VCA Inc.
Feb 11, 2016

VCA Inc. Reports Fourth Quarter 2015 Results and Provides Financial Guidance for 2016

LOS ANGELES--(BUSINESS WIRE)-- VCA Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the fourth quarter ended December 31, 2015, as follows: revenue increased 11.2% to a fourth quarter record of $533.7 million; gross profit increased 18.9% to $117.7 million; operating income increased 26.1% to $66.4 million; net income increased 124.2% to $63.6 million and diluted earnings per common share increased 136.4% to $0.78.

Our results for the quarter included a gain of $43.3 million, $26.4 million net of tax, or $0.32 per diluted common share related to the sale of our Vetstreet business. Excluding this item and acquisition-related amortization expense, our Non-GAAP net income increased 29.5% to $41.0 million; and Non-GAAP diluted earnings per share increased 35.1% to $0.50.

We also reported our financial results for the twelve months ended December 31, 2015 as follows: revenue increased 11.2% to $2.1 billion; gross profit increased 14.7% to $510.1 million; operating income increased 33.4% to $329.8 million; net income increased 55.8% to $211.0 million and diluted earnings per common share increased 66.2% to $2.56. Our financial results for the twelve months ended December 31, 2015, on a Non-GAAP basis, are as follows: gross profit increased 14.6% to $533.2 million; operating income increased 18.1% to $348.6 million; net income increased 18.0% to $196.2 million and Non-GAAP diluted earnings per common share increased 25.9% to $2.38.

Our financial results for the twelve months ended December 31, 2015 included the aforementioned gain on the sale of our Vetstreet business and business interruption insurance gain of $4.5 million, $2.8 million net of tax, or $0.03 per diluted common share. Our results for the twelve months ended December 31, 2014 included a non-cash impairment charge of $27.0 million, $17.0 million net of tax, or $0.19 per diluted common share; debt retirement costs of $1.7 million, $1.0 million net of tax, or $0.01 per common share.

Bob Antin, Chairman and CEO, stated, "We had an exceptional fourth quarter, which concluded another strong year. We experienced solid organic revenue growth of 7.4% and 8.2% in our core Animal Hospital and Laboratory business segments, respectively. Our same-store Animal Hospital gross profit margins increased 140 basis points and our Laboratory gross profit margins increased an impressive 280 basis points. The positive momentum in our business has continued from the third quarter to the end of the year and accordingly, we are optimistic about our overall growth prospects in 2016.

"Animal Hospital revenue in the fourth quarter of 2015 increased 12.3%, to $427.5 million, driven by acquisitions made in the past twelve months and same-store revenue growth of 7.4%. Our same-store gross profit margin increased to 14.8% from 13.4% and our total gross margin increased to 14.2%, from 13.2% in the prior-year quarter. During the quarter, we acquired 13 independent animal hospitals which had historical combined annual revenue of $31.7 million, bringing our year to date total to $122.0 million.

"Laboratory internal revenue in the fourth quarter of 2015 increased 8.2% to $90.9 million, driven by an increase in requisitions of 5.1%. Our Laboratory gross profit margin increased to 48.8% from 46.0% and our operating margin increased to 37.9% from 35.8%."

2016 Financial Guidance

We provide the following financial guidance for the full year 2016:

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."

Conference Call

We will discuss our fourth quarter 2015 financial results during a conference call today, February 11th, at 9:00 a.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 (888) 311-3471. 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.

