VCA Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the first quarter ended March 31, 2015, as follows: revenue increased 11.1% to a first quarter record of $499.5 million; gross profit increased 12.2% to $113.9 million; operating income increased 12.9% to $69.1 million; net income increased 12.5% to $38.3 million and diluted earnings per common share increased 21.1% to $0.46. Non-GAAP diluted earnings per common share, which excludes acquisition-related amortization, increased 19.0% to $0.50.
Bob Antin, Chairman and CEO, stated, “Our Animal Hospital business segment same-store revenue growth rate continues to accelerate, driven by an increase in both the number of orders and the average revenue per order. Our Laboratory business segment experienced 6.1% internal revenue growth resulting in a 250 basis point increase in gross profit margin. Accordingly, we are very optimistic with respect to our results for the full year ended December 2015.
“Animal Hospital revenue in the current quarter increased 11.8%, to $393.0 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 5.3%. Our same-store gross profit margin increased to 14.6% from 14.1%, and our total gross margin increased to 14.1%, from 13.9% in the prior-year quarter. During the quarter, we acquired 11 independent animal hospitals which had historical combined annual revenue of $16.3 million.
“Laboratory internal revenue in the first quarter increased 6.1%, to $94.0 million. Our Laboratory gross profit margin increased to 51.1% from 48.6%, and our operating margin increased to 41.6%, from 39.6% in the prior-year quarter.
“During the quarter we repurchased 850,000 shares of our common stock for $43.3 million. Since the Board authorized our repurchase programs in April 2013, through the first quarter 2015, we have acquired 8.2 million shares for $321.8 million. We currently have $203.4 million left in our authorization.”
2015 Guidance
We re-affirm the annual guidance we provided on February 11, 2015.
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 first quarter 2015 financial results during a conference call today, April 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 | ||||||||||||
| March 31, | ||||||||||||
| 2015 | 2014 | |||||||||||
| Revenue: | ||||||||||||
| Animal hospital | $ | 393,026 | $ | 351,588 | ||||||||
| Laboratory | 93,972 | 88,534 | ||||||||||
| All other | 34,227 | 28,121 | ||||||||||
| Intercompany | (21,772 | ) | (18,736 | ) | ||||||||
| 499,453 | 449,507 | |||||||||||
| Direct costs | 385,591 | 348,056 | ||||||||||
| Gross profit: | ||||||||||||
| Animal hospital | 55,484 | 48,800 | ||||||||||
| Laboratory | 47,982 | 43,031 | ||||||||||
| All other | 11,424 | 9,969 | ||||||||||
| Intercompany | (1,028 | ) | (349 | ) | ||||||||
| 113,862 | 101,451 | |||||||||||
| Selling, general and administrative expense: | ||||||||||||
| Animal hospital | 11,221 | 9,128 | ||||||||||
| Laboratory | 8,865 | 8,018 | ||||||||||
| All other | 8,687 | 8,348 | ||||||||||
| Corporate | 15,625 | 15,946 | ||||||||||
| 44,398 | 41,440 | |||||||||||
| Net loss (gain) on sale or disposal of assets | 335 | (1,221 | ) | |||||||||
| Operating income | 69,129 | 61,232 | ||||||||||
| Interest expense, net | 4,837 | 4,167 | ||||||||||
| Other expense (income) | 66 | (53 | ) | |||||||||
| Income before provision for income taxes | 64,226 | 57,118 | ||||||||||
| Provision for income taxes | 24,673 | 22,203 | ||||||||||
| Net income | 39,553 | 34,915 | ||||||||||
| Net income attributable to noncontrolling interests | 1,252 | 872 | ||||||||||
| Net income attributable to VCA Inc. | $ | 38,301 | $ | 34,043 | ||||||||
| Diluted earnings per share | $ | 0.46 | $ | 0.38 | ||||||||
| Weighted-average shares outstanding for diluted earnings per share | 83,373 | 89,421 | ||||||||||
| VCA Inc. | ||||||||||||
| Condensed, Consolidated Balance Sheets | ||||||||||||
| (Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
| March 31, | December 31, | |||||||||||
| 2015 | 2014 | |||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 59,278 | $ | 81,383 | ||||||||
| Trade accounts receivable, net | 73,766 | 60,482 | ||||||||||
| Inventory | 55,142 | 56,050 | ||||||||||
| Prepaid expenses and other | 30,425 | 36,924 | ||||||||||
