VCA Inc. Reports Fourth Quarter 2014 Results and Provides Financial Guidance for 2015

  • Revenue increased 10.2% to a fourth quarter record of $479.9 million
  • Gross profit increased 13.2% to $99.0 million
  • Operating income increased 14.7% to $52.7 million
  • Diluted earnings per common share increased 17.9% to $0.33
  • Non-GAAP diluted earnings per common share increased 19.4% to $0.37
  • Acquired a quarterly record 24 independent animal hospitals

LOS ANGELES--()--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, 2014, as follows: revenue increased 10.2% to a fourth quarter record of $479.9 million, gross profit increased 13.2% to $99.0 million, operating income increased 14.7% to $52.7 million, net income increased 16.3% to $29.9 million, and diluted earnings per common share increased 17.9% to $0.33. Non-GAAP diluted earnings per common share, which excludes acquisition-related amortization, increased 19.4% to $0.37.

We also reported our financial results for the twelve months ended December 31, 2014, as follows: revenue increased 6.4% to $1.9 billion, gross profit increased 8.6% to $444.6 million, operating income decreased 0.7% to $247.3 million, net income decreased 1.6% to $140.7 million, and diluted earnings per common share increased 0.7% to $1.54. Our financial results for the twelve months ended December 31, 2014, on a Non-GAAP basis, are as follows: gross profit increased 8.7% to $465.4 million, operating income increased 9.6% to $295.3 million, net income increased 10.3% to $166.3 million, and Non-GAAP diluted earnings per common share increased 12.5% to $1.89.

Our financial 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, related to the write-down of goodwill and other long-lived assets in our Vetstreet business, included in our All Other segments category. Our results also included debt retirement costs of $1.7 million, $1.0 million net of tax, or $0.01 per common share, related to the refinancing of our senior credit facility. Our results for the twelve months ended December 31, 2013, included charges of $3.8 million, $2.3 million net of tax, or $0.03 per diluted common share, related to vacated properties that were consolidated into the then newly constructed VCA West Los Angeles Animal Hospital, as well as a non-cash inventory credit adjustment of $2.8 million, $1.7 million net of tax, or $0.02 per diluted common share.

Bob Antin, Chairman and CEO, stated, “We had another terrific quarter. We experienced solid internal revenue growth of 4.4% and 5.1% in our core Animal Hospital and Laboratory business segments, respectively. Our same-store Animal Hospital gross profit margins increased 80 basis points and our Laboratory gross profit margins increased an impressive 170 basis points. The positive momentum in our business has continued from the third quarter to the end of the year and we are optimistic about our overall growth prospects in 2015.

“Animal Hospital revenue in the fourth quarter of 2014 increased 10.9% to $380.7 million, driven by acquisitions made in the past twelve months and same-store revenue growth of 4.4%. Our same-store gross profit margin increased to 13.5% from 12.7% and our total gross margin increased to 13.2% from 12.5% in the prior-year quarter. During the quarter, we acquired a record 24 independent animal hospitals which had historical combined annual revenue of $68.5 million, bringing our year to date total to $122.5 million.

“Laboratory internal revenue in the fourth quarter of 2014 increased 5.1% to $83.9 million, driven by an increase in the average revenue per requisition of 5.2%. Our Laboratory gross profit margin increased to 46.0% from 44.3% and our operating margin increased to 35.8% from 34.4%.

“During the fourth quarter, we purchased 2.6 million shares of our common stock for $112.8 million. Since the Board authorized our share repurchase program, we have acquired 7.4 million shares of our common stock for $278.5 million from April 2013 through December 31, 2014."

2015 Financial Guidance

We provide the following financial guidance for the full year 2015:

  • Revenue from $2.08 billion to $2.09 billion;
  • Net income from $166 million to $175 million;
  • Diluted earnings per common share from $2.00 to $2.10; and
  • Non-GAAP diluted earnings per common share from $2.17 to $2.27.

