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, 2014, as follows: revenue increased 5.2% to a second quarter record of $489.5 million; gross profit increased 5.4% to $120.4 million; operating income increased 5.6% to $79.9 million; net income increased 9.4% to $45.6 million and diluted earnings per common share increased 10.9% to $0.51. Non-GAAP earnings per diluted common share excluding acquisition-related amortization ("Adjusted EPS Excluding Amortization") increased 10.0% to $0.55 for the three months ended June 30, 2014. The increase in our earnings per share was aided by our share buyback program.
For the six months ended June 30, 2014 and 2013, diluted earnings per share was $0.89 and $0.81, respectively. Adjusted EPS Excluding Amortization was $0.96 and $0.90 for the six months ended June 30, 2014 and 2013, respectively. The adjusted diluted earnings per share for the six months ended June 30, 2013, excludes $3.8 million of pre-tax charges related to vacated properties. The operations of two animal hospitals we vacated were consolidated into the newly constructed, VCA West Los Angeles Animal Hospital in the prior year.
Bob Antin, Chairman and CEO, stated, "We are very pleased with the increase in our organic revenue growth rates and related margin improvement in both our core Animal Hospital and Laboratory business segments. Accordingly, we remain optimistic with respect to our results for the second half of the year.
"Animal Hospital revenue in the current quarter increased 5.9%, to $386.8 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 2.2%. Our same-store gross profit margin increased to 16.8% from 16.6%, while our total gross margin decreased slightly to 16.4%, from 16.5% in the prior-year quarter. The following margins are adjusted excluding amortization: adjusted same-store gross profit margin increased to 17.7%, from 17.4% in the prior-year quarter; adjusted total gross margin increased to 17.4%, from 17.3% in the prior-year quarter; adjusted operating margin decreased to 14.8%, from 14.9% in the prior-year quarter. During the quarter, we acquired six independent animal hospitals which had historical combined annual revenue of $12.1 million.
"Laboratory internal revenue in the second quarter increased 5.0%, to $95.8 million. Our Laboratory gross profit margin increased to 51.2% from 49.6%, and our operating margin increased as well to 42.5%, from 40.8% in the prior-year quarter. Excluding amortization expense, our adjusted Laboratory gross profit margin increased to 51.4%, from 49.8% in the prior-year quarter, and our adjusted operating margin likewise increased to 42.8%, from 41.1% in the prior-year quarter.
"Revenue from our other operations reported in our All Other segment decreased to $23.7 million, from $27.5 million in the prior-year quarter. Sound-Eklin, our medical technology business included in this segment, was negatively impacted by the May 2014 fire, which destroyed their offices and manufacturing facility. We are grateful for the support of our clients, VCA family and friends in the veterinary industry as we work to bring their operations back to normal."
2014 Financial Guidance
We reaffirm the annual guidance provided on February 13, 2014.