| Deferred income taxes | 30,324 | 30,331 | ||||||||||
| Prepaid income taxes | — | 18,277 | ||||||||||
| Total current assets | 248,935 | 283,447 | ||||||||||
| Property and equipment, net | 472,944 | 468,041 | ||||||||||
| Other assets: | ||||||||||||
| Goodwill | 1,439,598 | 1,415,861 | ||||||||||
| Other intangible assets, net | 82,913 | 88,175 | ||||||||||
| Notes receivable | 2,695 | 2,807 | ||||||||||
| Deferred financing costs, net | 7,440 | 7,874 | ||||||||||
| Other | 70,477 | 65,815 | ||||||||||
Total assets | $ | 2,325,002 | $ | 2,332,020 | ||||||||
| Liabilities and Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Current portion of long-term debt | $ | 26,598 | $ | 19,356 | ||||||||
| Accounts payable | 40,997 | 46,284 | ||||||||||
| Accrued payroll and related liabilities | 78,159 | 64,359 | ||||||||||
| Income tax payable | 2,570 | — | ||||||||||
| Other accrued liabilities | 69,979 | 67,219 | ||||||||||
| Total current liabilities | 218,303 | 197,218 | ||||||||||
| Long-term debt, less current portion | 766,591 | 775,412 | ||||||||||
| Deferred income taxes | 103,162 | 103,502 | ||||||||||
| Other liabilities | 31,745 | 33,190 | ||||||||||
| Total liabilities | 1,119,801 | 1,109,322 | ||||||||||
| Redeemable noncontrolling interests | 11,108 | 11,077 | ||||||||||
| VCA Inc. stockholders’ equity: | ||||||||||||
| Common stock | 82 | 83 | ||||||||||
| Additional paid-in capital | 116,068 | 155,802 | ||||||||||
| Retained earnings | 1,102,459 | 1,064,158 | ||||||||||
| Accumulated other comprehensive loss | (34,605 | ) | (19,397 | ) | ||||||||
| Total VCA Inc. stockholders’ equity | 1,184,004 | 1,200,646 | ||||||||||
| Noncontrolling interests | 10,089 | 10,975 | ||||||||||
| Total equity | 1,194,093 | 1,211,621 | ||||||||||
| Total liabilities and equity | $ | 2,325,002 | $ | 2,332,020 | ||||||||
| VCA Inc. | ||||||||||||
| Condensed, Consolidated Statements of Cash Flows | ||||||||||||
| (Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2015 | 2014 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 39,553 | $ | 34,915 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 19,797 | 19,767 | ||||||||||
| Amortization of debt issue costs | 434 | 304 | ||||||||||
| Provision for uncollectible accounts | 1,183 | 890 | ||||||||||
| Net loss (gain) on sale or disposal of assets | 335 | (1,221 | ) | |||||||||
| Share-based compensation | 4,132 | 4,544 | ||||||||||
| Excess tax benefit from stock based compensation | (791 | ) | (392 | ) | ||||||||
| Other | (989 | ) | (905 | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Trade accounts receivable | (14,570 | ) | (5,825 | ) | ||||||||
| Inventory, prepaid expense and other assets | 2,862 | (1,389 | ) | |||||||||
| Accounts payable and other accrued liabilities | (6,954 | ) | (3,773 | ) | ||||||||
| Accrued payroll and related liabilities | 14,052 | 6,247 | ||||||||||
| Income taxes | 21,581 | 15,165 | ||||||||||
| Net cash provided by operating activities | 80,625 | 68,327 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Business acquisitions, net of cash acquired | (32,150 | ) | (17,295 | ) | ||||||||
| Real estate acquired in connection with business acquisitions | (1,502 | ) | — | |||||||||
| Property and equipment additions | (16,526 | ) | (16,619 | ) | ||||||||
| Proceeds from sale of assets | 92 | 859 | ||||||||||
| Other | (576 | ) | 520 | |||||||||
| Net cash used in investing activities | (50,662 | ) | (32,535 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Repayment of debt | (5,165 | ) | (12,806 | ) | ||||||||
| Distributions to non-controlling interest partners | (1,325 | ) | (1,090 | ) | ||||||||
Purchase of non-controlling interests | (1,483 | ) | (326 | ) | ||||||||
| Proceeds from issuance of common stock under stock option plans | 404 | 372 | ||||||||||
| Excess tax benefit from stock based compensation | 791 | 392 | ||||||||||
| Repurchase of common stock | (44,845 | ) | (9,793 | ) | ||||||||
| Other | (80 | ) | — | |||||||||
| Net cash used in financing activities | (51,703 | ) | (23,251 | ) | ||||||||
| Effect of currency exchange rate changes on cash and cash equivalents | (365 | ) | (282 | ) | ||||||||
