VCA Inc. Reports Fourth Quarter 2015 Results and Provides Financial Guidance for 2016

VCA Inc. Reports Fourth Quarter 2015 Results and Provides Financial Guidance for 2016

  • Revenue increased 11.2% to a fourth quarter record of $533.7 million

  • Gross profit increased 18.9% to $117.7 million

  • Operating income increased 26.1% to $66.4 million

  • Diluted earnings per common share increased 136.4% to $0.78

  • Non-GAAP diluted earnings per common share increased 35.1% to $0.50

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 fourth quarter ended December 31, 2015, as follows: revenue increased 11.2% to a fourth quarter record of $533.7 million; gross profit increased 18.9% to $117.7 million; operating income increased 26.1% to $66.4 million; net income increased 124.2% to $63.6 million and diluted earnings per common share increased 136.4% to $0.78.

Our results for the quarter included a gain of $43.3 million, $26.4 million net of tax, or $0.32 per diluted common share related to the sale of our Vetstreet business. Excluding this item and acquisition-related amortization expense, our Non-GAAP net income increased 29.5% to $41.0 million; and Non-GAAP diluted earnings per share increased 35.1% to $0.50.

We also reported our financial results for the twelve months ended December 31, 2015 as follows: revenue increased 11.2% to $2.1 billion; gross profit increased 14.7% to $510.1 million; operating income increased 33.4% to $329.8 million; net income increased 55.8% to $211.0 million and diluted earnings per common share increased 66.2% to $2.56. Our financial results for the twelve months ended December 31, 2015, on a Non-GAAP basis, are as follows: gross profit increased 14.6% to $533.2 million; operating income increased 18.1% to $348.6 million; net income increased 18.0% to $196.2 million and Non-GAAP diluted earnings per common share increased 25.9% to $2.38.

Our financial results for the twelve months ended December 31, 2015 included the aforementioned gain on the sale of our Vetstreet business and business interruption insurance gain of $4.5 million, $2.8 million net of tax, or $0.03 per diluted common share. Our results for the twelve months ended December 31, 2014 included a non-cash impairment charge of $27.0 million, $17.0 million net of tax, or $0.19 per diluted common share; debt retirement costs of $1.7 million, $1.0 million net of tax, or $0.01 per common share.

Bob Antin, Chairman and CEO, stated, "We had an exceptional fourth quarter, which concluded another strong year. We experienced solid organic revenue growth of 7.4% and 8.2% in our core Animal Hospital and Laboratory business segments, respectively. Our same-store Animal Hospital gross profit margins increased 140 basis points and our Laboratory gross profit margins increased an impressive 280 basis points. The positive momentum in our business has continued from the third quarter to the end of the year and accordingly, we are optimistic about our overall growth prospects in 2016.

"Animal Hospital revenue in the fourth quarter of 2015 increased 12.3%, to $427.5 million, driven by acquisitions made in the past twelve months and same-store revenue growth of 7.4%. Our same-store gross profit margin increased to 14.8% from 13.4% and our total gross margin increased to 14.2%, from 13.2% in the prior-year quarter. During the quarter, we acquired 13 independent animal hospitals which had historical combined annual revenue of $31.7 million, bringing our year to date total to $122.0 million.

"Laboratory internal revenue in the fourth quarter of 2015 increased 8.2% to $90.9 million, driven by an increase in requisitions of 5.1%. Our Laboratory gross profit margin increased to 48.8% from 46.0% and our operating margin increased to 37.9% from 35.8%."

2016 Financial Guidance

We provide the following financial guidance for the full year 2016:

  • Revenue from $2.37 billion to $2.39 billion;

  • Net income from $206 million to $214 million;

  • Diluted earnings per common share from $2.52 to $2.62; and

  • Non-GAAP diluted earnings per common share from $2.73 to $2.83.