Non-GAAP Financial Measures
We believe investors’ understanding of our total performance is enhanced by disclosing adjusted net income, adjusted diluted earnings per common share and Adjusted EPS Excluding Amortization. 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 2014 financial results during a conference call today, July 24th, 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 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 2014 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Revenue: | ||||||||||||||||
| Animal hospital | $ | 386,776 | $ | 365,205 | $ | 738,364 | $ | 705,820 | ||||||||
| Laboratory | 95,955 | 91,230 | 184,489 | 178,565 | ||||||||||||
| All other | 23,712 | 27,472 | 51,833 | 55,995 | ||||||||||||
| Intercompany | (16,971 | ) | (18,652 | ) | (35,707 | ) | (36,519 | ) | ||||||||
| 489,472 | 465,255 | 938,979 | 903,861 | |||||||||||||
| Direct costs | 369,057 | 350,961 | 717,113 | 692,644 | ||||||||||||
| Gross profit: | ||||||||||||||||
| Animal hospital | 63,336 | 60,113 | 112,136 | 105,312 | ||||||||||||
| Laboratory | 49,092 | 45,226 | 92,123 | 87,691 | ||||||||||||
| All other | 7,648 | 9,423 | 17,617 | 19,057 | ||||||||||||
| Intercompany | 339 | (468 | ) | (10 | ) | (843 | ) | |||||||||
| 120,415 | 114,294 | 221,866 | 211,217 | |||||||||||||
| Selling, general and administrative expense: | ||||||||||||||||
| Animal hospital | 9,864 | 8,720 | 18,992 | 17,045 | ||||||||||||
| Laboratory | 8,281 | 7,965 | 16,299 | 15,970 | ||||||||||||
| All other | 7,411 | 8,041 | 15,759 | 16,955 | ||||||||||||
| Corporate | 14,375 | 14,297 | 30,321 | 28,899 | ||||||||||||
| 39,931 | 39,023 | 81,371 | 78,869 | |||||||||||||
| Net loss (gain) on sale or disposal of assets | 578 | (430 | ) | (643 | ) | 1,296 | ||||||||||
| Operating income | 79,906 | 75,701 | 141,138 | 131,052 | ||||||||||||
| Interest expense, net | 4,030 | 5,658 | 8,197 | 9,965 | ||||||||||||
| Other expense (income) | 43 | (18 | ) | (10 | ) | (27 | ) | |||||||||
| Income before provision for income taxes | 75,833 | 70,061 | 132,951 | 121,114 | ||||||||||||
| Provision for income taxes | 28,925 | 26,601 | 51,128 | 45,831 | ||||||||||||
| Net income | 46,908 | 43,460 | 81,823 | 75,283 | ||||||||||||
| Net income attributable to noncontrolling interests | 1,324 | 1,798 | 2,196 | 3,136 | ||||||||||||
| Net income attributable to VCA Inc. | $ | 45,584 | $ | 41,662 | $ | 79,627 | $ | 72,147 | ||||||||
| Diluted earnings per share | $ | 0.51 | $ | 0.46 | $ | 0.89 | $ | 0.81 | ||||||||
| Weighted-average shares outstanding for diluted earnings per share | 89,191 | 89,653 | 89,312 | 89,531 | ||||||||||||
| VCA Inc. | ||||||||
| Condensed, Consolidated Balance Sheets | ||||||||
| (Unaudited) | ||||||||
(In thousands) | ||||||||
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 122,535 | $ | 125,029 | ||||
| Trade accounts receivable, net | 65,979 | 59,900 | ||||||
| Inventory | 42,483 | 55,067 | ||||||
| Prepaid expenses and other | 39,921 | 25,417 | ||||||
| Deferred income taxes | 28,908 | 28,907 | ||||||
| Prepaid income taxes | 9,369 | 15,434 | ||||||
| Total current assets | 309,195 | 309,754 | ||||||
| Property and equipment, net | 445,199 | 448,366 | ||||||
| Other assets: | ||||||||
| Goodwill | 1,355,396 | 1,330,917 | ||||||
| Other intangible assets, net | 82,746 | 86,671 | ||||||
| Notes receivable | 3,199 | 3,454 | ||||||
| Deferred financing costs, net | 2,383 | 2,987 | ||||||
| Other | 61,120 | 55,632 | ||||||
| Total assets | $ | 2,259,238 | $ | 2,237,781 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 50,808 | $ | 51,087 | ||||