Forward-Looking Statements

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 2016 Financial Guidance and other statements addressing our 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: 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 for the year ended December 31, 2014, 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. 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
December 31,
Twelve Months Ended
December 31,
2015   2014 2015   2014
Revenue:
Animal hospital $ 427,544 $ 380,694 $ 1,697,870 $ 1,514,878
Laboratory 93,397 84,004 393,900 360,396
All other 33,254 33,871 126,988 115,785
Intercompany (20,475 ) (18,642 ) (85,083 ) (72,576 )
533,720   479,927   2,133,675   1,918,483  
 
Direct costs 416,024 380,909 1,623,604 1,473,842
 
Gross profit:
Animal hospital 60,525 50,128 264,335 230,801
Laboratory 45,609 38,661 201,702 175,808
All other 12,128 10,871 46,702 38,624
Intercompany (566 ) (642 ) (2,668 ) (592 )
117,696   99,018   510,071   444,641  
 
Selling, general and administrative expense:
Animal hospital 11,960 10,761 44,311 39,022
Laboratory 10,181 8,641 38,075 33,550
All other 9,481 9,674 33,569 33,456
Corporate 18,630   18,267   68,040   65,478  
50,252 47,343 183,995 171,506
Impairment of goodwill and other long-lived assets 27,019
Business interruption insurance gain, net (4,523 )
Net loss (gain) on sale of assets 1,063   (979 ) 829   (1,152 )
Operating income 66,381 52,654 329,770 247,268
Interest expense, net 5,680 5,215 21,076 17,779
Debt retirement costs 1,709
Other expense 271 41 359 219
Gain on sale of business, net (43,306 )   (43,306 )  
Income before provision for income taxes 103,736 47,398 351,641 227,561
Provision for income taxes 39,582   17,489   135,543   86,878  
Net income 64,154 29,909 216,098 140,683
Net income attributable to noncontrolling interests 559   1,550   5,049   5,245  
Net income attributable to VCA Inc. $ 63,595   $ 28,359   $ 211,049   $ 135,438  
 
Diluted earnings per share $ 0.78   $ 0.33   $ 2.56   $ 1.54  
 
Weighted-average shares outstanding for diluted earnings per share 81,461   85,121   82,414   87,825  
 

   
VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)

(In thousands)

 
December 31,
2015
December 31,
2014
Assets
Current assets:
Cash and cash equivalents $ 98,888 $ 81,383
Trade accounts receivable, net 76,634 60,482
Inventory 51,523 56,050
Prepaid expenses and other 30,521 36,924
Prepaid income taxes 24,598   18,277  
Total current assets 282,164 253,116
Property and equipment, net 507,753 468,041
Other assets:
Goodwill 1,517,650 1,415,861
Other intangible assets, net 97,377 88,175
Notes receivable, net 2,194 2,807
Deferred financing costs, net 6,133 7,874
Other 93,994   65,815  
Total assets $ 2,507,265   $ 2,301,689  
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 33,623 $ 19,356
Accounts payable 52,337 46,284
Accrued payroll and related liabilities 75,519 64,359
Other accrued liabilities 70,828   67,219  
Total current liabilities 232,307 197,218
Long-term debt, less current portion 838,851 775,412
Deferred income taxes 131,478 73,171
Other liabilities 36,084   33,190  
Total liabilities 1,238,720 1,078,991
Redeemable noncontrolling interests 11,511 11,077
VCA Inc. stockholders' equity:
Common stock 81 83
Additional paid-in capital 19,708 155,802
Retained earnings 1,275,207 1,064,158
Accumulated other comprehensive loss (50,034 ) (19,397 )
Total VCA Inc. stockholders' equity 1,244,962 1,200,646
Noncontrolling interests 12,072   10,975  
Total equity 1,257,034   1,211,621  
Total liabilities and equity $ 2,507,265   $ 2,301,689  
 

 
VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)

