VCA Inc. Reports First Quarter 2017 Results


  • Revenue increased 20.4% to a first quarter record of $678.3 million
  • Gross profit increased 12.9% to $154.5 million
  • Operating income increased 11.3% to $95.8 million
  • Diluted earnings per common share increased 8.8% to $0.62
  • Non-GAAP diluted earnings per common share increased 10.6% to $0.73

LOS ANGELES, April 27, 2017 (GLOBE NEWSWIRE) -- 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, 2017, as follows: revenue increased 20.4% to a first quarter record of $678.3 million; gross profit increased 12.9% to $154.5 million; operating income increased 11.3% to $95.8 million; net income increased 10.5% to $51.1 million; and diluted earnings per common share increased 8.8% to $0.62. Excluding transaction expenses related to the proposed acquisition of VCA by Mars, Incorporated (“Mars”), and acquisition-related amortization expense, our results for this quarter are as follows: Non-GAAP operating income increased 16.2% to $110.6 million; Non-GAAP net income increased 11.0% to $59.6 million; and Non-GAAP diluted earnings per common share increased 10.6% to $0.73. Our results for the prior-year quarter included transaction expenses related to the acquisition of Companion Animal Practices, North America (“CAPNA”) and other discrete items, detailed in the supplemental schedules of this press release.

Bob Antin, Chairman and CEO, stated, “We had a good quarter highlighted by 10.6% growth in our adjusted diluted earnings per common share.  We continue to experience organic revenue growth and increasing gross margins in both our core Animal Hospital and Laboratory businesses.

“Animal Hospital revenue in the first quarter increased 23.9%, to $568.2 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 3.7%.  Our same-store gross profit margin increased 30 basis points to 16.4%, and our total gross margin decreased 80 basis points to 15.2%. Excluding acquisition-related amortization expense, our Non-GAAP same-store gross profit margin remained flat at 17.2%; and Non-GAAP Animal Hospital total gross profit margin decreased 40 basis points to 16.8%. During the first quarter, we acquired 15 independent animal hospitals which had historical combined annual revenue of $54.4 million.

“Our Laboratory internal revenue in the first quarter increased 5.5% to $111.1 million; laboratory gross profit margin increased 50 basis points to 53.6% and our operating margin increased 120 basis points to 44.7%. Excluding acquisition-related amortization expense, Non-GAAP Laboratory gross profit increased 50 basis points to 54.0%; and Non-GAAP Laboratory operating margin increased 110 basis points to 45.0%.”

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.”

Forward-Looking Statements

We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this document using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should,” “could,” “forecast,” “looking ahead,” “possible,” “will,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions. You may find some of these statements below and elsewhere in this document. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this document may turn out to be incorrect. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this document will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Many factors could cause actual future events to differ materially from the forward-looking statements in this document, including but not limited to: (i) the risk that the proposed transaction with Mars may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of the common stock of the Company; (ii) the failure to satisfy or obtain waivers of the conditions to the consummation of the proposed transaction with Mars, including the receipt of certain governmental and regulatory approvals; (iii) the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed transaction with Mars; (iv) the effect of the announcement or pendency of the proposed transaction on the Company’s business relationships, operating results and business generally; (v) risks that the proposed transaction disrupts current plans and operations of the Company, including the risk of adverse reactions or changes to business relationships with customers, suppliers and other business partners of the Company; (vi) potential difficulties in the hiring or retention of employees of the Company as a result of the proposed transaction; (vii) risks related to diverting management’s attention from the Company’s ongoing business operations; (viii) potential litigation relating to the proposed transaction with Mars; (ix) unexpected costs, charges or expenses resulting from the proposed transaction; (x) competitive responses to the proposed transaction; and (xi) legislative, regulatory and economic developments. The foregoing list of factors is not exclusive. Additional risks and uncertainties that could affect the Company’s financial and operating results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2017, and the Company’s more recent reports filed with the SEC. The Company can give no assurance that the conditions to the proposed transaction will be satisfied, or that it will close within the anticipated time period. Investors and security holders are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which statements were made. Except as required by applicable law, the Company undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

About VCA Inc.

