VCA Antech, Inc. Reports Third Quarter 2012 Results

  • Third quarter revenue increased 12.6% to a third quarter record of $433.6 million
  • Third quarter gross profit increased 10.0% to $99.2 million
  • Third quarter diluted earnings per common share increased to $0.38

LOS ANGELES--()--VCA Antech, 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, 2012 as follows: revenue increased 12.6% to a third quarter record of $433.6 million; gross profit increased 10.0% to $99.2 million; net income was $34.0 million and diluted earnings per common share was $0.38.

For the three months ended September 30, 2012 and 2011, diluted earnings per share were $0.38 and $0.35, respectively. The third quarter of 2011 included debt retirement costs of $2.8 million, or $1.7 million net of tax, related to the refinancing of our senior credit facility. Excluding this item, adjusted diluted earnings per common share for the third quarter of 2011 was $0.37.

For the nine months ended September 30, 2012 and 2011, diluted earnings per common share were $1.17 and $1.13, respectively. The results for the nine months ended September 30, 2012, included a gain of $5.7 million on our 20% interest in Associate Veterinary Clinics held at the time we became its sole non-veterinarian shareholder and a depreciation adjustment of $3.1 million, related to acquired capital leases. The results for the nine months ended September 30, 2011, included the debt retirement costs referenced above. Excluding these adjustments, adjusted diluted earnings per common share, for the nine months ended September 30, 2012 and 2011, were $1.13 and $1.15, respectively.

Bob Antin, Chairman and CEO, stated, “We are pleased with the improvement in revenue and gross profit margins in both our core Animal Hospitals and Laboratory business segments. We continued our growth strategy of acquiring individual animal hospitals in markets that complement our existing locations, with acquisitions totaling over $30.0 million during the quarter. In the third quarter of 2012 our Animal Hospital and Laboratory businesses saw sequential improvement in year-over-year organic growth rates and gross profit margins.

“Animal Hospital revenue in the third quarter of 2012 increased 13.1%, to $342.8 million, driven by acquisitions made in the past twelve months and same-store revenue growth of 1.1%. Our same-store gross profit margin decreased to 16.5%, from 17.2%, and with the lower margins of acquired Animal Hospitals, our consolidated gross margin decreased to 15.8%, compared to 17.0%, for the prior-year quarter. Our Animal Hospital operating margin decreased to 13.6%, compared to 15.1%, for the prior-year quarter. During the quarter, we acquired 10 independent animal hospitals which had historical combined annual revenue of $33.6 million.

“Laboratory internal revenue in the third quarter increased 3.5%, to $81.2 million, driven by both an increase in the number of requisitions and the average revenue per requisition. Our Laboratory gross profit margin increased from 44.7%, to 45.7%, and our operating margin increased from 35.8% to 36.8%.

“Revenue from our other operations reported in our All Other segment increased $9.2 million in the third quarter, to $28.1 million, primarily as a result of the acquisitions of Vetstreet and ThinkPets."

Conference Call

We will discuss our third-quarter 2012 financial results during a conference call today, October 25th, at 4:30 p.m. Eastern Time. A live broadcast of the call may be accessed by visiting our website at investor.vcaantech.com. The call may also be accessed by dialing (877) 293-5492. Interested parties should call at least 10 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 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 (including Vetstreet); 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 Antech

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 Antech, Inc.
Consolidated Income Statements
(Unaudited)

(In thousands, except per share amounts)

 
        Three Months Ended           Nine Months Ended
September 30, September 30,
2012   2011 2012   2011
Revenue:
Animal hospital $ 342,840 $ 303,203 $ 1,001,247 $ 864,476
Laboratory 81,286 78,985 252,636 242,919
All other 28,100 18,882 81,843 54,187
Intercompany (18,613 ) (15,935 ) (54,276 ) (45,219 )
433,613   385,135   1,281,450   1,116,363  
 
Direct costs 334,432 294,998 988,283 849,616
 
Gross profit:
Animal hospital 54,252 51,590 149,188 144,083
Laboratory 37,177 35,328 120,024 112,727
All other 8,883 4,733 27,344 13,981
Intercompany (1,131 ) (1,514 ) (3,389 ) (4,044 )
99,181   90,137   293,167   266,747  
 