 
Twelve Months Ended
December 31,
2015   2014
Cash flows from operating activities:
Net income $ 216,098 $ 140,683
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of goodwill and other long-lived assets 27,019
Gain on sale of business (43,306 )
Depreciation and amortization 81,688 79,427
Amortization of debt issue costs 1,741 1,391
Provision for uncollectible accounts 8,401 6,248
Debt retirement costs 1,709
Net loss (gain) on sale of assets 829 (1,152 )
Share-based compensation 16,264 17,200
Deferred income taxes 56,722 8,853
Excess tax benefit from stock based compensation (11,089 ) (6,241 )
Other 2,159 531
Changes in operating assets and liabilities:
Trade accounts receivable (28,720 ) (3,900 )
Inventory, prepaid expense and other assets (19,268 ) (22,897 )
Accounts payable and other accrued liabilities 7,532 11,597
Accrued payroll and related liabilities 11,323 6,782
Income taxes 4,339   2,960  
Net cash provided by operating activities 304,713   270,210  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (151,586 ) (147,507 )
Property and equipment additions (91,954 ) (72,948 )
Proceeds from sale of assets 6,762 3,904
Proceeds from sale of business 48,000
Other (2,042 ) (2,691 )
Net cash used in investing activities (190,820 ) (219,242 )
Cash flows from financing activities:
Repayment of debt (35,017 ) (568,011 )
Proceeds from issuance of long-term debt 600,000
Proceeds from revolving credit facility 97,000 135,000
Payment of financing costs (7,987 )
Distributions to noncontrolling interest partners (4,962 ) (5,009 )
Purchase of noncontrolling interest (2,500 ) (326 )
Proceeds from issuance of common stock under stock option plans 2,683 2,859
Excess tax benefit from stock based compensation 11,089 6,241
Repurchase of common stock (165,607 ) (255,108 )
Other 2,041   (1,424 )
Net cash used in financing activities (95,273 ) (93,765 )
Effect of currency exchange rate changes on cash and cash equivalents (1,115 ) (849 )
Increase (decrease) in cash and cash equivalents 17,505 (43,646 )
Cash and cash equivalents at beginning of period 81,383   125,029  
Cash and cash equivalents at end of period $ 98,888   $ 81,383  
 

       
VCA Inc.
Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

 
Table #1

 

Three Months Ended
December 31,

Twelve Months Ended
December 31,

Reconciliation of net income attributable to VCA Inc., to Non-GAAP net income attributable to VCA Inc.(1)

 

2015 2014 2015 2014
 
Net income attributable to VCA Inc. $ 63,595 $ 28,359 $ 211,049 $ 135,438
Impairment of goodwill and other long-lived assets (2) 27,019
Tax benefit on impairment charge (2) (9,978 )
Business interruption insurance gain, net (4) (4,523 )
Tax expense on business interruption gain, net (4)(6) 1,771
Debt Retirement costs (3) 1,709
Tax benefit from debt retirement costs (3)(6) (669 )
Gain on sale of business, net (5) (43,306 ) (43,306 )
Tax expense from gain on sale of business,net (5)(6) 16,950 16,950
Acquisitions related amortization (1) 6,201 5,434 23,396 21,039
Tax benefit from acquisitions related amortization (1)(6) (2,427 ) (2,127 ) (9,157 ) (8,235 )
       
Non-GAAP net income attributable to VCA Inc. $ 41,013   $ 31,666   $ 196,180   $ 166,323  
 
Table #2 Three Months Ended
December 31,
Twelve Months Ended
December 31,
Reconciliation of diluted earnings per share to Non-GAAP diluted earnings per share (1)
2015 2014 2015 2014
 
Diluted earnings per share $ 0.78 $ 0.33 $ 2.56 $ 1.54
Impact of goodwill and other long-lived assets
impairment, net of tax (2) 0.19
Impact of business interruption insurance gain, net of tax (0.03 )
Impact of debt retirement costs, net of tax (3) 0.01
Impact of gain on sale of business, net of tax (0.32 ) (0.32 )
Impact of acquisitions related amortization, net of tax (1) 0.05 0.04 0.17 0.15
       
Non-GAAP diluted earnings per share (7) $ 0.50   $ 0.37   $ 2.38   $ 1.89  
Shares used for computing
diluted earnings per share 81,461   85,121   82,414   87,825  
 
