Reconciliation of consolidated gross profit toSeptember 30, September 30,
Non-GAAP consolidated gross profit (1) 2016   2015   2016   2015 
        
Consolidated gross profit$156,577  $137,666  $457,305  $392,375 
Acquisitions related amortization (1)9,369  5,750  24,784  17,013 
Non-GAAP consolidated gross profit$165,946  $143,416  $482,089  $409,388 
Non-GAAP consolidated gross profit margin 25.3%  26.0%  25.7%  25.6 %
        
  
Table #4Three Months Ended Nine Months Ended
Reconciliation of consolidated operating income toSeptember 30, September 30,
Non-GAAP consolidated operating income (1) 2016   2015   2016   2015 
        
Consolidated operating income$106,998  $97,079  $309,116  $263,389 
Adjustments to Other Long-term liabilities (2)      1,954   
Transaction costs related to the CAPNA acquisition (4)146     1,343   
Impact of business interruption proceeds (6)   (4,523)   (4,523)
Acquisitions related amortization (1)10,682  5,811  26,709  17,195 
Non-GAAP consolidated operating income$117,826  $98,367  $339,122  $276,061 
Non-GAAP consolidated operating margin 17.9%  17.8%  18.1%  17.3%
        
  
_______________________________________________ 
  
(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)  In the first quarter of 2016, we recorded a non-cash charge to adjust certain long-term liabilities for $3.4 million, or $2.0 million net of tax.  $2.0 million of this amount relates to compensation and $1.4 million relates to interest accretion.
  
(3)  In the first quarter of 2016, we recorded a tax adjustment to our income tax liabilities for $1.0 million.
  
(4)  As of the end of the third quarter, we have recorded transaction costs of $1.3 million or $817,000 net of tax related to our acquisition of CAPNA.
  
(5)  We incurred debt retirement costs of $1.6 million, or $974,000 net of tax, in connection with our new credit facility, entered into on June 29, 2016.
  
(6)  In the third quarter of 2015, 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.
   
(7)  Amounts may not foot due to rounding.
 


   As of
Table #5    September 30,
 2016
 December 31 ,
 2015
Selected consolidated balance sheet data       
Debt:       
Senior term notes    $874,500  $585,000 
Revolving credit     340,000  232,000 
Other debt and capital leases    71,236  55,474 
Total debt    $1,285,736   $872,474 
        
  Three Months Ended
September 30,
 Nine Months Ended
September 30,
Table #6 
Selected expense data2016 2015  2016 2015
        
Rent expense$23,844  $19,140  $68,157  $56,761 
        
Depreciation and amortization included       
in direct costs:       
Animal hospital$21,967  $16,465  $60,681  $48,808 
Laboratory2,788  2,701  8,339  7,852 
All other701  968  2,220  2,871 
Intercompany(622) (549) (1,805) (1,602)
 $24,834  $19,585   $69,435  $57,929 
Depreciation and amortization included in selling,       
general and administrative expense2,260  886  4,637  2,705 
Total depreciation and amortization$27,094  $20,471  $74,072  $60,634 
        
Share-based compensation included in direct costs:       
Laboratory$201  $144  $559  $468 
        
Share-based compensation included in       
selling, general and administrative expense:       
Animal hospital831  644  2,339  1,981 
Laboratory434  364  1,270  1,106 
All other160  226  460  626 
Corporate2,939  2,439  9,041  7,905 
 4,364  3,673   13,110  11,618 
Total share-based compensation$4,565  $3,817  $13,669  $12,086 
                
Contact: Tomas Fuller

Chief Financial Officer

(310) 571-6505

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Source: VCA Inc.

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