LOS ANGELES, California, October 24, 2013 - VCA Antech, Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the third quarter ended September 30, 2013, as follows: revenue increased 7.0% to a third quarter record of $464.1 million; gross profit increased 11.6% to $110.7 million; operating income increased 17.7% to $72.0 million; net income increased 19.4 % to $40.6 million and diluted earnings per common share increased 18.4% to $0.45. Non-GAAP earnings per diluted share excluding acquisition-related amortization and a non-cash credit adjustment to direct costs ("Adjusted EPS Excluding Amortization") increased 9.3% to $0.47 for the three months ended September 30, 2013.
For the nine months ended September 30, 2013 and 2012, diluted earnings per common share were $1.26 and $1.17, respectively. Adjusted EPS Excluding Amortization for the nine months ended September 30, 2013 and 2012 were $1.37 and $1.24, respectively.
Bob Antin, Chairman and CEO, stated, "We had an excellent quarter with increases in revenue growth in both our core Animal Hospital and Laboratory business segments. We were able to hold operating margin in our Animal Hospital business segment on 1.1% same-store revenue growth and increase it 120 basis points on a 6.3% increase in internal revenue in our Laboratory business segment.
"Animal Hospital revenue in the third quarter of 2013 increased 7.6%, to $368.9 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 1.1%. In the current quarter, we recorded an inventory related non-cash credit adjustment of $2.8 million. Excluding this item, our adjusted same-store gross profit margin increased to 16.3%, from 16.1% in the prior-year quarter. Adjusted consolidated gross margin remained essentially flat at 15.7%, compared to 15.8% in the prior-year quarter. Adjusted operating margin decreased slightly to 13.4%, compared to 13.6% in the prior-year quarter. During the quarter, we acquired eight independent animal hospitals which had historical combined annual revenue of $29.0 million.
"Laboratory internal revenue in the third quarter increased 6.3%, to $86.4 million, driven by both an increase in the number of requisitions and the average revenue per requisition. Our Laboratory gross profit margin increased to 47.2%, from 45.7%, and our operating margin increased to 38.0% from 36.8%."
2013 Financial Guidance
We reaffirm the annual guidance provided on February 14, 2013.
Non-GAAP Financial Measures
We believe investors' understanding of our total performance is enhanced by disclosing adjusted net income, adjusted diluted earnings per common share and adjusted diluted earnings per common share excluding acquisition-related amortization. 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."
We will discuss our third quarter 2013 financial results during a conference call today, October 24th, at 4:30 p.m. Eastern Time. A live broadcast of the call may be accessed by visiting our website at investor.vcaantech.com. The call may also be accessed by dialing (877) 293-5492. Interested parties should call at least 10 minutes prior to the start of the call to register. Replay of the webcast will be available for ninety days by visiting the company's website.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Among the forward looking statements in this press release are statements addressing our 2013 guidance and plans, expectations, future financial position and results of operation. These forward-looking statements are not historical facts and are inherently uncertain and out of our control. Any or all of our forward-looking statements in this press release may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Actual future results may vary materially. Among other factors that could cause our actual results to differ from this forward-looking information are: the continued effects of the economic uncertainty prevailing in regions in which we operate; our ability to execute on our growth strategy and to manage acquired operations; changes in demand for our products and services; fluctuations in our revenue adversely affecting our gross profit, operating income and margins; and the effects of the other factors discussed in our Annual Report on Form 10-K, Reports on Form 10-Q and our other filings with the SEC.
About VCA Antech
We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, additionally we are the largest provider of online communication, professional education and marketing solutions to the veterinary community. We also supply diagnostic imaging equipment to the veterinary industry.
Chief Financial Officer
(1) Management uses, adjusted net income excluding acquisition-related amortization, adjusted EPS excluding amortization, adjusted gross profit and adjusted operating income and its components among other factors, to measure the performance of the overall Company. Further, we believe that investors' understanding of our performance is enhanced by disclosing these measures. Adjusted net income excluding acquisition-related amortization and its components and adjusted EPS excluding amortization measures are not, and should not be viewed as substitutes for, U.S. generally accepted accounting principles (GAAP) net income and its components and diluted earnings per share.
(2) During the first quarter, we recorded a write-down to net realizable value of $1.8 million related to a vacant property that is held for sale, and we accrued costs totaling $2.0 million related to a vacant leased property.
(3) As a result of the acquisition of a controlling interest in AVC, we recorded a gain in the first quarter of 2012, for the increase in value of our previously held interest in AVC, which we acquired in 2008.
(4) Due to the corrections on the calculation of depreciation on certain assets, we recognized additional depreciation expense during the second quarter of 2012. The rate used to calculate the tax benefit is the statutory rate for this year.
(5) This quarter, we recorded a non-cash physical inventory adjustment in our Animal Hospital business segment which resulted in a $2.8 million credit adjustment to direct costs.
(6) Beginning the first quarter of 2013, we report Adjusted EPS Excluding Amortization to exclude acquisition-related amortization, and other infrequent charges and credits. We believe Adjusted EPS Excluding Amortization will provide our investors with better insight into the operating performance of the business.
(7) Amounts may not add due to rounding.
(8) In the second quarter, we recorded a reduction in rent expense as a result of a capital lease that was previously treated as an operating lease in our Animal Hospital segment.