 
Table #3 Three Months Ended
December 31,
Twelve Months Ended
December 31,
Reconciliation of consolidated gross profit to Non-GAAP consolidated gross profit (1)
2015 2014 2015 2014
 
Consolidated gross profit $ 117,696 $ 99,018 $ 510,071 $ 444,641
Impact of acquisitions related amortization (1) 6,140 5,374 23,153 20,780
       
Non-GAAP consolidated gross profit $ 123,836   $ 104,392   $ 533,224   $ 465,421  
Non-GAAP consolidated gross profit margin 23.2 % 21.8 % 25.0 % 24.3 %
 
Table #4 Three Months Ended
December 31,
Twelve Months Ended
December 31,
Reconciliation of consolidated operating income to Non-GAAP consolidated operating income (1)
2015 2014 2015 2014
 
Consolidated operating income $ 66,381 $ 52,654 $ 329,770 $ 247,268
Impact of goodwill and other long-lived assets impairment (2) 27,019
Impact of business interruption proceeds (4,523 )
Impact of acquisitions related amortization (1) 6,201 5,434 23,396 21,039
       
Non-GAAP consolidated operating income $ 72,582   $ 58,088   $ 348,643   $ 295,326  
Non-GAAP consolidated operating margin 13.6 % 12.1 % 16.3 % 15.4 %
 

_________________________________________________

(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 third quarter of 2014, we recognized a non-cash impairment charge of $27.0 million related to the write-down of goodwill and other long- lived assets in our Vetstreet business.

(3) Also in the third quarter of 2014, we incurred debt retirement costs of $1.7 million related to the refinancing of our senior credit facility.

(4) In the third quarter, we received insurance proceeds related to the fire that damaged the headquarters of our Medical Technology business resulting in a net gain of $4.5 million.

(5) We recognized a gain of $43.3 million related to the sale of our wholly-owned subsidiary, Vetstreet, Inc.

(6) The rate used to calculate the tax benefit is the statutory rate of the applicable year.

(7) Amounts may not foot due to rounding.

     
VCA Inc.
Supplemental Operating Data (continued)

(Unaudited - In thousands, except per share amounts)

 
As of
Table #5 December 31,
2015
  December 31,
2014
Selected consolidated balance sheet data
Debt:
Senior term notes $ 585,000 $ 600,000
Revolving credit 232,000 135,000
Other debt and capital leases 55,474   59,768  
Total debt $ 872,474   $ 794,768  
 
Three Months Ended
December 31,
Twelve Months Ended
December 31,
Table #6
Selected expense data 2015 2014 2015 2014
 
Rent expense $ 19,933   $ 18,463   $ 76,694   $ 69,747  
 
Depreciation and amortization included
in direct costs:
Animal hospital $ 17,042 $ 15,822 $ 65,850 $ 60,395
Laboratory 2,754 2,649 10,606 10,358
All other 926 824 3,797 5,731
Intercompany (554 ) (514 ) (2,156 ) (1,931 )
$ 20,168 $ 18,781 $ 78,097 $ 74,553
Depreciation and amortization included in selling,
general and administrative expense 886   987   3,591   4,874  
Total depreciation and amortization $ 21,054   $ 19,768   $ 81,688   $ 79,427  
 
Share-based compensation included in direct costs:
Laboratory $ 217 $ 216 $ 685 $ 653
 
Share-based compensation included in
selling, general and administrative expense:
Animal hospital 715 721 2,696 2,132
Laboratory 405 440 1,511 1,513
All other 493 237 1,119 842
Corporate 2,348   3,352   10,253   12,060  
3,961   4,750   15,579   16,547  
Total share-based compensation $ 4,178   $ 4,966   $ 16,264   $ 17,200  
 

Source: VCA Inc.

VCA Inc.
Tomas Fuller
Chief Financial Officer
(310) 571-6505

Source: VCA Inc.

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