VCA Inc. Reports Second Quarter 2015 Results and Increases Financial Guidance for 2015

  • Revenue increased 12.1% to a second quarter record of $548.8 million
  • Gross profit increased 17.0% to $140.8 million
  • Operating income increased 21.6% to $97.2 million
  • Diluted earnings per common share increased 27.5% to $0.65
  • Non-GAAP diluted earnings per common share increased 27.3% to $0.70

LOS ANGELES--()--VCA Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the second quarter ended June 30, 2015, as follows: revenue increased 12.1% to a second quarter record of $548.8 million; gross profit increased 17.0% to $140.8 million; operating income increased 21.6% to $97.2 million; net income increased 19.1% to $54.3 million and diluted earnings per common share increased 27.5% to $0.65. Non-GAAP diluted earnings per common share, which excludes acquisition-related amortization, increased 27.3% to $0.70.

We also reported our financial results for the six months ended June 30, 2015, as follows: revenue increased 11.6% to $1.0 billion, gross profit increased 14.8% to $254.7 million, operating income increased 17.8% to $166.3 million, net income increased 16.3% to $92.6 million, and diluted earnings per common share increased 24.7% to $1.11. Our financial results for the six months ended June 30, 2015, on a Non-GAAP basis, are as follows: gross profit increased 14.6% to $266.0 million, operating income increased 17.3% to $178.0 million, net income increased 15.8% to $99.5 million, and Non-GAAP diluted earnings per common share increased 25.0% to $1.20.

Bob Antin, Chairman and CEO, stated, "We had a great quarter. Our Animal Hospital business segment same-store revenue growth rate continues to accelerate, driven once again by an increase in both the number of orders and the average revenue per order. Our Laboratory business segment experienced 7.3% internal revenue growth resulting in a 220 basis point increase in gross profit margin. Accordingly, we remain very optimistic with respect to our results for the full year ended December 2015.

"Animal Hospital revenue in the current quarter increased 12.6%, to $435.4 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 6.0%. Our same-store gross profit margin increased to 17.3%, from 16.6% and our total gross margin increased to 16.9%, from 16.4% in the prior-year quarter. During the quarter, we acquired 12 independent animal hospitals which had historical combined annual revenue of $30.5 million.

"Laboratory internal revenue in the second quarter increased 7.3%, to $103.0 million. Our Laboratory gross profit margin increased to 53.4%, from 51.2% and our operating margin increased to 44.4%, from 42.5% in the prior-year quarter.

"During the quarter we repurchased 840,000 shares of our common stock for $43.9 million. Since the Board authorized our repurchase programs in April 2013, through the second quarter 2015, we have acquired 9.1 million shares for $365.7 million, including commissions. At the end of the second quarter, we have $159.5 million left in our authorization."

2015 Guidance

We are revising our 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 second quarter 2015 financial results during a conference call today, July 29th, 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
June 30,
Six Months Ended
June 30,
2015   2014 2015   2014
Revenue:
Animal hospital $ 435,376 $ 386,776 $ 828,402 $ 738,364
Laboratory 106,222 95,955 200,194 184,489
All other 28,669 23,712 62,896 51,833
Intercompany (21,482 ) (16,971 ) (43,254 ) (35,707 )
548,785   489,472   1,048,238   938,979  
 
Direct costs 407,938 369,057 793,529 717,113
 
Gross profit:
Animal hospital 73,385 63,336 128,869 112,136
Laboratory 56,703 49,092 104,685 92,123
All other 11,389 7,648 22,813 17,617
Intercompany (630 ) 339   (1,658 ) (10 )
140,847   120,415   254,709   221,866  
 
Selling, general and administrative expense:
Animal hospital 10,453 9,864 21,674 18,992
Laboratory 9,487 8,281 18,352 16,299
All other 7,741 7,411 16,428 15,759
Corporate 16,804   14,375   32,429   30,321  
44,485   39,931   88,883   81,371  
 