| Accounts payable | 43,827 | 36,962 | ||||||
| Accrued payroll and related liabilities | 61,192 | 57,337 | ||||||
| Other accrued liabilities | 53,168 | 58,762 | ||||||
| Total current liabilities | 208,995 | 204,148 | ||||||
| Long-term debt, less current portion | 542,978 | 568,558 | ||||||
| Deferred income taxes | 100,219 | 100,099 | ||||||
| Other liabilities | 36,505 | 36,758 | ||||||
| Total liabilities | 888,697 | 909,563 | ||||||
| Redeemable noncontrolling interests | 10,984 | 10,678 | ||||||
| VCA Inc. stockholders’ equity: | ||||||||
| Common stock | 87 | 89 | ||||||
| Additional paid-in capital | 346,792 | 384,721 | ||||||
| Retained earnings | 1,008,347 | 928,720 | ||||||
| Accumulated other comprehensive loss | (6,852 | ) | (6,190 | ) | ||||
| Total VCA Inc. stockholders’ equity | 1,348,374 | 1,307,340 | ||||||
| Noncontrolling interests | 11,183 | 10,200 | ||||||
| Total equity | 1,359,557 | 1,317,540 | ||||||
| Total liabilities and equity | $ | 2,259,238 | $ | 2,237,781 | ||||
| VCA Inc. | ||||||||
| Condensed, Consolidated Statements of Cash Flows | ||||||||
| (Unaudited) | ||||||||
(In thousands) | ||||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2014 | 2013 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 81,823 | $ | 75,283 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 39,797 | 37,739 | ||||||
| Amortization of debt issue costs | 604 | 626 | ||||||
| Provision for uncollectible accounts | 2,612 | 3,364 | ||||||
| Net (gain) loss on sale or disposal of assets | (643 | ) | 1,296 | |||||
| Share-based compensation | 8,571 | 7,419 | ||||||
| Deferred income taxes | — | 2,868 | ||||||
| Excess tax benefit from exercise of stock options | (2,092 | ) | (771 | ) | ||||
| Other | (53 | ) | (384 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Trade accounts receivable | (8,945 | ) | (17,709 | ) | ||||
| Inventory, prepaid expense and other assets | (6,610 | ) | (470 | ) | ||||
| Accounts payable and other accrued liabilities | 1,171 | 4,329 | ||||||
| Accrued payroll and related liabilities | 3,816 | 1,886 | ||||||
| Income taxes | 8,062 | 12,595 | ||||||
| Net cash provided by operating activities | 128,113 | 128,071 | ||||||
| Cash flows from investing activities: | ||||||||
| Business acquisitions, net of cash acquired | (29,271 | ) | (21,835 | ) | ||||
| Real estate acquired in connection with business acquisitions | (1,493 | ) | (510 | ) | ||||
| Property and equipment additions | (27,979 | ) | (33,095 | ) | ||||
| Proceeds from sale of assets | 4,456 | 595 | ||||||
| Other | 55 | (1,042 | ) | |||||
| Net cash used in investing activities | (54,232 | ) | (55,887 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of debt | (26,218 | ) | (17,442 | ) | ||||
| Distributions to non-controlling interest partners | (2,259 | ) | (2,234 | ) | ||||
| Purchase of non-controlling interest | (326 | ) | (5,030 | ) | ||||
| Proceeds from issuance of common stock under stock option plans | 467 | 4,181 | ||||||
| Excess tax benefit from exercise of stock options | 2,092 | 771 | ||||||
| Repurchase of common stock | (49,091 | ) | (7,956 | ) | ||||
| Other | (838 | ) | (99 | ) | ||||
| Net cash used in financing activities | (76,173 | ) | (27,809 | ) | ||||
| Effect of currency exchange rate changes on cash and cash equivalents | (202 | ) | (540 | ) | ||||
| (Decrease) increase in cash and cash equivalents | (2,494 | ) | 43,835 | |||||
| Cash and cash equivalents at beginning of period | 125,029 | 68,435 | ||||||
| Cash and cash equivalents at end of period | $ | 122,535 | $ | 112,270 | ||||
