• Revenue increased 20.5% to a fourth quarter record of $643.1 million
  • Gross profit increased 14.5% to $134.8 million
  • Operating income increased 16.3% to $77.2 million
  • Diluted earnings per common share decreased 35.9% to $0.50
  • Non-GAAP diluted earnings per common share increased 16.0% to $0.58

LOS ANGELES, Feb. 09, 2017 (GLOBE NEWSWIRE) --   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, 2016, as follows: revenue increased 20.5% to a fourth quarter record of $643.1 million; gross profit increased 14.5% to $134.8 million; operating income increased 16.3% to $77.2 million; net income decreased 36.0% to $40.7 million; diluted earnings per common share decreased 35.9% to $0.50; and Non-GAAP diluted earnings per common share increased 16.0% to $0.58.

Our results for the prior-year quarter included a gain of $43.3 million, $26.4 million net of tax, or $0.32 per diluted common share related to the sale of our Vetstreet business. Excluding this item and acquisition-related amortization expense, our Non-GAAP net income increased 15.7% to $47.4 million and Non-GAAP diluted earnings per share increased 16.0% to $0.58.

We also reported our financial results for the twelve months ended December 31, 2016 as follows: revenue increased 18.0% to $2.5 billion; gross profit increased 16.1% to $592.1 million; operating income increased 17.2% to $386.3 million; net income decreased 0.9% to $209.2 million; and diluted earnings per common share remained flat at $2.56. Our financial results for the twelve months ended December 31, 2016, on a Non-GAAP basis, are as follows: gross profit increased 17.5% to $626.8 million; operating income increased 22.8% to $428.2 million; net income increased 20.4% to $236.3 million; and Non-GAAP diluted earnings per common share increased 21.4% to $2.89.

Our financial results for the twelve months ended December 31, 2015 included the aforementioned gain on the sale of our Vetstreet business and a business interruption insurance gain of $4.5 million, $2.8 million net of tax, or $0.03 per diluted common share.

Bob Antin, Chairman and CEO, stated, "We had a strong fourth quarter, which concluded another excellent year.  We experienced solid organic revenue growth of 4.9% and 5.3% in our core Animal Hospital and Laboratory business segments, respectively.

"Animal Hospital revenue in the fourth quarter of 2016 increased 26.2% to $539.4 million driven by acquisitions made in the past twelve months and same-store revenue growth of 4.9%.  Our same-store gross profit margin increased to 15.4%, from 14.3% and our total gross margin increased to 14.4% from 14.2% in the prior-year quarter. During the quarter, we acquired 22 independent animal hospitals, which had historical combined annual revenue of $73.1 million, bringing our year-to-date total (including CAPNA) to 127 independent animal hospitals with historical combined annual revenue of $397.0 million.

"Our Laboratory internal revenue in the fourth quarter of 2016 increased 5.3% to $98.4 million driven by an increase in average revenue per requisition of 4.3%. Laboratory gross profit margin decreased slightly to 48.5% from 48.8% and Non-GAAP Laboratory operating margin increased to 39.1% from 38.4%."

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."

As previously announced on January 9, 2017, we entered into an Agreement and Plan of Merger with Mars, Incorporated ("Mars") under which Mars will acquire all of the outstanding shares of VCA for $93 per share, or a total value of approximately $9.1 billion, including $1.4 billion in outstanding debt.  The Boards of Directors of both companies have approved the transaction, which is subject to certain customary closing conditions including, among other things, VCA shareholder approval and customary regulatory approvals. We expect the transaction to close in Q3 2017.

Conference Call and Webcast

In light of the previously announced agreement with Mars, the previously scheduled earnings conference call and webcast with analysts and investors scheduled for February 9, 2017 has been cancelled.  VCA does not intend to provide guidance for fiscal 2017.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the securities laws with respect to the proposed transaction between VCA Inc. (the "Company"), Mars and certain subsidiaries of Mars.  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 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, including the adoption of the merger agreement by the stockholders of the Company and 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 merger agreement; (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 merger agreement or the proposed transaction; (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, 2015 filed with the Securities and Exchange Commission (the "SEC") on February 26, 2016, 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.

Additional Information and Where to Find It

This document is being made in respect of the proposed transaction between the Company, Mars and certain subsidiaries of Mars. In connection with the proposed transaction, the Company filed a preliminary proxy statement on Schedule 14A with the SEC on February 3, 2017. Following the filing of the definitive proxy statement with the SEC, the Company will mail the definitive proxy statement and a proxy card to each stockholder entitled to vote at the special meeting relating to the proposed transaction.  The Company also plans to file with the SEC other documents regarding the proposed transaction. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO CAREFULLY READ THESE MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) IN THEIR ENTIRETY AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE PROPOSED TRANSACTION THAT THE COMPANY WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANY AND THE PROPOSED TRANSACTION.  When completed, a definitive proxy statement and form of proxy will be mailed to the stockholders of the Company. The definitive proxy statement, the preliminary proxy statement and other relevant materials in connection with the proposed transaction (when they become available), and any other documents filed by the Company with the SEC, may be obtained free of charge at the SEC's website ( http://www.sec.gov) or through the investor relations section of the Company's website ( http://investor.vca.com).