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 fourth quarter 2015 financial results during a conference call today, February 11th, 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 (888) 311-3471. 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 2016 Financial Guidance and other statements addressing our 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: 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 for the year ended December 31, 2014, 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
December 31,

 

Twelve Months Ended
December 31,

 

 

2015

 

2014

 

2015

 

2014

Revenue:

 

 

 

 

 

 

 

 

Animal hospital

 

$

427,544

 

 

$

380,694

 

 

$

1,697,870

 

 

$

1,514,878

 

Laboratory

 

93,397

 

 

84,004

 

 

393,900

 

 

360,396

 

All other

 

33,254

 

 

33,871

 

 

126,988

 

 

115,785

 

Intercompany

 

(20,475

)

 

(18,642

)

 

(85,083

)

 

(72,576

)

 

 

533,720

 

 

479,927

 

 

2,133,675

 

 

1,918,483

 

 

 

 

 

 

 

 

 

 

Direct costs

 

416,024

 

 

380,909

 

 

1,623,604

 

 

1,473,842

 

 

 

 

 

 

 

 

 

 

Gross profit:

 

 

 

 

 

 

 

 

Animal hospital

 

60,525

 

 

50,128

 

 

264,335

 

 

230,801

 

Laboratory

 

45,609

 

 

38,661

 

 

201,702

 

 

175,808

 

All other

 

12,128

 

 

10,871

 

 

46,702

 

 

38,624

 

Intercompany

 

(566

)

 

(642

)

 

(2,668

)

 

(592

)

 

 

117,696

 

 

99,018

 

 

510,071

 

 

444,641

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expense:

 

 

 

 

 

 

 

 

Animal hospital

 

11,960

 

 

10,761

 

 

44,311

 

 

39,022

 

Laboratory

 

10,181

 

 

8,641

 

 

38,075

 

 

33,550

 

All other

 

9,481

 

 

9,674

 

 

33,569

 

 

33,456

 

Corporate

 

18,630

 

 

18,267

 

 

68,040

 

 

65,478

 

 

 

50,252

 

 

47,343

 

 

183,995

 

 

171,506

 

Impairment of goodwill and other long-lived assets

 

 

 

 

 

 

 

27,019

 

Business interruption insurance gain, net

 

 

 

 

 

(4,523

)

 

 

Net loss (gain) on sale of assets

 

1,063

 

 

(979

)

 

829

 

 

(1,152

)

Operating income

 

66,381

 

 

52,654

 

 

329,770

 

 

247,268

 

Interest expense, net

 

5,680

 

 

5,215

 

 

21,076

 

 

17,779

 

Debt retirement costs

 

 

 

 

 

 

 

1,709

 

Other expense

 

271

 

 

41

 

 

359

 

 

219

 

Gain on sale of business, net

 

(43,306

)

 

 

 

(43,306

)

 

 

Income before provision for income taxes

 

103,736

 

 

47,398

 

 

351,641

 

 

227,561

 

Provision for income taxes

 

39,582

 

 

17,489

 

 

135,543

 

 

86,878

 

Net income

 

64,154

 

 

29,909

 

 

216,098

 

 

140,683

 

Net income attributable to noncontrolling interests

 

559

 

 

1,550

 

 

5,049

 

 

5,245

 

Net income attributable to VCA Inc.

 

$

63,595

 

 

$

28,359

 

 

$

211,049

 

 

$

135,438

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.78

 

 

$

0.33

 

 

$

2.56

 

 

$

1.54

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding for diluted earnings per share

 

81,461

 

 

85,121

 

 

82,414

 

 

87,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VCA Inc.