| (Decrease) increase in cash and cash equivalents | (22,105 | ) | 12,259 | |||||||||
| Cash and cash equivalents at beginning of period | 81,383 | 125,029 | ||||||||||
| Cash and cash equivalents at end of period | $ | 59,278 | $ | 137,288 | ||||||||
| VCA Inc. | ||||||||||||
| Supplemental Operating Data (cont) | ||||||||||||
(Unaudited - In thousands, except per share amounts) | ||||||||||||
| Table #1 | ||||||||||||
| Reconciliation of net income attributable to | Three Months Ended | |||||||||||
| VCA Inc., to Non-GAAP net income attributable | ||||||||||||
| to VCA Inc. (1) | 2015 | 2014 | ||||||||||
| Net income attributable to VCA Inc. | $ | 38,301 | $ | 34,043 | ||||||||
| Acquisitions related amortization (1) | 5,526 | 5,147 | ||||||||||
Tax benefit from acquisitions related amortization (1) | (2,163 | ) | (2,015 | ) | ||||||||
| Non-GAAP net income attributable to VCA Inc. | $ | 41,664 | $ | 37,175 | ||||||||
| Table #2 | Three Months Ended March 31, | |||||||||||
| Reconciliation of diluted earnings per share to | ||||||||||||
| Non-GAAP diluted earnings per share (1) | 2015 | 2014 | ||||||||||
| Diluted earnings per share | $ | 0.46 | $ | 0.38 | ||||||||
| Impact of acquisitions related amortization, net of tax (1) | 0.04 | 0.04 | ||||||||||
| Non-GAAP diluted earnings per share | $ | 0.50 | $ | 0.42 | ||||||||
| Shares used for computing diluted earnings per share | 83,373 | 89,421 | ||||||||||
| Table #3 | Three Months Ended March 31, | |||||||||||
| Reconciliation of consolidated gross profit to | ||||||||||||
| Non-GAAP consolidated gross profit (1) | 2015 | 2014 | ||||||||||
| Consolidated gross profit | $ | 113,862 | $ | 101,451 | ||||||||
| Impact of acquisitions related amortization (1) | 5,465 | 5,080 | ||||||||||
| Non-GAAP consolidated gross profit | $ | 119,327 | $ | 106,531 | ||||||||
| Non-GAAP consolidated gross profit margin | 23.9 | % | 23.7 | % | ||||||||
| Table #4 | Three Months Ended March 31, | |||||||||||
| Reconciliation of consolidated operating income to | ||||||||||||
| Non-GAAP consolidated operating income (1) | 2015 | 2014 | ||||||||||
| Consolidated operating income | $ | 69,129 | $ | 61,232 | ||||||||
| Impact of acquisitions related amortization (1) | 5,526 | 5,147 | ||||||||||
| Non-GAAP consolidated operating income | $ | 74,655 | $ | 66,379 | ||||||||
| Non-GAAP consolidated operating margin | 14.9 | % | 14.8 | % | ||||||||
_________________________________________________
(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.
| VCA Inc. | ||||||||||||
| Supplemental Operating Data (cont) | ||||||||||||
(Unaudited - In thousands, except per share amounts) | ||||||||||||
| As of | ||||||||||||
| Table #5 | March 31, | December 31, | ||||||||||
| Selected consolidated balance sheet data | ||||||||||||
| Debt: | ||||||||||||
| Senior term notes | $ | 600,000 | $ | 600,000 | ||||||||
| Revolving credit | 135,000 | 135,000 | ||||||||||
| Other debt and capital leases | 58,189 | 59,768 | ||||||||||
| Total debt | $ | 793,189 | $ | 794,768 | ||||||||
| Three Months Ended March 31, | ||||||||||||
| Table #6 | ||||||||||||
| Selected expense data | 2015 | 2014 | ||||||||||
| Rent expense | $ | 18,780 | $ | 16,929 | ||||||||
Depreciation and amortization included in direct costs: | ||||||||||||
| Animal hospital | $ | 15,962 | $ | 14,574 | ||||||||
| Laboratory | 2,475 | 2,516 | ||||||||||
| All other | 940 | 1,731 | ||||||||||
| Intercompany | (523 | ) | (465 | ) | ||||||||
| $ | 18,854 | $ | 18,356 | |||||||||
Depreciation and amortization included in selling, general and administrative expense | 943 | 1,411 | ||||||||||
| Total depreciation and amortization | $ | 19,797 | $ | 19,767 | ||||||||
| Share-based compensation included in direct costs: | ||||||||||||
| Laboratory | $ | 161 | $ | 150 | ||||||||
Share-based compensation included in selling, general and administrative expense: | ||||||||||||
| Animal hospital | 664 | 517 | ||||||||||
| Laboratory | 366 | 381 | ||||||||||
| All other | 202 | 182 | ||||||||||
| Corporate | 2,739 | 3,314 | ||||||||||
| 3,971 | 4,394 | |||||||||||
| Total share-based compensation | $ | 4,132 | $ | 4,544 | ||||||||
Contacts:
Tomas Fuller, 310-571-6505
Chief Financial Officer