Selling, general and administrative expense:
Animal hospital 7,745 6,126 22,797 18,253
Laboratory 7,285 7,088 22,393 20,577
All other 8,764 4,669 27,076 11,809
Corporate 13,814   14,605   43,390   34,695  
37,608   32,488   115,656   85,334  
Net loss (gain) on sale of assets 387 (192 ) 1,022 (43 )
Operating income 61,186 57,841 176,489 181,456
Interest expense, net 4,295 4,222 12,746 12,816
Debt retirement costs 2,764 2,764
Business combination adjustment gain (5,719 )
Other (income) expense (284 ) 8   (639 ) (1 )
Income before provision for income taxes 57,175 50,847 170,101 165,877
Provision for income taxes 21,533   19,488   62,360   63,957  
Net income 35,642 31,359 107,741 101,920
Net income attributable to noncontrolling interests 1,605   1,190   4,139   3,300  
Net income attributable to VCA Antech, Inc $ 34,037   $ 30,169   $ 103,602   $ 98,620  
 
Diluted earnings per share $ 0.38   $ 0.35   $ 1.17   $ 1.13  
 
Weighted-average shares outstanding for diluted earnings per share 88,654   87,253   88,589   87,293  
 

 
VCA Antech, Inc.
Consolidated Balance Sheets
(Unaudited)

(In thousands)

 
        September 30,         December 31,
2012 2011
Assets
Current assets:
Cash and cash equivalents $ 79,661 $ 63,651
Trade accounts receivable, net 62,061 58,279
Inventory 53,526 48,661
Prepaid expenses and other 24,302 21,883
Deferred income taxes 28,747 26,310
Prepaid income taxes 20,610   18,373
Total current assets 268,907 237,157
Property and equipment, net 392,367 370,646
Other assets:
Goodwill 1,366,117 1,237,607
Other intangible assets, net 116,762 92,403
Notes receivable, net 6,193 6,202
Deferred financing costs, net 4,549 5,435
Other 46,390   45,918
Total assets $ 2,201,285   $ 1,995,368
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 34,996 $ 32,571
Accounts payable 37,859 37,797
Accrued payroll and related liabilities 55,152 42,658
Other accrued liabilities 56,352   43,968
Total current liabilities 184,359 156,994
Long-term debt, less current portion 604,445 586,282
Deferred income taxes 122,317 101,229
Other liabilities 37,429   25,947

Total liabilities

948,550 870,452
Redeemable noncontrolling interests 6,975 6,964
VCA Antech, Inc. stockholders’ equity:
Common stock 88 87
Additional paid-in capital 382,479 361,715
Retained earnings 849,260 745,658
Accumulated other comprehensive income 2,883   418
Total VCA Antech, Inc. stockholders’ equity 1,234,710 1,107,878
Noncontrolling interests 11,050   10,074
Total equity 1,245,760   1,117,952
Total liabilities and equity $ 2,201,285   $ 1,995,368
 

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

(In thousands)

 
        Nine Months Ended
September 30,
2012           2011
Cash flows from operating activities:
Net income $ 107,741 $ 101,920
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 56,882 41,386
Amortization of debt issue costs 961 1,169
Provision for uncollectible accounts 4,437 4,510
Debt retirement costs 2,764
Business combination adjustment gain (5,719 )
Net loss (gain) on sale of assets 1,022 (43 )
Share-based compensation 10,466 6,610
Deferred income taxes 14,119 14,649
Excess tax benefit from exercise of stock options (358 ) (963 )
Other (838 ) (489 )
Changes in operating assets and liabilities:
Trade accounts receivable (5,079 ) (7,018 )
Inventory, prepaid expense and other assets (6,727 ) (9,806 )
Accounts payable and other accrued liabilities 3,161 (8,328 )
Accrued payroll and related liabilities 10,007 8,523
Income taxes (1,636 ) 8,707  
Net cash provided by operating activities 188,439   163,591  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (108,031 ) (190,363 )
Real estate acquired in connection with business acquisitions (1,602 ) (1,900 )
Property and equipment additions (55,257 ) (43,275 )
Proceeds from sale of assets 112 447
Other (1,583 ) (723 )
Net cash used in investing activities (166,361 ) (235,814 )
Cash flows from financing activities:
Repayment of debt (52,040 ) (90,945 )
Proceeds from issuance of long-term debt 50,000 150,000
Proceeds from revolving credit facility 50,000 50,000
Repayment of revolving credit facility (50,000 ) (50,000 )
Payment of financing costs (122 ) (2,944 )
Distributions to noncontrolling interest partners (2,802 ) (1,959 )
Proceeds from issuance of common stock under stock option plans 3,321 2,596
Excess tax benefit from exercise of stock options 358 963
Stock repurchases (3,897 ) (2,663 )
Other (1,272 ) (345 )
Net cash (used in) provided by financing activities (6,454 ) 54,703  
Effect of currency exchange rate changes on cash and cash equivalents 386 (363 )
Increase (decrease) in cash and cash equivalents 16,010 (17,883 )
Cash and cash equivalents at beginning of period 63,651   97,126  
Cash and cash equivalents at end of period $ 79,661   $ 79,243  
 