Net (gain) loss on sale or disposal of assets (819 ) 578   (484 ) (643 )
Operating income 97,181 79,906 166,310 141,138
Interest expense, net 5,104 4,030 9,941 8,197
Other (income) expense (37 ) 43   29   (10 )
Income before provision for income taxes 92,114 75,833 156,340 132,951
Provision for income taxes 36,191   28,925   60,864   51,128  
Net income 55,923 46,908 95,476 81,823
Net income attributable to noncontrolling interests 1,624   1,324   2,876   2,196  
Net income attributable to VCA Inc. $ 54,299   $ 45,584   $ 92,600   $ 79,627  
 
Diluted earnings per share $ 0.65   $ 0.51   $ 1.11   $ 0.89  
 
Weighted-average shares outstanding for diluted earnings per share 83,084   89,191   83,227   89,312  
 

   
VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
June 30,
2015
December 31,
2014
Assets
Current assets:
Cash and cash equivalents $ 74,326 $ 81,383
Trade accounts receivable, net 81,593 60,482
Inventory 53,789 56,050
Prepaid expenses and other 27,874 36,924
Deferred income taxes 30,324 30,331
Prepaid income taxes 6,472   18,277  
Total current assets 274,378 283,447
Property and equipment, net 477,929 468,041
Other assets:
Goodwill 1,452,370 1,415,861
Other intangible assets, net 98,908 88,175
Notes receivable 2,471 2,807
Deferred financing costs, net 7,004 7,874
Other 84,050   65,815  
Total assets $ 2,397,110   $ 2,332,020  
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 33,881 $ 19,356
Accounts payable 42,071 46,284
Accrued payroll and related liabilities 72,697 64,359
Other accrued liabilities 73,093   67,219  
Total current liabilities 221,742 197,218
Long-term debt, less current portion 819,380 775,412
Deferred income taxes 103,424 103,502
Other liabilities 31,862   33,190  
Total liabilities 1,176,408 1,109,322
Redeemable noncontrolling interests 11,183 11,077
VCA Inc. stockholders’ equity:
Common stock 81 83
Additional paid-in capital 72,590 155,802
Retained earnings 1,156,758 1,064,158
Accumulated other comprehensive loss (30,331 ) (19,397 )
Total VCA Inc. stockholders’ equity 1,199,098 1,200,646
Noncontrolling interests 10,421   10,975  
Total equity 1,209,519   1,211,621  
Total liabilities and equity $ 2,397,110   $ 2,332,020  
 

 
 
VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Six Months Ended
June 30,
2015   2014
Cash flows from operating activities:
Net income $ 95,476 $ 81,823
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 40,163 39,797
Amortization of debt issue costs 870 604
Provision for uncollectible accounts 3,379 2,612
Net gain on sale or disposal of assets (484 ) (643 )
Share-based compensation 8,269 8,571
Excess tax benefit from stock based compensation (4,729 ) (2,092 )
Other (658 ) (53 )
Changes in operating assets and liabilities:
Trade accounts receivable (24,217 ) (8,945 )
Inventory, prepaid expense and other assets (8,942 ) (6,610 )
Accounts payable and other accrued liabilities (4,196 ) 1,171
Accrued payroll and related liabilities 8,300 3,816
Income taxes 16,525   8,062  
Net cash provided by operating activities 129,756   128,113  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (66,529 ) (30,764 )
Property and equipment additions (34,521 ) (27,979 )
Proceeds from sale of assets 6,164 4,456
Other 205   55  
Net cash used in investing activities (94,681 ) (54,232 )
Cash flows from financing activities:
Repayment of debt (7,924 ) (26,218 )
Proceeds from revolving credit facility 61,000
Distributions to non-controlling interest partners (2,447 ) (2,259 )
Purchase of non-controlling interests (1,493 ) (326 )
Proceeds from issuance of common stock under stock option plans 679 467
Excess tax benefit from stock based compensation 4,729 2,092
Repurchase of common stock (96,674 ) (49,091 )
Other (80 ) (838 )
Net cash used in financing activities (42,210 ) (76,173 )
Effect of currency exchange rate changes on cash and cash equivalents 78 (202 )
Decrease in cash and cash equivalents (7,057 ) (2,494 )
Cash and cash equivalents at beginning of period 81,383   125,029  
Cash and cash equivalents at end of period $ 74,326   $ 122,535  
 

       
VCA Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)
 