Condensed, Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

December 31,
2015

 

December 31,
2014

Assets

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

98,888

 

 

$

81,383

 

Trade accounts receivable, net

 

76,634

 

 

60,482

 

Inventory

 

51,523

 

 

56,050

 

Prepaid expenses and other

 

30,521

 

 

36,924

 

Prepaid income taxes

 

24,598

 

 

18,277

 

Total current assets

 

282,164

 

 

253,116

 

Property and equipment, net

 

507,753

 

 

468,041

 

Other assets:

 

 

 

 

Goodwill

 

1,517,650

 

 

1,415,861

 

Other intangible assets, net

 

97,377

 

 

88,175

 

Notes receivable, net

 

2,194

 

 

2,807

 

Deferred financing costs, net

 

6,133

 

 

7,874

 

Other

 

93,994

 

 

65,815

 

Total assets

 

$

2,507,265

 

 

$

2,301,689

 

Liabilities and Equity

 

 

 

 

Current liabilities:

 

 

 

 

Current portion of long-term debt

 

$

33,623

 

 

$

19,356

 

Accounts payable

 

52,337

 

 

46,284

 

Accrued payroll and related liabilities

 

75,519

 

 

64,359

 

Other accrued liabilities

 

70,828

 

 

67,219

 

Total current liabilities

 

232,307

 

 

197,218

 

Long-term debt, less current portion

 

838,851

 

 

775,412

 

Deferred income taxes

 

131,478

 

 

73,171

 

Other liabilities

 

36,084

 

 

33,190

 

Total liabilities

 

1,238,720

 

 

1,078,991

 

Redeemable noncontrolling interests

 

11,511

 

 

11,077

 

VCA Inc. stockholders' equity:

 

 

 

 

Common stock

 

81

 

 

83

 

Additional paid-in capital

 

19,708

 

 

155,802

 

Retained earnings

 

1,275,207

 

 

1,064,158

 

Accumulated other comprehensive loss

 

(50,034

)

 

(19,397

)

Total VCA Inc. stockholders' equity

 

1,244,962

 

 

1,200,646

 

Noncontrolling interests

 

12,072

 

 

10,975

 

Total equity

 

1,257,034

 

 

1,211,621

 

Total liabilities and equity

 

$

2,507,265

 

 

$

2,301,689

 

 

 

 

 

 

 

 

 

 

 

     

VCA Inc.

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

 

 

Twelve Months Ended
December 31,

 

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

Net income

 

$

216,098

 

 

$

140,683

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Impairment of goodwill and other long-lived assets

 

 

 

27,019

 

Gain on sale of business

 

(43,306

)

 

 

Depreciation and amortization

 

81,688

 

 

79,427

 

Amortization of debt issue costs

 

1,741

 

 

1,391

 

Provision for uncollectible accounts

 

8,401

 

 

6,248

 

Debt retirement costs

 

 

 

1,709

 

Net loss (gain) on sale of assets

 

829

 

 

(1,152

)

Share-based compensation

 

16,264

 

 

17,200

 

Deferred income taxes

 

56,722

 

 

8,853

 

Excess tax benefit from stock based compensation

 

(11,089

)

 

(6,241

)

Other

 

2,159

 

 

531

 

Changes in operating assets and liabilities:

 

 

 

 

Trade accounts receivable

 

(28,720

)

 

(3,900

)

Inventory, prepaid expense and other assets

 

(19,268

)

 

(22,897

)

Accounts payable and other accrued liabilities

 

7,532

 

 

11,597

 

Accrued payroll and related liabilities

 

11,323

 

 

6,782

 

Income taxes

 

4,339

 

 

2,960

 

Net cash provided by operating activities

 

304,713

 

 

270,210

 

Cash flows from investing activities:

 

 

 

 

Business acquisitions, net of cash acquired

 

(151,586

)

 

(147,507

)

Property and equipment additions

 

(91,954

)

 

(72,948

)

Proceeds from sale of assets

 

6,762

 

 

3,904

 

Proceeds from sale of business

 

48,000

 

 

 

Other

 

(2,042

)

 

(2,691

)

Net cash used in investing activities

 

(190,820

)

 

(219,242

)

Cash flows from financing activities:

 

 

 

