• Revenue increased 13.7% to a second quarter record of $743.1 million
  • Gross profit increased 12.9% to $185.1 million
  • Operating income increased 7.8% to $125.1 million
  • Diluted earnings per common share increased 5.1% to $0.82
  • Non-GAAP diluted earnings per common share increased 10.3% to $0.96

LOS ANGELES, July 26, 2017 (GLOBE NEWSWIRE) -- 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, 2017, as follows: revenue increased 13.7% to a second quarter record of $743.1 million; gross profit increased 12.9% to $185.1 million; operating income increased 7.8% to $125.1 million; net income increased 5.7% to $67.7 million; and diluted earnings per common share increased 5.1% to $0.82. 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 11.8% to $140.9 million; Non-GAAP net income increased 11.0% to $78.6 million; and Non-GAAP diluted earnings per common share increased 10.3% to $0.96. Our results for the prior-year quarter included transaction expenses related to the acquisition of Companion Animal Practices, North America ("CAPNA") and debt retirement costs, detailed in the supplemental schedules of this press release.

We also reported our financial results for the six months ended June 30, 2017 as follows: revenue increased 16.8% to $1.4 billion; gross profit increased 12.9% to $339.6 million; operating income increased 9.3% to $220.9 million; net income increased 7.7% to $118.8 million; and diluted earnings per common share increased 7.4% to $1.45. Excluding acquisition-related amortization expense, transaction expenses related to the proposed acquisition of VCA by Mars, our financial results for the six months ended June 30, 2017, on a Non-GAAP basis, are as follows: gross profit increased 13.7% to $359.3 million; operating income increased 13.7% to $251.5 million; net income increased 12.1% to $139.5 million; and Non-GAAP diluted earnings per common share increased 11.1% to $1.70.

Bob Antin, Chairman and CEO, stated, "We had a good quarter highlighted by 10.3% 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." Bob Antin added, "On a personal basis, it's been a great pleasure to have achieved such excellent growth over the past 30 years, while at the same time working alongside many great people, including my two co-founders, Art Antin and Neil Tauber, as well as Tom Fuller, our chief financial officer, and Todd Tams, our chief medical officer, who have been with VCA since the beginning.  In addition to providing consistent growth and returns to our shareholders, VCA has established itself as a leading provider of petcare, with an incredible group of people that have dedicated themselves to creating a better world for pets.

"Animal Hospital revenue in the second quarter increased 16.4%, to $628.8 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 5.2%.  Our same-store gross profit margin increased 80 basis points to 18.6%, and our total gross margin increased 40 basis points to 17.9%. Excluding acquisition-related amortization expense, both our Non-GAAP same-store gross profit margin and Non-GAAP Animal Hospital total gross profit margin increased 40 basis points to 19.4%. During the second quarter, we acquired nine independent animal hospitals which had historical combined annual revenue of $26.7 million.

"Our Laboratory internal revenue in the second quarter increased 4.6% to $117.2 million; laboratory gross profit margin increased 10 basis points to 54.1% and operating margin increased 20 basis points to 45.6%. Excluding acquisition-related amortization expense, Non-GAAP Laboratory gross profit increased 10 basis points to 54.5%; and Non-GAAP Laboratory operating margin increased 10 basis points to 45.9%."

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 June 30,   Six Months Ended June 30,
    2017   2016   2017   2016
Revenue:                
Animal hospital   $ 628,798     $ 540,376     $ 1,196,979     $ 998,999  
Laboratory   117,201     112,060     228,349     218,787  
All other   22,533     23,397     45,102     42,810  
Intercompany   (25,400 )   (22,344 )   (49,047 )   (43,668 )
    743,132     653,489     1,421,383     1,216,928  
                 
Direct costs   558,039     489,541     1,081,822     916,200  
                 
Gross profit:                
Animal hospital   112,559     94,679     198,869     168,096  
Laboratory   63,424     60,547     123,017     117,263  
All other   9,356     8,917     18,042     15,827  
Intercompany   (246 )   (195 )   (367 )   (458 )
    185,093     163,948     339,561     300,728  
                 
Selling, general and administrative expense:                
Animal hospital   16,745     14,277     34,356     26,362  
Laboratory   9,975     9,702     19,881     19,998  
All other   7,512     6,022     14,152     11,321  
Corporate   25,544     18,189     49,788     40,637  
    59,776     48,190     118,177     98,318  
                 
Net loss (gain) on sale or disposal of assets   230     (271 )   480     292  
Operating income   125,087     116,029     220,904     202,118  
Interest expense, net   10,169     7,867     19,196     14,962  
Debt retirement costs       1,600         1,600  
Other income   (280 )   (600 )   (582 )   (864 )
Income before provision for income taxes   115,198     107,162     202,290     186,420  
Provision for income taxes   44,774     40,736     79,413     72,272  
Net income   70,424     66,426     122,877     114,148  
Net income attributable to noncontrolling interests   2,712     2,376     4,072     3,871  
Net income attributable to VCA Inc.   $ 67,712     $ 64,050     $ 118,805     $ 110,277  
                 