| 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 adjusted net income attributable | |||||||||||||
| to VCA Inc., excluding amortization (1) | 2014 | 2013 | 2014 | 2013 | |||||||||
| Net income attributable to VCA Inc. | $ | 45,584 | $ | 41,662 | $ | 79,627 | $ | 72,147 | |||||
| Vacant property adjustments (2) | — | — | — | 3,804 | |||||||||
| Tax benefit from vacant property adjustments (2) | — | — | — | (1,489 | ) | ||||||||
| Adjusted net income attributable to VCA Inc. | $ | 45,584 | $ | 41,662 | $ | 79,627 | $ | 74,462 | |||||
Impact of intangible asset amortization associated with acquisitions, net of tax (3) | 3,181 | 3,360 | 6,314 | 6,430 | |||||||||
| Adjusted net income attributable to VCA Inc., excluding amortization | $ | 48,765 | $ | 45,022 | $ | 85,941 | $ | 80,892 | |||||
Table #2 | Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| Reconciliation of diluted earnings per share to | |||||||||||||
| adjusted diluted earnings per share, excluding amortization (1) | 2014 | 2013 | 2014 | 2013 | |||||||||
| Diluted earnings per share | $ | 0.51 | $ | 0.46 | $ | 0.89 | $ | 0.81 | |||||
| Impact of vacant property adjustments, net of tax (2) | — | — | — | 0.03 | |||||||||
Adjusted Earnings per share (4) | $ | 0.51 | $ | 0.46 | $ | 0.89 | $ | 0.83 | |||||
Impact of intangible asset amortization associated with acquisitions, net of tax (3) | 0.04 | 0.04 | 0.07 | 0.07 | |||||||||
| Adjusted diluted earnings per share excluding amortization (3) | $ | 0.55 | $ | 0.50 | $ | 0.96 | $ | 0.90 | |||||
| Shares used for computing adjusted diluted earnings per share | 89,191 | 89,653 | 89,312 | 89,531 | |||||||||
| VCA Inc. | ||||||||||||||||
| Supplemental Operating Data | ||||||||||||||||
(Unaudited - In thousands, except per share amounts) | ||||||||||||||||
| Table #3 | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| Reconciliation of gross profit to | ||||||||||||||||
| adjusted gross profit, excluding amortization (1) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Consolidated gross profit | $ | 120,415 | $ | 114,294 | $ | 221,866 | 211,217 | |||||||||
| Impact of vacant property adjustments (2) | — | — | — | 2,046 | ||||||||||||
Impact of rent expense adjustments (5) | — | (1,396 | ) | — | (1,396 | ) | ||||||||||
| Consolidated adjusted gross profit | $ | 120,415 | $ | 112,898 | $ | 221,866 | $ | 211,867 | ||||||||
| Consolidated adjusted gross profit margin | 24.6% | 24.3% | 23.6% | 23.4% | ||||||||||||
| Intangible asset amortization associated with acquisitions (3) | 5,160 | 5,452 | 10,240 | 10,515 | ||||||||||||
| Consolidated adjusted gross profit excluding amortization | $ | 125,575 | $ | 118,350 | $ | 232,106 | $ | 222,382 | ||||||||
| Consolidated adjusted gross profit margin excluding amortization | 25.7% | 25.4% | 24.7% | 24.6% | ||||||||||||
| Table #4 | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
| Reconciliation of operating income to | ||||||||||||||||
| adjusted operating income, excluding amortization (1) | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Consolidated operating income | $ | 79,906 | $ | 75,701 | $ | 141,138 | $ | 131,052 | ||||||||
| Impact of vacant property adjustments (2) | — | — | — | 3,804 | ||||||||||||
Impact of rent expense adjustments (5) | — | (1,396 | ) | — | (1,396 | ) | ||||||||||
| Consolidated adjusted operating income | $ | 79,906 | $ | 74,305 | $ | 141,138 | $ | 133,460 | ||||||||
| Consolidated adjusted operating income margin | 16.3% | 16.0% | 15.0% | 14.8% | ||||||||||||
| Intangible asset amortization associated with acquisitions (3) | 5,227 | 5,521 | 10,374 | 10,565 | ||||||||||||