We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country. 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,
  2017 2016
Revenue:    
Animal hospital $568,181  $458,623 
Laboratory 111,148  106,727 
All other 22,569  19,413 
Intercompany (23,647) (21,324)
  678,251  563,439 
     
Direct costs 523,783  426,659 
     
Gross profit:    
Animal hospital 86,310  73,417 
Laboratory 59,593  56,716 
All other 8,686  6,910 
Intercompany (121) (263)
  154,468  136,780 
     
Selling, general and administrative expense:    
Animal hospital 17,611  12,085 
Laboratory 9,906  10,296 
All other 6,640  5,299 
Corporate 24,244  22,448 
  58,401  50,128 
     
Net loss on sale or disposal of assets 250  563 
Operating income 95,817  86,089 
Interest expense, net 9,027  7,095 
Other income (302) (264)
Income before provision for income taxes 87,092  79,258 
Provision for income taxes 34,639  31,536 
Net income 52,453  47,722 
Net income attributable to noncontrolling interests 1,360  1,495 
Net income attributable to VCA Inc. $51,093  $46,227 
     
Diluted earnings per share $0.62  $0.57 
     
Weighted-average shares outstanding for diluted earnings per share 82,179  81,523 


VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
  March 31,
 2017
 December 31,
 2016
Assets    
Current assets:    
Cash and cash equivalents $89,531  $81,409 
Trade accounts receivable, net 85,611  85,593 
Inventory 56,833  57,590 
Prepaid expenses and other 38,432  44,752 
Prepaid income taxes   11,705 
Total current assets 270,407  281,049 
Property and equipment, net 645,652  613,224 
Other assets:    
Goodwill 2,228,189  2,164,422 
Other intangible assets, net 211,630  212,577 
Notes receivable 2,136  2,147 
Other 102,664  99,909 
Total assets $3,460,678  $3,373,328 
Liabilities and Equity    
Current liabilities:    
Current portion of long-term obligations $43,877  $38,320 
Accounts payable 61,532  68,587 
Accrued payroll and related liabilities 73,247  97,806 
Income tax payable 15,874   
Other accrued liabilities 95,045  91,783 
Total current liabilities 289,575  296,496 
Long-term obligations, net 1,342,607  1,309,397 
Deferred income taxes, net 147,851  142,535 
Other liabilities 43,913  44,560 
Total liabilities 1,823,946  1,792,988 
Redeemable noncontrolling interests 10,398  11,615 
VCA Inc. stockholders’ equity:    
Common stock 81  81 
Additional paid-in capital 37,012  32,157 
Retained earnings 1,535,484  1,484,391 
Accumulated other comprehensive loss (43,084) (45,406)
Total VCA Inc. stockholders’ equity 1,529,493  1,471,223 
Noncontrolling interests 96,841  97,502 
Total equity 1,626,334  1,568,725 
Total liabilities and equity $3,460,678  $3,373,328 


VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
  Three Months Ended
March 31,
  2017 2016
Cash flows from operating activities:    
Net income $52,453  $47,722 
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 30,401  21,289 
Amortization of debt issue costs 383  433 
Provision for uncollectible accounts 1,794  851 
Net loss on sale or disposal of assets
 250  563 
Share-based compensation 3,962  4,906 
Excess tax benefits from share-based compensation   (445)
Other 884  4,489 
Changes in operating assets and liabilities:    
Trade accounts receivable (1,594) (3,339)
Inventory, prepaid expense and other assets 5,507  (7,569)
Accounts payable and other accrued liabilities 3,491  (4,801)
Accrued payroll and related liabilities (24,748) 12,955 
Income taxes 27,508  16,855 
Net cash provided by operating activities 100,291  93,909 
Cash flows from investing activities:    
Business acquisitions, net of cash acquired (81,721) (160,385)
Property and equipment additions (28,919) (25,806)
Proceeds from sale of assets 349  12 
Other (6,203) (7,346)
Net cash used in investing activities (116,494) (193,525)
Cash flows from financing activities:    
Repayment of long-term obligations (17,813) (9,678)
Proceeds from revolving credit facility 45,000  90,000 
Distributions to noncontrolling interest partners (1,138) (1,238)
Proceeds from formation of noncontrolling interests 335   
Purchase of noncontrolling interests (1,400) (3,730)
Proceeds from issuance of common stock under stock incentive plans 90  286 
Excess tax benefits from share-based compensation   445 
Stock repurchases (95) (843)
Other (812) (333)
Net cash provided by financing activities 24,167  74,909 
Effect of currency exchange rate changes on cash and cash equivalents 158  299 
Increase (decrease) in cash and cash equivalents 8,122  (24,408)
Cash and cash equivalents at beginning of period 81,409  98,888 
Cash and cash equivalents at end of period $89,531  $74,480 