 
VCA Antech, 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 Antech, Inc., to adjusted net income

attributable to VCA Antech, Inc. (1)

2012

2011

2012

2011

 
Net income attributable to VCA Antech, Inc. $ 34,037 $ 30,169 $ 103,602 $ 98,620
Debt retirement costs (2) 2,764 2,764
Tax benefit from debt retirement costs (2) (1,079 ) (1,079 )
Business combination adjustment gain (3) (5,719 )
Depreciation expense adjustment (4) 3,051
Tax benefit from depreciation expense adjustment (4)     (1,194 )  
Adjusted net income attributable to VCA Antech, Inc. $ 34,037   $ 31,854   $ 99,740   $ 100,305  
 
Table #2   Three Months Ended
September 30,
    Nine Months Ended
September 30,
Reconciliation of diluted earnings per share to
adjusted diluted earnings per share (1) 2012 2011 2012 2011
 
Diluted earnings per share $ 0.38 $ 0.35 $ 1.17 $ 1.13
Impact of debt retirement costs, net of tax (2) 0.02 0.02
Impact of business combination adjustment gain (3) (0.06 )
Impact of depreciation expense adjustment, net of tax (4)     0.02    
Adjusted diluted earnings per share $ 0.38   $ 0.37   $ 1.13   $ 1.15  
Shares used for computing adjusted
diluted earnings per share 88,654   87,253   88,589   87,293  
 
Table #3   Three Months Ended
September 30,
    Nine Months Ended
September 30,
Reconciliation of gross profit to
adjusted gross profit (1) 2012 2011 2012 2011
 
Consolidated gross profit $ 99,181 $ 90,137 $ 293,167 $ 266,747

Impact of depreciation expense adjustment (4)

    3,051    
Consolidated adjusted gross profit $ 99,181   $ 90,137   $ 296,218   $ 266,747  
Consolidated adjusted gross profit margin 22.9 % 23.4 % 23.1 % 23.9 %
 
(1)       Management uses adjusted net income, adjusted diluted earnings per share, and adjusted gross profit and its components among other factors, to measure the performance of the overall Company. Further, we believe that investors' understanding of our performance is enhanced by disclosing these measures. Adjusted net income and its components and adjusted diluted EPS measures are not, and should not be viewed as substitutes for, U.S. generally accepted accounting principles (GAAP) net income and its components and diluted earnings per share.
 
(2) During the prior year quarter, we incurred debt retirement costs related to the refinancing of our senior credit facility. The rate used to calculate the tax benefit is the statutory rate of the applicable year.
 
(3) As a result of the acquisition of a controlling interest in AVC, we recorded a gain for the increase in value of our previously held interest in AVC, which we acquired in 2008.
 
(4)

Due to the corrections on the calculation of depreciation on certain assets, we recognized additional depreciation expense during the second quarter. The rate used to calculate the tax benefit is the statutory rate of the applicable year.

 

 
VCA Antech, Inc.
Supplemental Operating Data (cont)

(Unaudited – In thousands, except per share amounts)

 

 

                      As of
September 30,         December 31,
Table #4 2012 2011
Selected consolidated balance sheet data
Debt:
Senior term notes $ 600,313 $ 573,984
Other debt and capital leases 39,128   44,869  
Total debt $ 639,441   $ 618,853  
 
  Three Months Ended
September 30,
    Nine Months Ended
September 30,
Table #5
Selected expense data 2012 2011 2012 2011
 
Rent expense $ 16,547   $

13,952

  $ 48,927   $ 40,337  
 
Depreciation and amortization included

 

in direct costs:
Animal hospital $ 13,775 $ 10,301 $ 40,067 $ 29,544
Laboratory 2,451 2,458 7,344 7,232
All other 1,968 1,299 5,313

 

2,130
Intercompany (395 ) (334 ) (1,102 ) (953 )
$ 17,799 $ 13,724 $ 51,622 $ 37,953

Depreciation and amortization included in selling,

general and administrative expense 1,720   1,206   5,260   3,433  
Total depreciation and amortization $ 19,519   $ 14,930   $ 56,882   $ 41,386  
 
Share-based compensation included in direct costs:
Laboratory $ 63 $ 116 $ 244 $ 311
 
Share-based compensation included in
selling, general and administrative expense:
Animal hospital 219 329 758 877
Laboratory 216 399 847 920
All other 145 73 436 201
Corporate 2,056   3,162   8,181   4,301  
2,636   3,963   10,222   6,299  
Total share-based compensation $ 2,699   $ 4,079   $ 10,466   $ 6,610  

Contacts

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

Release Summary

Financial Results for VCA Antech Q3 2012

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Contacts

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