Diluted earnings per share   $ 0.82     $ 0.78     $ 1.45     $ 1.35  
                 
Weighted-average shares outstanding for diluted earnings per share   82,228     81,729     82,204     81,630  

VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
    June 30,  2017   December 31,  2016
Assets        
Current assets:        
Cash and cash equivalents   $ 119,052     $ 81,409  
Trade accounts receivable, net   86,323     85,593  
Inventory   56,541     57,590  
Prepaid expenses and other   42,721     44,752  
Prepaid income taxes       11,705  
Total current assets   304,637     281,049  
Property and equipment, net   656,362     613,224  
Other assets:        
Goodwill   2,264,265     2,164,422  
Other intangible assets, net   207,158     212,577  
Notes receivable   2,196     2,147  
Other   103,107     99,909  
Total assets   $ 3,537,725     $ 3,373,328  
Liabilities and Equity        
Current liabilities:        
Current portion of long-term obligations   $ 49,347     $ 38,320  
Accounts payable   57,231     68,587  
Accrued payroll and related liabilities   96,072     97,806  
Income tax payable   4,732      
Other accrued liabilities   93,053     91,783  
Total current liabilities   300,435     296,496  
Long-term obligations, net   1,325,411     1,309,397  
Deferred income taxes, net   148,368     142,535  
Other liabilities   47,472     44,560  
Total liabilities   1,821,686     1,792,988  
Redeemable noncontrolling interests   10,558     11,615  
VCA Inc. stockholders' equity:        
Common stock   81     81  
Additional paid-in capital   40,985     32,157  
Retained earnings   1,603,196     1,484,391  
Accumulated other comprehensive loss   (37,075 )   (45,406 )
Total VCA Inc. stockholders' equity   1,607,187     1,471,223  
Noncontrolling interests   98,294     97,502  
Total equity   1,705,481     1,568,725  
Total liabilities and equity   $ 3,537,725     $ 3,373,328  

VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
    Six Months Ended June 30,
    2017   2016
Cash flows from operating activities:        
Net income   $ 122,877     $ 114,148  
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization   60,920     46,978  
Amortization of debt issue costs   767     865  
Provision for uncollectible accounts   4,319     2,891  
Debt retirement costs       1,600  
Net loss on sale or disposal of assets   480     292  
Share-based compensation   7,993     9,104  
Excess tax benefits from share-based compensation       (1,421 )
Other   (1,332 )   6,665  
Changes in operating assets and liabilities:        
Trade accounts receivable   (5,318 )   (7,065 )
Inventory, prepaid expense and other assets   1,287     (15,607 )
Accounts payable and other accrued liabilities   8,777     5,889  
Accrued payroll and related liabilities   (1,936 )   2,817  
Income taxes   16,449     23,557  
Net cash provided by operating activities   215,283     190,713  
Cash flows from investing activities:        
Business acquisitions, net of cash acquired   (123,852 )   (540,878 )
Property and equipment additions   (54,638 )   (58,814 )
Proceeds from sale of assets   1,747     282  
Other   (7,900 )   (4,924 )
Net cash used in investing activities   (184,643 )   (604,334 )
Cash flows from financing activities:        
Repayment of long-term obligations   (58,259 )   (1,256,250 )
Proceeds from issuance of long-term obligations       1,255,000  
Proceeds from revolving credit facility   70,000     435,000  
Payment of financing costs       (3,829 )
Distributions to noncontrolling interest partners   (2,333 )   (2,554 )
Proceeds from formation of noncontrolling interests   335      
Purchase of noncontrolling interests   (1,401 )   (3,730 )
Proceeds from issuance of common stock under stock incentive plans   90     1,122  
Excess tax benefits from share-based compensation       1,421  
Stock repurchases   (129 )   (843 )
Other   (1,479 )   (1,233 )
Net cash provided by financing activities   6,824     424,104  
Effect of currency exchange rate changes on cash and cash equivalents   179     313  
Increase in cash and cash equivalents   37,643     10,796  
Cash and cash equivalents at beginning of period   81,409     98,888  
Cash and cash equivalents at end of period   $ 119,052     $ 109,684  

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 Non-GAAP net income attributable    
to VCA Inc. (1)   2017     2016     2017     2016  
                 
Net income attributable to VCA Inc.   $ 67,712     $ 64,050     $ 118,805     $ 110,277  
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)       141         728  
Debt retirement costs, net of tax (5)       974         974  
Transaction costs related to the Mars transaction (6)   4,468         7,851      
Acquisitions related amortization, net of tax (1)   6,411     5,628     12,876     9,419  
                 