VCA Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)
 
Table #1    
Reconciliation of net income attributable to Three Months Ended
March 31,
VCA Inc., to Non-GAAP net income attributable 
to VCA Inc. (1) 2017  2016 
     
Net income attributable to VCA Inc. $51,093  $46,227 
Adjustments to Other Long-term liabilities, net of tax (2)   2,040 
Discrete tax items (3)   1,045 
Transaction costs related to the CAPNA acquisition, net of tax (4)   587 
Transaction costs related to the Mars transaction, net of tax (5) 2,059   
Acquisitions related amortization, net of tax (1) 6,465  3,791 
     
Non-GAAP net income attributable to VCA Inc. $59,617  $53,690 
     
Table #2 Three Months Ended
March 31,
Reconciliation of diluted earnings per share to 
Non-GAAP diluted earnings per share (1) 2017  2016 
     
Diluted earnings per share $0.62  $0.57 
Adjustments to Other Long-term liabilities, net of tax (2)   0.02 
  Discrete tax items (3)   0.01 
Transaction costs related to the CAPNA acquisition, net of tax (4)   0.01 
Transaction costs related to the Mars transaction, net of tax (5) 0.03   
Acquisitions related amortization, net of tax (1) 0.08  0.05 
Non-GAAP diluted earnings per share $0.73  $0.66 
     
Shares used for computing diluted earnings per share 82,179  81,523 
     
Table #3 Three Months Ended
March 31,
Reconciliation of consolidated gross profit to 
Non-GAAP consolidated gross profit (1) 2017  2016 
     
Consolidated gross profit $154,468  $136,780 
Acquisitions related amortization (1) 10,151  6,228 
Non-GAAP consolidated gross profit $164,619  $143,008 
Non-GAAP consolidated gross profit margin 24.3% 25.4%
     


VCA Inc.
Supplemental Operating Data (cont)
(Unaudited - In thousands, except per share amounts)
 
Table #4 Three Months Ended
March 31,
Reconciliation of consolidated operating income to 
Non-GAAP consolidated operating income (1) 2017  2016 
     
Consolidated operating income $95,817  $86,089 
Adjustments to Other Long-term liabilities (2)   1,954 
Transaction costs related to the CAPNA acquisition (4)   966 
Transaction costs related to the Mars transaction (5) 3,383   
Acquisitions related amortization (1) 11,425  6,228 
Non-GAAP consolidated operating income $110,625  $95,237 
Non-GAAP consolidated operating margin 16.3% 16.9%
     

_______________________________________________

(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) In the first quarter of 2016, we recorded a non-cash charge to adjust certain long-term liabilities for $3.4 million, or $2.0 million net of tax.  $2.0 million of this amount relates to compensation and $1.4 million relates to interest accretion.

(3) In the first quarter of 2016, we recorded a tax adjustment to our income tax liabilities for $1.0 million.

(4) In the first quarter of 2016, we recorded transaction costs of $966,000 or $587,000 net of tax related to our acquisition of CAPNA.

(5) During the first quarter of 2017, we have recorded transaction costs of $3.4 million, or $2.1 million net of tax, related to the proposed transaction with Mars.


VCA Inc.
Supplemental Operating Data (cont)
(Unaudited - In thousands, except per share amounts)
 
  As of
Table #5 March 31,
 2017
 December 31,
 2016
Selected consolidated balance sheet data    
Debt:    
Senior term notes $863,500  $869,000 
Revolving credit 445,000  400,000 
Other debt and capital leases 84,297  85,415 
Total debt $1,392,797  $1,354,415 
     
  Three Months Ended
March 31,
Table #6 
Selected expense data 2017 2016
     
Rent expense $25,168  $20,864 
     
Depreciation and amortization included    
in direct costs:    
Animal hospital $25,379  $17,524 
Laboratory 2,872  2,748 
All other 574  752 
Intercompany (686) (586)
  $28,139  $20,438 
Depreciation and amortization included in selling,    
general and administrative expense 2,262  851 
Total depreciation and amortization $30,401  $21,289 
     
Share-based compensation included in direct costs:    
Laboratory $189  $177 
     
Share-based compensation included in    
selling, general and administrative expense:    
Animal hospital 832  784 
Laboratory 341  429 
All other 154  153 
Corporate 2,446  3,363 
  3,773  4,729 
Total share-based compensation $3,962  $4,906 

 


            

Contact Data