VCA Inc. Reports Third Quarter 2015 Results

VCA Inc. Reports Third Quarter 2015 Results

  • 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

  • Non-GAAP operating income increased 14.7% to $98.4 million

  • Diluted earnings per common share increased 116.1% to $0.67

  • Non-GAAP diluted earnings per common share increased 21.4% to $0.68

October 28, 2015 08:00 AM Eastern Daylight Time

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  
                                         

 

Contacts

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

 

Suggested Articles

Pfizer spinoff Zoetis met Q2 expectations and brightened its full-year forecast, but it's looking to M&A to drive further growth.

Fresenius’ new CEO has pulled off a dealmaking double play, committing more than $5.4 billion to expand its reach in both sterile generics and in biosimilars.

Bayer’s pharma products have been growing lickety-split, and its 2016 numbers show just how—and how much. But with the big Monsanto merger top of mind at Bayer…