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

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