LOS ANGELES, California, February 17, 2011 - VCA Antech, Inc. (NASDAQ NM SYMBOL: WOOF), a leading animal healthcare company in the United States, today reported financial results for the fourth quarter ended December 31, 2010 as follows: revenue increased 7.3% to a fourth quarter record of $338.1 million, gross profit decreased 2.2 % to $69.6 million and diluted earnings per common share was $0.25.
Results for the year ended December 31, 2010 were as follows: revenue increased 5.1% to a record of $1.38 billion; gross profit decreased 3.0% to $331.2 million; and diluted earnings per common share was $1.27. The twelve month results include charges of $14.5 million, or $8.9 million net of tax, for compensation in connection with executive consulting agreements, $2.1 million, or $1.3 million net of tax, of debt retirement costs and $5.4 million, or $3.5 million net of tax, related to additional state tax payments required as a result of a settlement. Excluding these items, adjusted diluted earnings per common share was $1.42.
Animal Hospital revenue in the fourth quarter increased 10.2% to $261.5 million driven by acquisitions made in the past twelve months. The combination of a decline in our same-store margins, due to a decline in same-store revenue, and lower margins at our newly acquired animal hospitals has caused our Animal Hospital gross margin to decrease to 13.4% from 15.3%, and our operating margin to decline to 10.8% from 12.9%. Our same-store revenue declined by 2.2% and our same-store gross profit margin declined to 14.0% from 15.4%. We acquired ten animal hospitals during the fourth quarter with historical combined annual revenue of $33.1 million.
Laboratory revenue in the fourth quarter increased 1.5% to $72.2 million driven by internal revenue growth. Our Laboratory gross profit decreased by 80 basis points to 42.1% and our operating margin decreased 170 basis points to 32.7%.
Medical Technology revenue was flat during the fourth quarter and gross profit declined 3.4% to $4.8 million. Gross profit margin declined 110 bps to 29.9% compared to 31.0% in the prior year, primarily due to a change in product mix.
2011 Financial Guidance
The continued uncertainty and the lack of visibility regarding the timing and degree of the recovery in our business sector have made 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. Our 2011 financial guidance is as follows:
Non-GAAP Financial Measures
We believe investors' understanding of our total performance is enhanced by disclosing adjusted operating income, 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 is 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 twelve months ended December 31, 2010, we made the following adjustments: $2.1 million, or $1.3 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; $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; $14.5 million, or $8.9 million net of tax, or $0.10 per diluted common share, for compensation in connection to executive consulting agreements. For the three and twelve months ended December 31, 2009, we adjusted our reported amounts for the abandonment of an internally developed software project as follows: for the three months ended December 31, 2009, recovery of $1.9 million, or $1.2 million after tax, or $0.01 per diluted common share and for the twelve months ended December 31, 2009, a net software write-off of $3.3 million, or $2.0 million after tax, or $0.02 per diluted common share.
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 fourth quarter 2010 financial results during a conference call today, February 17th, 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 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 our Report on Form 10-Q for the quarter ended September 30, 2010 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.
Contact: Tomas Fuller
Chief Financial Officer