Non-GAAP net income attributable to VCA Inc.   $ 78,591     $ 70,793     $ 139,532     $ 124,483  
                 
Table #2   Three Months Ended June 30,   Six Months Ended June 30,
Reconciliation of diluted earnings per share to    
Non-GAAP diluted earnings per share (1)   2017     2016     2017     2016  
                 
Diluted earnings per share   $ 0.82     $ 0.78     $ 1.45     $ 1.35  
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  
Debt retirement costs, net of tax (5)       0.01         0.01  
Transaction costs related to the Mars transaction (6)   0.05         0.10      
Acquisitions related amortization, net of tax (1)   0.08     0.07     0.16     0.12  
Non-GAAP diluted earnings per share (7)   $ 0.96     $ 0.87     $ 1.70     $ 1.53  
                 
Shares used for computing diluted earnings per share   82,228     81,729     82,204     81,630  
                 
Table #3   Three Months Ended June 30,   Six Months Ended June 30,
Reconciliation of consolidated gross profit to    
Non-GAAP consolidated gross profit (1)   2017     2016     2017     2016  
                 
Consolidated gross profit   $ 185,093     $ 163,948     $ 339,561     $ 300,728  
Acquisitions related amortization (1)   9,606     9,187     19,757     15,415  
Non-GAAP consolidated gross profit   $ 194,699     $ 173,135     $ 359,318     $ 316,143  
Non-GAAP consolidated gross profit margin   26.2 %   26.5 %   25.3 %   26.0 %
                 

VCA Inc.
Supplemental Operating Data (cont)
(Unaudited - In thousands, except per share amounts)
 
Table #4   Three Months Ended June 30,   Six Months Ended June 30,
Reconciliation of consolidated operating income to    
Non-GAAP consolidated operating income (1)   2017     2016     2017     2016  
                 
Consolidated operating income   $ 125,087     $ 116,029     $ 220,904     $ 202,118  
Adjustments to other long-term liabilities (2)               1,954  
Transaction costs related to the CAPNA acquisition (4)       231         1,197  
Transaction costs related to the Mars transaction (6)   4,468         7,851      
Acquisitions related amortization (1)   11,338     9,799     22,763     16,027  
Non-GAAP consolidated operating income   $ 140,893     $ 126,059     $ 251,518     $ 221,296  
Non-GAAP consolidated operating margin   19.0 %   19.3 %   17.7 %   18.2 %
                 

_______________________________________________

(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 second quarter of 2016, we have recorded transaction costs of $1.2 million or $728,000 net of tax related to our acquisition of CAPNA.

(5) In June of 2016, we incurred debt retirement costs of $1.6 million, or $974,000 net of tax, in connection with our new credit facility.

(6) As of the second quarter of 2017, we have recorded transaction costs of $7.9 million related to the proposed transaction with Mars.

(7) Amounts may not foot due to rounding.

VCA Inc.
Supplemental Operating Data (cont)
(Unaudited - In thousands, except per share amounts)
 
        As of
Table #5           June 30,  2017   December 31,  2016
Selected consolidated balance sheet data                
Long-term obligations:                
Senior term notes           $ 858,000     $ 869,000  
Revolving credit           440,000     400,000  
Other debt and capital leases           82,689     85,415  
Total long-term obligations           $ 1,380,689     $ 1,354,415  
                 
    Three Months Ended June 30,   Six Months Ended June 30,
Table #6    
Selected expense data   2017   2016   2017   2016
                 
Rent expense   $ 25,609     $ 23,449     $ 50,777     $ 44,313  
                 
Depreciation and amortization included                
in direct costs:                
Animal hospital   $ 25,196     $ 21,190     $ 50,575     $ 38,714  
Laboratory   3,139     2,803     6,011     5,551  
All other   124     767     698     1,519  
Intercompany   (704 )   (597 )   (1,390 )   (1,183 )
    $ 27,755     $ 24,163     $ 55,894     $ 44,601  
Depreciation and amortization included in selling,                
general and administrative expense   2,764     1,526     5,026     2,377  
Total depreciation and amortization   $ 30,519     $ 25,689     $ 60,920     $ 46,978  
                 
Share-based compensation included in direct costs:                
Laboratory   $ 192     $ 181     $ 381     $ 358  
                 
Share-based compensation included in                
selling, general and administrative expense:                
Animal hospital   864     724     1,696     1,508  
Laboratory   362     407     703     836  
All other   159     147     313     300  
Corporate   2,454     2,739     4,900     6,102  
    3,839     4,017     7,612     8,746  
Total share-based compensation   $ 4,031     $ 4,198     $ 7,993     $ 9,104  

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

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