LOS ANGELES, California, October 23, 2014 - VCA 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, 2014, as follows: revenue increased 7.7% to a third quarter record of $499.6 million; gross profit increased 11.8% to $123.8 million; operating income of $53.5 million; net income of $27.5 million and diluted earnings per common share of $0.31. Non-GAAP earnings per diluted common share excluding acquisition-related amortization, a non-cash impairment charge and debt retirement costs ("Adjusted EPS Excluding Amortization") increased 19.1% to $0.56.
Our results for the quarter included a non-cash impairment charge of $27.0 million, $17.0 million net of tax, or $0.20 per common share, related to the write-down of goodwill and other long-lived assets in our Vetstreet business. Our results also included debt retirement costs of $1.7 million, $1.0 million net of tax, or $0.01 per common share related to the refinancing of our senior credit facility. Our results in the 2013 period included an inventory credit adjustment of $0.02 per common share. Excluding these items and acquisition-related amortization expense, our Adjusted EPS Excluding Amortization increased 19.1% to $0.56 for the three months ended September 30, 2014.
As a result of an interim impairment review, we determined that a write-down of goodwill and long-lived assets was necessary as Vetstreet's current year actual and projected future operating results and cash flow were significantly lower than previously forecasted. We do not expect this accounting write-down to affect our ongoing business or financial performance.
Bob Antin, Chairman and CEO, stated, "We had an excellent quarter. Our Adjusted EPS Excluding Amortization increased 19.1%, lead by a 4.1% increase in Animal Hospital same-store revenue growth and a 110 basis point improvement in our adjusted same-store gross profit margin. Our Animal Hospital same-store revenue growth in the quarter was driven by an increase in both the number of orders and the average revenue per order. Our Laboratory business segment experienced 5.5% internal revenue growth resulting in a 180 basis point increase in gross profit margin.
"In addition to our excellent operating results, we are very excited about the accelerating pace of our animal hospital acquisition program. During the quarter, we acquired 13 independent animal hospitals with historical combined annual revenue of $26.0 million bringing our year-to-date total to $54.0 million. We have a robust pipeline of acquisition transactions in current discussions and we expect to acquire a total of $120 million of annual revenue for the entire year, which is significantly over our previous guidance of $60 to $70 million. As a result of this momentum, we are extremely optimistic with respect to our results for the fourth quarter of this year.
"For the nine months ended September 30, 2014 and 2013, diluted earnings per share was $1.21 and $1.26, respectively. Adjusted EPS Excluding Amortization was $1.52 and $1.37 for the nine months ended September 30, 2014 and 2013, respectively. The adjusted diluted earnings per share for the nine months ended September 30, 2013, excludes $3.8 million of pre-tax charges related to vacated properties that were consolidated into the then - newly constructed, VCA West Los Angeles Animal Hospital as well as a non-cash $2.8 million inventory credit adjustment.
"Animal Hospital revenue in the current quarter increased 7.3%, to $395.8 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 4.1%. Our same-store gross profit margin increased to 17.7% from 16.3%, while our total gross margin increased to 17.3%, from 16.5% in the prior-year quarter. Adjusted to exclude acquisition-related amortization: adjusted same-store gross profit margin increased to 18.6%, from 17.5% in the prior-year quarter; adjusted total gross margin increased to 18.4%, from 16.9% in the prior-year quarter; adjusted operating margin increased to 15.9%, from 14.6% in the prior-year quarter.
"Laboratory internal revenue in the third quarter increased 5.5%, to $91.2 million. Our Laboratory gross profit margin increased to 49.0% from 47.2%, and our operating margin increased to 39.6%, from 38.0% in the prior-year quarter. Excluding amortization expense, our adjusted Laboratory gross profit margin increased to 49.2%, from 47.4% in the prior-year quarter, and our adjusted operating margin likewise increased to 39.8%, from 38.3% in the prior-year quarter.
"We are also pleased that during the quarter we completed the refinancing of our Senior Credit Facility. The new facility provides for $600 million of senior term notes, as well as an additional $800 million revolving credit facility. This new facility provides us with the ability to quickly take advantage of both acquisition and share buy back opportunities in the marketplace.
"During the quarter we repurchased 2.3 million shares of our common stock for $88.7 million. Since the Board authorized our repurchase program in April 2013 we have acquired 4.8 million shares for $165.7 million. In the fourth quarter we have continued to actively repurchase shares and have acquired an additional 1.1 million shares for $43.1 million."
We are revising our guidance as follows: Fourth quarter Adjusted EPS excluding amortization of $0.35 to $0.37.
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 EPS Excluding 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 2014 financial results during a conference call today, October 23rd, at 4:30 p.m. Eastern Time. A live broadcast of the call may be accessed by visiting our website at investor.vca.com. The call may also be accessed by dialing (877) 293-5492. Interested parties should call at least ten 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 2014 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 Inc.
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