 

Repayment of debt

 

(35,017

)

 

(568,011

)

Proceeds from issuance of long-term debt

 

 

 

600,000

 

Proceeds from revolving credit facility

 

97,000

 

 

135,000

 

Payment of financing costs

 

 

 

(7,987

)

Distributions to noncontrolling interest partners

 

(4,962

)

 

(5,009

)

Purchase of noncontrolling interest

 

(2,500

)

 

(326

)

Proceeds from issuance of common stock under stock option plans

 

2,683

 

 

2,859

 

Excess tax benefit from stock based compensation

 

11,089

 

 

6,241

 

Repurchase of common stock

 

(165,607

)

 

(255,108

)

Other

 

2,041

 

 

(1,424

)

Net cash used in financing activities

 

(95,273

)

 

(93,765

)

Effect of currency exchange rate changes on cash and cash equivalents

 

(1,115

)

 

(849

)

Increase (decrease) in cash and cash equivalents

 

17,505

 

 

(43,646

)

Cash and cash equivalents at beginning of period

 

81,383

 

 

125,029

 

Cash and cash equivalents at end of period

 

$

98,888

 

 

$

81,383

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VCA Inc.

Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

Table #1

 

 

 

 

 

 

 

 

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

Reconciliation of net income attributable to VCA Inc., to Non-GAAP net income attributable to VCA Inc.(1)

 

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Net income attributable to VCA Inc.

 

$

63,595

 

 

$

28,359

 

 

$

211,049

 

 

$

135,438

 

Impairment of goodwill and other long-lived assets (2)

 

 

 

 

 

 

 

27,019

 

Tax benefit on impairment charge (2)

 

 

 

 

 

 

 

(9,978

)

Business interruption insurance gain, net (4)

 

 

 

 

 

(4,523

)

 

 

Tax expense on business interruption gain, net (4)(6)

 

 

 

 

 

1,771

 

 

 

Debt Retirement costs (3)

 

 

 

 

 

 

 

1,709

 

Tax benefit from debt retirement costs (3)(6)

 

 

 

 

 

 

 

(669

)

Gain on sale of business, net (5)

 

(43,306

)

 

 

 

(43,306

)

 

 

Tax expense from gain on sale of business,net (5)(6)

 

16,950

 

 

 

 

16,950

 

 

 

Acquisitions related amortization (1)

 

6,201

 

 

5,434

 

 

23,396

 

 

21,039

 

Tax benefit from acquisitions related amortization (1)(6)

 

(2,427

)

 

(2,127

)

 

(9,157

)

 

(8,235

)

 

 

 

 

 

 

 

 

 

Non-GAAP net income attributable to VCA Inc.

 

$

41,013

 

 

$

31,666

 

 

$

196,180

 

 

$

166,323

 

 

 

 

 

 

 

 

 

 

Table #2

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

Reconciliation of diluted earnings per share to Non-GAAP diluted earnings per share (1)

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.78

 

 

$

0.33

 

 

$

2.56

 

 

$

1.54

 

Impact of goodwill and other long-lived assets

 

 

 

 

 

 

 

 

impairment, net of tax (2)

 

 

 

 

 

 

 

0.19

 

Impact of business interruption insurance gain, net of tax

 

 

 

 

 

(0.03

)

 

 

Impact of debt retirement costs, net of tax (3)

 

 

 

 

 

 

 

0.01

 

Impact of gain on sale of business, net of tax

 

(0.32

)

 

 

 

(0.32

)

 

 

Impact of acquisitions related amortization, net of tax (1)

 

0.05

 

 

0.04

 

 

0.17

 

 

0.15

 

 

 

 

 

 

 

 

 

 

Non-GAAP diluted earnings per share (7)

 

$

0.50

 

 

$

0.37

 

 

$

2.38

 

 

$

1.89

 

Shares used for computing

 

 

 

 

 

 

 