Participants in Solicitation

This document does not constitute a solicitation of proxy, an offer to purchase or a solicitation of an offer to sell any securities.  The Company and its directors, executive officers and certain employees may be deemed to be participants in the solicitations of proxies from the Company's stockholders with respect to the meeting of stockholders that will be held to consider the proposed transaction.  Information about the persons who may, under the SEC rules, be considered to be participants in the solicitation of stockholders of the Company in connection with the proposed transaction, is set forth in the proxy statement for the Company's 2016 Annual Meeting of Stockholders filed with the SEC on March 4, 2016.  Stockholders may obtain additional information regarding the direct and indirect interests of any such persons who may, under the SEC rules, be considered to be participants in the solicitation of stockholders of the Company in connection with the proposed transaction, including the interests of the Company's directors and executive officers in the proposed transaction, which may be different than those of the stockholders of the Company generally, by reading the proxy statement and other relevant documents regarding the proposed transaction when they become available, which the Company will file with the SEC.  Copies of these documents (when they become available) may be obtained free of charge as described in the preceding paragraph.

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 December 31,   Twelve Months Ended December 31,
  2016   2015   2016   2015
Revenue:              
Animal hospital $ 539,403     $ 427,544     $ 2,091,780     $ 1,697,870  
Laboratory 98,374     93,397     422,301     393,900  
All other 27,954     33,254     93,751     126,988  
Intercompany (22,650 )   (20,475 )   (90,969 )   (85,083 )
  643,081     533,720     2,516,863     2,133,675  
               
Direct costs 508,322     416,024     1,924,799     1,623,604  
               
Gross profit:              
Animal hospital 77,756     60,525     339,988     264,335  
Laboratory 47,689     45,609     219,158     201,702  
All other 10,126     12,128     34,874     46,702  
Intercompany (812 )   (566 )   (1,956 )   (2,668 )
  134,759     117,696     592,064     510,071  
               
Selling, general and administrative expense:              
Animal hospital 17,049     11,960     58,952     44,311  
Laboratory 10,253     10,181     39,979     38,075  
All other 7,533     9,481     24,918     33,569  
Corporate 22,228     18,630     80,875     68,040  
  57,063     50,252     204,724     183,995  
Business interruption insurance gain, net             (4,523 )
Net loss on sale of assets 478     1,063     1,006     829  
Operating income 77,218     66,381     386,334     329,770  
Interest expense, net 8,191     5,680     32,453     21,076  
Debt retirement costs         1,600      
Other expense (income) 83     271     (902 )   359  
Gain on sale of business, net     (43,306 )       (43,306 )
Income before provision for income taxes 68,944     103,736     353,183     351,641  
Provision for income taxes 26,468     39,582     135,780     135,543  
Net income 42,476     64,154     217,403     216,098  
Net income attributable to noncontrolling interests 1,788     559     8,207     5,049  
Net income attributable to VCA Inc. $ 40,688     $ 63,595     $ 209,196     $ 211,049  
               
Diluted earnings per share $ 0.50     $ 0.78     $ 2.56     $ 2.56  
               
Weighted-average shares outstanding for diluted earnings per share 81,811     81,461     81,725     82,414  

VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
  December 31,  2016   December 31,  2015
Assets      
Current assets:      
Cash and cash equivalents $ 81,409     $ 98,888  
Trade accounts receivable, net 85,593     76,634  
Inventory 57,590     51,523  
Prepaid expenses and other 44,752     30,521  
Prepaid income taxes 11,705     24,598  
Total current assets 281,049     282,164  
Property and equipment, net 613,224     507,753  
Other assets:      
Goodwill 2,164,422     1,517,650  
Other intangible assets, net 212,577     97,377  
Notes receivable, net 2,147     2,194  
Other 99,909     93,994  
Total assets $ 3,373,328     $ 2,501,132  
Liabilities and Equity      
Current liabilities:      
Current portion of long-term obligations $ 38,320     $ 33,623  
Accounts payable 68,587     52,337  
Accrued payroll and related liabilities 97,806     75,519  
Other accrued liabilities 91,783     70,828  
 Total current liabilities 296,496     232,307  
Long-term obligations, less current portion 1,309,397     832,718  
Deferred income taxes 142,535     131,478  
Other liabilities 44,560     36,084  
Total liabilities 1,792,988     1,232,587  
Redeemable noncontrolling interests 11,615     11,511  
VCA Inc. stockholders' equity:      
Common stock 81     81  
Additional paid-in capital 32,157     19,708  
Retained earnings 1,484,391     1,275,207  
Accumulated other comprehensive loss (45,406 )   (50,034 )
Total VCA Inc. stockholders' equity 1,471,223     1,244,962  
Noncontrolling interests 97,502     12,072  
Total equity 1,568,725     1,257,034  
Total liabilities and equity $ 3,373,328     $ 2,501,132  

VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
  Twelve Months Ended December 31,
  2016   2015
Cash flows from operating activities:      
Net income $ 217,403     $ 216,098  
Adjustments to reconcile net income to net cash provided by operating activities:      
Gain on sale of business     (43,306 )
Depreciation and amortization 102,942     81,688  
Amortization of debt issue costs 1,652     1,741  
Provision for uncollectible accounts 8,306     8,401  
Debt retirement costs 1,600      
Net loss on sale or disposal of assets 1,006     829  
Share-based compensation 18,762     16,264  
Deferred income taxes 18,339     56,722  
Excess tax benefit from share-based compensation (10,711 )   (11,089 )
Other 7,229     2,159  
Changes in operating assets and liabilities:      
Trade accounts receivable (13,555 )   (28,720 )
Inventory, prepaid expense and other assets (22,784 )   (9,716 )
Accounts payable and other accrued liabilities 16,124     10,812  
Accrued payroll and related liabilities 19,993     11,323  
Income taxes 23,525     4,339  
Net cash provided by operating activities 389,831     317,545  
Cash flows from investing activities:      
Business acquisitions, net of cash acquired (697,673 )   (151,586 )
Investment in Vetstreet Inc.     (9,552 )
Property and equipment additions (122,946 )   (95,234 )
Proceeds from sale of assets 1,729     6,762  
Proceeds from sale of business     48,000  
Other (9,351 )   (2,042 )
Net cash used in investing activities (828,241 )   (203,652 )
Cash flows from financing activities:      
Repayment of long-term obligations (1,274,924 )   (35,017 )
Proceeds from issuance of long-term obligations 1,255,000      
Proceeds from revolving credit facility 555,000     97,000  
Repayment of revolving credit facility (95,000 )    
Payment of financing costs (3,817 )    
Distributions to noncontrolling interest partners (6,134 )   (4,962 )
Purchase of noncontrolling interests (4,552 )   (2,500 )
Proceeds from issuance of common stock under stock incentive plans 3,965     2,683  
Excess tax benefit from share-based compensation 10,711     11,089  
Stock repurchases (17,219 )   (165,607 )
Other (1,714 )   2,041  
Net cash provided by (used in) financing activities 421,316     (95,273 )
Effect of currency exchange rate changes on cash and cash equivalents (385 )   (1,115 )
(Decrease) increase in cash and cash equivalents (17,479 )   17,505  
Cash and cash equivalents at beginning of year 98,888     81,383  
Cash and cash equivalents at end of year $ 81,409     $ 98,888  

VCA Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)
 
Table #1              
Reconciliation of net income attributable to Three Months Ended December 31,   Twelve Months Ended December 31,
  VCA Inc. to Non-GAAP net income  
attributable to VCA Inc. (1) 2016   2015   2016   2015
               
Net income attributable to VCA Inc. $ 40,688     $ 63,595     $ 209,196     $ 211,049  
Adjustments to Other Long-term liabilities, net of tax (2)         2,040      
Discrete tax items (3)         1,045      
Transaction costs related to the Mars Plan of Merger, net of tax (4) 464         464        
Transaction costs related to the CAPNA acquisition, net of tax (5) 26         843      
Debt retirement costs, net of tax (6)         974      
Business interruption proceeds, net of tax (7)             (2,752 )
Gain on sale of business, net of tax (8)     (26,356 )       (26,356 )
Acquisitions related amortization, net of tax (1) 6,254     3,774     21,703     14,239  
               
Non-GAAP net income attributable to VCA Inc. $ 47,432     $ 41,013     $ 236,265     $ 196,180  
               
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) 2016   2015   2016   2015
               
Diluted earnings per share $ 0.50     $ 0.78     $ 2.56     $ 2.56  
Adjustments to Other Long-term liabilities, net of tax (2)         0.02      
Discrete tax items (3)         0.01      
Transaction costs related to the Mars Plan of Merger, net of tax (4) 0.01         0.01      
Transaction costs related to the CAPNA acquisition, net of tax (5)         0.01      
Debt retirement costs, net of tax (6)         0.01      
Business interruption proceeds, net of tax (7)             (0.03 )
Gain on sale of business, net of tax (8)     (0.32 )       (0.32 )
Acquisitions related amortization, net of tax (1) 0.08     0.05     0.27     0.17  
               
