LOS ANGELES, California, October 21, 2010 - VCA Antech, Inc. (NASDAQ NM SYMBOL: WOOF), a leading animal healthcare company in the United States, today reported financial results for the third quarter ended September 30, 2010 as follows: revenue increased 5.9% to a third quarter record of $358.7 million and diluted earnings per common share of $0.32.
Our earnings for the quarter ended September 30, 2010 include debt retirement costs of $2.6 million, or $1.6 million net of tax, related to the refinancing of our long-term debt and $5.4 million, or $3.5 million net of tax, related to additional state tax payments required as a result of a tax-audit settlement reached during the quarter. Excluding these items, adjusted diluted earnings per common share was $0.37.
Our financial results for the nine months ended September 30, 2010, were as follows: revenue increased 4.4% to a nine-month record of $1.043 billion; net income was $88.8 million; diluted earnings per common share was $1.02.
The nine months ended September 30, 2010 include $14.5 million, or $8.9 million net of tax, for future compensation in connection with executive consulting agreements, $2.6 million, or 1.6 million net of tax, of debt retirement costs and $5.4 million, or $3.5 million net of tax related to the aforementioned state tax payments. Excluding these charges, adjusted diluted earnings per share was $1.18. The nine months ended September 30, 2009 included a non-cash charge of $5.3 million, or $3.2 million net of tax, related to the abandonment of an internally developed software project. Excluding this charge, adjusted diluted earnings per share was $1.27.
Results for the three months ended September 30, 2010 include approximately $1.2 million in transaction costs incurred in connection with the Pet DRx transaction.
Animal Hospital revenue in the third quarter increased 7.5% to $276.7 million driven by acquisitions made in the past twelve months. The combination of a decline in same-store margins due to a decline in same-store revenue and, lower margins at acquired animal hospitals has caused our Animal Hospital gross margin to decrease to 16.8% compared to 19.9% for the comparable prior year quarter, and our Animal Hospital operating margin to decline to 14.8% compared to 17.7% for the comparable prior year quarter. Our same-store revenue declined by 4.0% and our same-store gross profit margin declined to 17.3% from 20.0%. During the quarter, we acquired 29 animal hospitals which had historical combined annual revenue of $84.3 million.
Laboratory revenue in the third quarter decreased 0.8% to $77.3 million. Internal revenue growth was negative 0.9% driven by a decline in the number of requisitions. Our laboratory gross profit margin decreased by 120 basis points to 44.9% and our operating margin decreased 280 basis points to 36.1%.
Medical Technology revenue in the third quarter increased 30.7% to $17.4 million and gross profit increased 29.2% to $5.3 million. Gross profit margin was 30.2% compared to 30.6% in the prior year primarily due to product mix and the operating margin increased to 8.7% from 2.4% as SG&A expenses remained flat year over year.
2010 Financial Guidance
Bob Antin, Chairman and CEO, stated, "Our results have continued to be impacted by the slow pace of the economic recovery, particularly in the consumer sector. Current uncertainty in the economy and the lack of visibility regarding the timing and degree of the recovery in our business sector is making it particularly difficult to predict consumer demand for our services and to provide guidance relative to future results. Further, the foregoing factors make it more likely that our actual results could differ from expectations. Assuming that our internal growth rate for the remainder of the year is similar to that experienced in the third quarter, we expect that our diluted earnings per common share for the full fiscal year would range from $1.38 to $1.40."
Non-GAAP Financial Measures
We believe investors' understanding of our total performance is enhanced by disclosing adjusted net income and adjusted diluted earnings per common share. We define these adjusted measures as the reported amounts, adjusted to exclude certain significant items. Adjusted diluted earnings per common share are adjusted net income divided by diluted common shares outstanding.
Management uses adjusted measures because they exclude the effect of significant items that we believe are not representative of our core operations for the periods presented. 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. For the three and nine months ended September 30, 2010, we made the following adjustments: $2.6 million, or $1.6 million after tax, and $0.02 per diluted common share for debt retirement costs related to the refinancing of our senior term notes and financing of our new revolver; and $5.4 million, or $3.5 million net of tax, or $0.04 per diluted common share for tax expense related to the settlement of state taxes assessed on taxable income for the tax years 2004 through 2007. Further, for the nine months ended September 30, 2010, we adjusted our reported amounts for $14.5 million, or $8.9 million net of tax, or $0.10 per diluted common share, for future compensation in connection to executive consulting agreements. For the nine months ended September 30, 2009 we adjusted our reported amount for $5.3 million, or $3.2 million after tax, and $0.04 per diluted share related to the abandonment of an internally-developed software project.
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."
We will discuss our company's third quarter 2010 financial results during a conference call today, October 21st, at 4:30 p.m. Eastern Time. You can access a live broadcast of the call by visiting our website at http://investor.vcaantech.com. You can also access the call by dialing (877) 293-5492. Interested parties should call at least 10 minutes prior to the start of the call to register.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may and likely will differ materially from this forward-looking information. Our Animal Hospital and Laboratory revenues have been materially adversely impacted by the current economic recession. We are unable to forecast accurately the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause actual results to differ from this forward-looking information. Among other factors that could cause our actual results to differ from this forward-looking information are: an increase in the level of direct costs or a failure to increase revenue at a level necessary to maintain our expected operating margins, a material adverse change in our financial condition or operations; the level of selling, general and administrative costs; the effects of our recent and future acquisitions (including Pet DRx Corporation) and our ability to effectively manage our growth and achieve operating synergies; a decline in demand for any of our products and services; any disruption in our information technology systems or transportation networks; the effects of competition; any impairment in the carrying value of our goodwill and other intangible assets; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risks are discussed in our Report on Form 10-K for the year ended December 31, 2009 and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.
We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, and we supply diagnostic imaging equipment to the veterinary industry.
Chief Financial Officer