 

diluted earnings per share

 

81,461

 

 

85,121

 

 

82,414

 

 

87,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table #3

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

Reconciliation of consolidated gross profit to Non-GAAP consolidated gross profit (1)

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Consolidated gross profit

 

$

117,696

 

 

$

99,018

 

 

$

510,071

 

 

$

444,641

 

Impact of acquisitions related amortization (1)

 

6,140

 

 

5,374

 

 

23,153

 

 

20,780

 

 

 

 

 

 

 

 

 

 

Non-GAAP consolidated gross profit

 

$

123,836

 

 

$

104,392

 

 

$

533,224

 

 

$

465,421

 

Non-GAAP consolidated gross profit margin

 

23.2

%

 

21.8

%

 

25.0

%

 

24.3

%

 

 

 

 

 

 

 

 

 

Table #4

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

Reconciliation of consolidated operating income to Non-GAAP consolidated operating income (1)

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Consolidated operating income

 

$

66,381

 

 

$

52,654

 

 

$

329,770

 

 

$

247,268

 

Impact of goodwill and other long-lived assets impairment (2)

 

 

 

 

 

 

 

27,019

 

Impact of business interruption proceeds

 

 

 

 

 

(4,523

)

 

 

Impact of acquisitions related amortization (1)

 

6,201

 

 

5,434

 

 

23,396

 

 

21,039

 

 

 

 

 

 

 

 

 

 

Non-GAAP consolidated operating income

 

$

72,582

 

 

$

58,088

 

 

$

348,643

 

 

$

295,326

 

Non-GAAP consolidated operating margin

 

13.6

%

 

12.1

%

 

16.3

%

 

15.4

%

                         

_________________________________________________

(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 third quarter of 2014, 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) Also in the third quarter of 2014, we incurred debt retirement costs of $1.7 million related to the refinancing of our senior credit facility.

(4) In the third quarter, 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.

(5) We recognized a gain of $43.3 million related to the sale of our wholly-owned subsidiary, Vetstreet, Inc.

(6) The rate used to calculate the tax benefit is the statutory rate of the applicable year.

(7) Amounts may not foot due to rounding.

              VCA Inc. Supplemental Operating Data (continued)

(Unaudited - In thousands, except per share amounts)

                          As of Table #5           December 31,
2015   December 31,
2014 Selected consolidated balance sheet data                 Debt:                 Senior term notes           $ 585,000     $ 600,000   Revolving credit           232,000     135,000   Other debt and capital leases           55,474     59,768   Total debt           $ 872,474     $ 794,768                         Three Months Ended
December 31,   Twelve Months Ended
December 31, Table #6     Selected expense data   2015   2014   2015   2014                   Rent expense   $ 19,933     $ 18,463     $ 76,694     $ 69,747                     Depreciation and amortization included                 in direct costs:                 Animal hospital   $ 17,042     $ 15,822     $ 65,850     $ 60,395   Laboratory   2,754     2,649     10,606     10,358   All other   926     824     3,797     5,731   Intercompany   (554 )   (514 )   (2,156 )   (1,931 )     $ 20,168     $ 18,781     $ 78,097     $ 74,553   Depreciation and amortization included in selling,                 general and administrative expense   886     987     3,591     4,874   Total depreciation and amortization   $ 21,054     $ 19,768     $ 81,688     $ 79,427                     Share-based compensation included in direct costs:                 Laboratory   $ 217     $ 216     $ 685     $ 653                     Share-based compensation included in                 selling, general and administrative expense:                 Animal hospital   715     721     2,696     2,132   Laboratory   405     440     1,511     1,513   All other   493     237     1,119     842   Corporate   2,348     3,352     10,253     12,060       3,961     4,750     15,579     16,547   Total share-based compensation   $ 4,178     $ 4,966     $ 16,264     $ 17,200                                    

Source: VCA Inc.

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

 

Source: VCA Inc.

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