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 2014 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 (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 2015 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, 2013, reports on Form 10-Q and our other filings with the SEC.

About VCA Inc.

We own, operate and manage the largest network 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
December 31,
Twelve Months Ended
December 31,
2014       2013 2014       2013
Revenue:
Animal hospital $ 380,694 $ 343,220 $ 1,514,878 $ 1,417,908
Laboratory 84,004 79,806 360,396 344,831
All other 33,871 29,283 115,785 112,740
Intercompany (18,642 ) (16,856 ) (72,576 ) (72,110 )
479,927   435,453   1,918,483   1,803,369  
 
Direct costs 380,909 347,967 1,473,842 1,393,989
 
Gross profit:
Animal hospital 50,128 42,976 230,801 209,127
Laboratory 38,661 35,378 175,808 163,879
All other 10,871 9,538 38,624 38,601
Intercompany (642 ) (406 ) (592 ) (2,227 )
99,018   87,486   444,641   409,380  
 
Selling, general and administrative expense:
Animal hospital 10,761 8,410 39,022 34,133
Laboratory 8,641 8,024 33,550 31,915
All other 9,674 8,368 33,456 32,941
Corporate 18,267   15,493   65,478   58,922  
47,343 40,295 171,506 157,911
Impairment of goodwill and other long-lived assets 27,019
Net (gain) loss on sale of assets (979 ) 1,268   (1,152 ) 2,455  
Operating income 52,654 45,923 247,268 249,014
Interest expense, net 5,215 4,110 17,779 18,549
Debt retirement costs 1,709
Other expense 41   203   219   90  
Income before provision for income taxes 47,398 41,610 227,561 230,375
Provision for income taxes 17,489   15,882   86,878   87,453  
Net income 29,909 25,728 140,683 142,922
Net income attributable to noncontrolling interests 1,550   1,011   5,245   5,411  
Net income attributable to VCA Inc. $ 28,359   $ 24,717   $ 135,438   $ 137,511  
 
Diluted earnings per share $ 0.33   $ 0.28   $ 1.54   $ 1.53  
 
Weighted-average shares outstanding for diluted earnings per share 85,121   89,650   87,825   89,663  
 
 

                     

VCA Inc.

Condensed, Consolidated Balance Sheets

(Unaudited)

(In thousands)

 
December 31,
2014
December 31,
2013
Assets
Current assets:
Cash and cash equivalents $ 81,383 $ 125,029
Trade accounts receivable, net 60,482 59,900
Inventory 56,050 55,067
Prepaid expenses and other 36,924 25,417
Deferred income taxes 30,331 29,018
Prepaid income taxes 18,277   15,434  
Total current assets 283,447 309,865
Property and equipment, net 468,041 448,366
Other assets:
Goodwill 1,415,861 1,321,234
Other intangible assets, net 88,175 86,671
Notes receivable, net 2,807 3,454
Deferred financing costs, net 7,874 2,987
Other 65,815   55,632  
Total assets $ 2,332,020   $ 2,228,209  
 
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 19,356 $ 51,087
Accounts payable 46,284 36,962
Accrued payroll and related liabilities 64,359 57,337
Other accrued liabilities 67,219   58,762  
Total current liabilities 197,218 204,148
Long-term debt, less current portion 775,412 568,558
Deferred income taxes 103,502 93,082
Other liabilities 33,190   34,127  
Total liabilities 1,109,322 899,915
Redeemable noncontrolling interests 11,077 10,678
VCA Inc. stockholders’ equity:
Common stock 83 89
Additional paid-in capital 155,802 384,797
Retained earnings 1,064,158 928,720
Accumulated other comprehensive loss (19,397 ) (6,190 )
Total VCA Inc. stockholders’ equity 1,200,646 1,307,416
Noncontrolling interests 10,975   10,200  
Total equity 1,211,621   1,317,616  
Total liabilities and equity $ 2,332,020   $ 2,228,209  
 
 

     

VCA Inc.