Non-GAAP diluted earnings per share (9) $ 0.58     $ 0.50     $ 2.89     $ 2.38  
Shares used for computing              
diluted earnings per share 81,811     81,461     81,725     82,414  

VCA Inc.
Supplemental Operating Data (continued)
(Unaudited - In thousands, except per share amounts)
               
Table #3 Three Months Ended December 31,   Twelve Months Ended December 31,
Reconciliation of consolidated gross profit to  
  Non-GAAP consolidated gross profit (1) 2016   2015   2016   2015
               
Consolidated gross profit $ 134,759     $ 117,696     $ 592,064     $ 510,071  
Acquisitions related amortization (1) 9,918     6,140     34,702     23,153  
               
Non-GAAP consolidated gross profit $ 144,677     $ 123,836     $ 626,766     $ 533,224  
Non-GAAP consolidated gross profit margin 22.5 %   23.2 %   24.9 %   25.0 %
               
Table #4 Three Months Ended December 31,   Twelve Months Ended December 31,
Reconciliation of consolidated operating income to  
  Non-GAAP consolidated operating income (1) 2016   2015   2016   2015
               
Consolidated operating income $ 77,218     $ 66,381     $ 386,334     $ 329,770  
Adjustments to Other Long-term liabilities (2)         1,954      
Transaction costs related to the Mars Plan of Merger (4) 762           762        
Transaction costs related to the CAPNA acquisition (5) 43         1,386      
Business interruption proceeds (7)             (4,523 )
Acquisitions related amortization (1) 11,073     6,201     37,782     23,396  
               
Non-GAAP consolidated operating income $ 89,096     $ 72,582     $ 428,218     $ 348,643  
Non-GAAP consolidated operating margin 13.9 %   13.6 %   17.0 %   16.3 %
               

_________________________________________________

(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) As of the end of the fourth quarter, we have recorded transaction costs of $762,000, or $464,000 net of tax, related to the Plan of Merger between VCA and Mars.

(5) As of the end of the fourth quarter, we have recorded transaction costs of $1.4 million, or $843,000 net of tax, related to our acquisition of CAPNA.

(6) We incurred debt retirement costs of $1.6 million, or $974,000 net of tax, in connection with our new credit facility entered into on June 29, 2016.

(7) In the third quarter of 2015, we received insurance proceeds related to the fire that damaged the headquarters of our Medical Technology business resulting in a net gain of $4.5 million.

(8) In the fourth quarter of 2015, we recognized a gain of $43.3 million related to the sale of our wholly-owned subsidiary, Vetstreet, Inc.

(9) Amounts may not foot due to rounding.

VCA Inc.
Supplemental Operating Data (continued)
(Unaudited - In thousands, except per share amounts)
 
          As of
Table #5         December 31,  2016   December 31,  2015
Selected consolidated balance sheet data              
Long-term Obligations:              
Senior term notes         $ 869,000     $ 585,000  
Revolving credit         400,000     232,000  
Other debt and capital leases         85,415     55,474  
Total long-term obligations         $ 1,354,415     $ 872,474  
               
  Three Months Ended December 31,   Twelve Months Ended December 31,
Table #6  
Selected expense data 2016   2015   2016   2015
               
Rent expense $ 23,831     $ 19,933     $ 91,988     $ 76,694  
               
Depreciation and amortization included              
in direct costs:              
Animal hospital $ 23,751     $ 17,042     $ 84,432     $ 65,850  
Laboratory 2,941     2,754     11,280     10,606  
All other 691     926     2,911     3,797  
Intercompany (658 )   (554 )   (2,463 )   (2,156 )
  $ 26,725     $ 20,168     $ 96,160     $ 78,097  
Depreciation and amortization included in selling,              
general and administrative expense 2,145     886     6,782     3,591  
Total depreciation and amortization $ 28,870     $ 21,054     $ 102,942     $ 81,688  
               
Share-based compensation included in direct costs:              
 Laboratory $ 324     $ 217     $ 883     $ 685  
               
Share-based compensation included in              
  selling, general and administrative expense:              
Animal hospital 1,203     715     3,542     2,696  
Laboratory 485     405     1,755     1,511  
All other 256     493     716     1,119  
Corporate 2,825     2,348     11,866     10,253  
  4,769     3,961     17,879     15,579  
Total share-based compensation $ 5,093     $ 4,178     $ 18,762     $ 16,264  

 
Contact:	Tomas FullerChief Financial Officer(310) 571-6505

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