Table #1
Reconciliation of net income attributable to Three Months Ended
June 30,
Six Months Ended
June 30,
VCA Inc., to Non-GAAP net income attributable
to VCA Inc. (1) 2015 2014 2015 2014
 
Net income attributable to VCA Inc. $ 54,299 $ 45,584 $ 92,600 $ 79,627
Acquisitions related amortization (1) 5,858 5,227 11,384 10,374
Tax benefit from acquisitions related amortization (1) (2,293 ) (2,046 ) (4,456 ) (4,060 )
Non-GAAP net income attributable to VCA Inc. $ 57,864   $ 48,765   $ 99,528   $ 85,941  
 
Table #2 Three Months Ended
June 30,
Six Months Ended
June 30,
Reconciliation of diluted earnings per share to
Non-GAAP diluted earnings per share (1) 2015 2014 2015 2014
 
Diluted earnings per share $ 0.65 $ 0.51 $ 1.11 $ 0.89
Impact of acquisitions related amortization, net of tax (1) 0.04   0.04   0.08   0.07  
Non-GAAP diluted earnings per share (2) $ 0.70   $ 0.55   $ 1.20   $ 0.96  
 
Shares used for computing diluted earnings per share 83,084   89,191   83,227   89,312  
 
 
Table #3 Three Months Ended
June 30,
Six Months Ended
June 30,
Reconciliation of consolidated gross profit to
Non-GAAP consolidated gross profit (1) 2015 2014 2015 2014
 
Consolidated gross profit $ 140,847 $ 120,415 $ 254,709 $ 221,866
Impact of acquisitions related amortization (1) 5,798   5,160   11,263   10,240  
Non-GAAP consolidated gross profit $ 146,645   $ 125,575   $ 265,972   $ 232,106  
Non-GAAP consolidated gross profit margin 26.7% 25.7% 25.4% 24.7%
 
Table #4 Three Months Ended
June 30,
Six Months Ended
June 30,
Reconciliation of consolidated operating income to
Non-GAAP consolidated operating income (1) 2015 2014 2015 2014
 
Consolidated operating income $ 97,181 $ 79,906 $ 166,310 $ 141,138
Impact of acquisitions related amortization (1) 5,858   5,227   11,384   10,374  
Non-GAAP consolidated operating income $ 103,039   $ 85,133   $ 177,694   $ 151,512  
Non-GAAP consolidated operating margin 18.8% 17.4% 17.0% 16.1%
 

_________________________________________________

(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) Amounts may not add due to rounding.

   
VCA Inc.
Supplemental Operating Data (cont)
(Unaudited - In thousands, except per share amounts)
 
As of
Table #5   June 30,
2015
  December 31,
2014
Selected consolidated balance sheet data
Debt:
Senior term notes $ 600,000 $ 600,000
Revolving credit 196,000 135,000
Other debt and capital leases 57,261   59,768  
Total debt $ 853,261   $ 794,768  
 
Three Months Ended
June 30,
Six Months Ended
June 30,
Table #6
Selected expense data 2015 2014 2015 2014
 
Rent expense $ 18,841   $ 16,879   $ 37,621   $ 33,808  
 
Depreciation and amortization included
in direct costs:
Animal hospital $ 16,381 $ 14,955 $ 32,343 $ 29,529
Laboratory 2,676 2,543 5,151 5,059
All other 963 1,671 1,903 3,402
Intercompany (530 ) (473 ) (1,053 ) (938 )
$ 19,490 $ 18,696 $ 38,344 $ 37,052
Depreciation and amortization included in selling,
general and administrative expense 876   1,334   1,819   2,745  
Total depreciation and amortization $ 20,366   $ 20,030   $ 40,163   $ 39,797  
 
Share-based compensation included in direct costs:
Laboratory $ 163 $ 133 $ 324 $ 283
 
Share-based compensation included in
selling, general and administrative expense:
Animal hospital 673 424 1,337 941
Laboratory 376 352 742 733
All other 198 191 400 373
Corporate 2,727   2,927   5,466   6,241  
3,974   3,894   7,945   8,288  
Total share-based compensation $ 4,137   $ 4,027   $ 8,269   $ 8,571  
 

Contacts

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

Contacts

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