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 
Twelve Months Ended
December 31,
2014                 2013
Cash flows from operating activities:
Net income $ 140,683 $ 142,922
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 79,427 77,409
Amortization of debt issue costs 1,391 1,245
Provision for uncollectible accounts 6,248 7,360
Debt retirement costs 1,709
Net (gain) loss on sale of assets (1,152 ) 2,455
Share-based compensation 17,200 14,104
Deferred income taxes 8,853 18,064
Excess tax benefit from stock based compensation (6,241 ) (3,446 )
Other 531 (377 )
Changes in operating assets and liabilities:
Trade accounts receivable (3,900 ) (11,048 )
Inventory, prepaid expense and other assets (22,897 ) (7,134 )
Accounts payable and other accrued liabilities 11,597 557
Accrued payroll and related liabilities 6,782 6,502
Income taxes 2,960   7,759  
Net cash provided by operating activities 270,210   256,372  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (138,490 ) (52,688 )
Real estate acquired in connection with business acquisitions (9,017 ) (5,328 )
Property and equipment additions (72,948 ) (73,270 )
Proceeds from sale of assets 3,904 7,096
Other (2,691 ) (2,541 )
Net cash used in investing activities (219,242 ) (126,731 )
Cash flows from financing activities:
Repayment of debt (568,011 ) (41,129 )
Proceeds from issuance of long-term debt 600,000
Proceeds from revolving credit facility 135,000
Payment of financing costs (7,987 )
Distributions to noncontrolling interest partners (5,009 ) (4,866 )
Purchase of noncontrolling interest (326 ) (6,581 )
Proceeds from issuance of common stock under stock option plans 2,859 17,233
Excess tax benefit from stock based compensation 6,241 3,446
Repurchase of common stock (255,108 ) (39,367 )
Other (1,424 ) (749 )
Net cash used in financing activities (93,765 ) (72,013 )
Effect of currency exchange rate changes on cash and cash equivalents (849 ) (1,034 )
(Decrease) increase in cash and cash equivalents (43,646 ) 56,594
Cash and cash equivalents at beginning of period 125,029   68,435  
Cash and cash equivalents at end of period $ 81,383   $ 125,029  
 
 

                       

VCA Inc.

Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

 
Table #1

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

 

2014 2013 2014 2013
 
Net income attributable to VCA Inc. $ 28,359 $ 24,717 $ 135,438 $ 137,511

Vacant property adjustments(2)

3,804

Tax benefit from vacant property adjustments(2), (7)

(1,489 )

Inventory adjustment(3)

(2,808 )

Tax expense from inventory adjustment(3), (7)

1,099

Impairment of goodwill and other long-lived assets(4)

27,019

Tax benefit on impairment charge(4), (7)

(9,978 )

Debt Retirement costs(5)

1,709

Tax benefit from debt retirement costs(5), (7)

(669 )

Acquisitions related amortization(1)

5,434 4,781 21,039 20,934

Tax benefit from acquisitions related amortization(1), (7)

(2,127 ) (1,871 ) (8,235 ) (8,194 )
               
Non-GAAP net income attributable to VCA Inc. $ 31,666   $ 27,627   $ 166,323   $ 150,857  
 
 
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)

 

2014 2013 2014 2013
 
Diluted earnings per share $ 0.33 $ 0.28 $ 1.54 $ 1.53

Impact of vacant property adjustments, net of tax(2)

0.03

Impact of inventory adjustment, net of tax(3)

(0.02 )

Impact of goodwill and other long-lived assets impairment, net of tax(4)

0.19

Impact of debt retirement costs, net of tax(5)

0.01

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

0.04 0.03 0.15 0.14
               
Non-GAAP diluted earnings per share $ 0.37   $ 0.31   $ 1.89   $ 1.68  

Shares used for computing diluted earnings per share

85,121   89,650   87,825   89,663  
 
 

           

VCA Inc.