| Consolidated adjusted operating income excluding amortization | $ | 85,133 | $ | 79,826 | $ | 151,512 | $ | 144,025 | ||||||||
| Consolidated adjusted operating income margin excluding amortization | 17.4% | 17.2% | 16.1% | 15.9% | ||||||||||||
| _________________________________________________ | ||
(1) | Management uses adjusted net income excluding acquisition-related amortization, adjusted EPS excluding amortization, adjusted gross profit excluding acquisition-related amortization and adjusted operating income excluding acquisition-related amortization 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 excluding acquisition-related amortization, adjusted EPS excluding amortization, consolidated adjusted gross profit excluding acquisition-related amortization, consolidated adjusted operating income excluding acquisition-related amortization 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 first quarter of 2013, we recorded a write-down to net realizable value of $1.8 million related to a vacant property that is held for sale, and we accrued costs totaling $2.0 million related to a vacant leased property. | |
(3) | In the first quarter of 2013, we began to report Adjusted EPS Excluding Amortization to exclude acquisition-related amortization, and other infrequent charges and credits. We believe Adjusted EPS Excluding Amortization will provide our investors with better insight into the operating performance of the business. | |
(4) | Amounts may not add due to rounding. | |
(5) | 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. | |
| VCA Inc. | ||||||||||||||||
| Supplemental Operating Data (cont) | ||||||||||||||||
(Unaudited - In thousands, except per share amounts) | ||||||||||||||||
| As of | ||||||||||||||||
| June 30, | December 31, | |||||||||||||||
| Table #5 | 2014 | 2013 | ||||||||||||||
| Selected consolidated balance sheet data | ||||||||||||||||
| Debt: | ||||||||||||||||
| Senior term notes | $ | 533,242 | $ | 556,914 | ||||||||||||
| Other debt and capital leases | 60,544 | 62,731 | ||||||||||||||
| Total debt | $ | 593,786 | $ | 619,645 | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| Table #6 | ||||||||||||||||
| Selected expense data | 2014 | 2013 | 2014 | 2013 | ||||||||||||
| Rent expense | $ | 16,879 | $ | 15,162 | $ | 33,808 | $ | 33,787 | ||||||||
Depreciation and amortization included in direct costs: | ||||||||||||||||
| Animal hospital | $ | 14,955 | $ | 14,462 | $ | 29,529 | $ | 27,641 | ||||||||
| Laboratory | 2,543 | 2,569 | 5,059 | 5,055 | ||||||||||||
| All other | 1,671 | 1,103 | 3,402 | 2,344 | ||||||||||||
| Intercompany | (473 | ) | (446 | ) | (938 | ) | (885 | ) | ||||||||
| $ | 18,696 | $ | 17,688 | $ | 37,052 | $ | 34,155 | |||||||||
Depreciation and amortization included in selling, general and administrative expense | 1,334 | 1,812 | 2,745 | 3,584 | ||||||||||||
| Total depreciation and amortization | $ | 20,030 | $ | 19,500 | $ | 39,797 | $ | 37,739 | ||||||||
| Share-based compensation included in direct costs: | ||||||||||||||||
| Laboratory | $ | 133 | $ | 109 | $ | 283 | $ | 218 | ||||||||
Share-based compensation included in selling, general and administrative expense: | ||||||||||||||||
| Animal hospital | 424 | 402 | 941 | 1,043 | ||||||||||||
| Laboratory | 352 | 307 | 733 | 606 | ||||||||||||
| All other | 191 | 186 | 373 | 372 | ||||||||||||
| Corporate | 2,927 | 2,645 | 6,241 | 5,180 | ||||||||||||
| 3,894 | 3,540 | 8,288 | 7,201 | |||||||||||||
| Total share-based compensation | $ | 4,027 | $ | 3,649 | $ | 8,571 | $ | 7,419 | ||||||||
Contacts:
Tomas Fuller
Chief Financial Officer
310-571-6505