Supplemental Operating Data (continued)

(Unaudited - In thousands, except per share amounts)

 

Table #3

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

December 31,

December 31,

 

2014       2013 2014       2013
 
Consolidated gross profit $ 99,018 $ 87,486 $ 444,641 $ 409,380

Impact of vacant property adjustments(2)

2,046

Impact of inventory adjustment(3)

(2,808 )

Impact of rent expense adjustments(6)

(1,396 )

Impact of acquisitions related amortization(1)

5,374 4,718 20,780 20,753
               
Non-GAAP consolidated gross profit $ 104,392   $ 92,204   $ 465,421   $ 427,975  
Non-GAAP consolidated gross profit margin 21.8 % 21.2 % 24.3 % 23.7 %
 
 
Table #4 Three Months Ended
December 31,
Twelve Months Ended
December 31,

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

 

2014 2013 2014 2013
 
Consolidated operating income $ 52,654 $ 45,923 $ 247,268 $ 249,014

Impact of vacant property adjustments(2)

3,804

Impact of inventory adjustment(3)

(2,808 )

Impact of goodwill and other long-lived assets impairment(4)

27,019

Impact of rent expense adjustments(6)

(1,396 )

Impact of acquisitions related amortization(1)

5,434 4,781 21,039 20,934
               
Non-GAAP consolidated operating income $ 58,088   $ 50,704   $ 295,326   $ 269,548  
Non-GAAP consolidated operating margin 12.1 % 11.6 % 15.4 % 14.9 %

_________________________________________________

(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)

During the first quarter of 2013, we recorded a write-down to net realizable value of $1.8 million related to a vacant property that was held for sale, and we accrued costs totaling $2.0 million related to a vacant leased property.

 
(3)

In the third quarter of 2013, we recorded a non-cash physical inventory adjustment in our Animal Hospital business segment which resulted in a $2.8 million credit adjustment to direct costs.

 
(4) In the third quarter, 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.
 
(5) Also in the third quarter, we incurred debt retirement costs of $1.7 million related to the refinancing of our senior credit facility.
 
(6) In the second quarter of 2013, we recorded a reduction in rent expense as a result of a capital lease that was previously treated as an operating lease in our Animal Hospital segment.
 
(7) The rate used to calculate the tax benefit is the statutory rate of the applicable year.
 
 

                 

VCA Inc.

Supplemental Operating Data (continued)

(Unaudited - In thousands, except per share amounts)

 
As of
Table #5 December 31,
2014
      December 31,
2013
Selected consolidated balance sheet data
Debt:
Senior term notes $ 600,000 $ 556,914
Revolving credit 135,000
Other debt and capital leases 59,768   62,731  
Total debt $ 794,768   $ 619,645  
 
 
Three Months Ended
December 31,
Twelve Months Ended
December 31,
Table #6
Selected expense data 2014 2013 2014 2013
 
Rent expense $ 18,463   $ 16,940   $ 69,747   $ 67,615  
 

Depreciation and amortization included in direct costs:

Animal hospital $ 15,822 $ 14,530 $ 60,395 $ 57,011
Laboratory 2,649 2,571 10,358 10,157
All other 824 1,519 5,731 5,122
Intercompany (514 ) (448 ) (1,931 ) (1,783 )
$ 18,781 $ 18,172 $ 74,553 $ 70,507

Depreciation and amortization included in selling, general and administrative expense

987   1,454   4,874   6,902  
Total depreciation and amortization $ 19,768   $ 19,626   $ 79,427   $ 77,409  
 
Share-based compensation included in direct costs:
Laboratory $ 216 $ 120 $ 653 $ 448
 

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

Animal hospital 721 306 2,132 1,723
Laboratory 440 319 1,513 1,198
All other 237 236 842 794
Corporate 3,352   2,783   12,060   9,941  
4,750   3,644   16,547   13,656  
Total share-based compensation $ 4,966   $ 3,764   $ 17,200   $ 14,104  
 

Contacts

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

Contacts

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