VCA Inc.
VCA INC (Form: 8-K, Received: 04/27/2017 16:01:51)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

_________________

 

Form 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

Date of Report (Date of earliest event reported): April 27, 2017

 

VCA Inc.

(Exact Name of Registrant as Specified in Charter)

 

Delaware   001-16783   95-4097995
(State or Other Jurisdiction   (Commission   (IRS Employer
of Incorporation)   File Number)   Identification No.)

 

12401 West Olympic Boulevard

Los Angeles, California 90064-1022

(Address of Principal Executive Offices)

 

(310) 571-6500

(Registrant's Telephone Number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

|_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company |_|

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |_|

 

 

 

Item 2.02: Results of Operations and Financial Condition

 

On April 27, 2017, VCA Inc. issued a press release which included earnings for the first quarter of fiscal year 2017. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K.

 

Item 9.01: Financial Statements, Pro Forma Financial Information and Exhibits

 

(c) Exhibits

 

99.1 Press release dated April 27, 2017, regarding earnings for the first quarter of fiscal year 2017.

 

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

April 27, 2017 VCA Inc.
   
   
   
  /s/ Tomas W. Fuller
  By:  Tomas W. Fuller
  Its:  Chief Financial Officer

 

 

 

 

 

 

 

 

 

EXHIBIT INDEX

 

Exhibits

 

99.1 Press release dated April 27, 2017, regarding earnings for the first quarter of fiscal year 2017.

 

 

 

Exhibit 99.1

 

 

VCA INC. REPORTS FIRST QUARTER 2017 RESULTS

 

Revenue increased 20.4% to a first quarter record of $678.3 million
Gross profit increased 12.9% to $154.5 million
Operating income increased 11.3% to $95.8 million
Diluted earnings per common share increased 8.8% to $0.62
Non-GAAP diluted earnings per common share increased 10.6% to $0.73

 

LOS ANGELES, California, April 27, 2017 - VCA Inc. (NASDAQ: WOOF) , a leading animal healthcare company in the United States and Canada, today reported financial results for the first quarter ended March 31, 2017, as follows: revenue increased 20.4% to a first quarter record of $678.3 million; gross profit increased 12.9% to $154.5 million; operating income increased 11.3% to $95.8 million; net income increased 10.5% to $51.1 million; and diluted earnings per common share increased 8.8% to $0.62. Excluding transaction expenses related to the proposed acquisition of VCA by Mars, Incorporated (“Mars”), and acquisition-related amortization expense, our results for this quarter are as follows: Non-GAAP operating income increased 16.2% to $110.6 million; Non-GAAP net income increased 11.0% to $59.6 million; and Non-GAAP diluted earnings per common share increased 10.6% to $0.73. Our results for the prior-year quarter included transaction expenses related to the acquisition of Companion Animal Practices, North America (“CAPNA”) and other discrete items, detailed in the supplemental schedules of this press release.

 

Bob Antin, Chairman and CEO, stated, “We had a good quarter highlighted by 10.6% growth in our adjusted diluted earnings per common share. We continue to experience organic revenue growth and increasing gross margins in both our core Animal Hospital and Laboratory businesses.

 

“Animal Hospital revenue in the first quarter increased 23.9%, to $568.2 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 3.7%. Our same-store gross profit margin increased 30 basis points to 16.4%, and our total gross margin decreased 80 basis points to 15.2%. Excluding acquisition-related amortization expense, our Non-GAAP same-store gross profit margin remained flat at 17.2%; and Non-GAAP Animal Hospital total gross profit margin decreased 40 basis points to 16.8%. During the first quarter, we acquired 15 independent animal hospitals which had historical combined annual revenue of $54.4 million.

 

“Our Laboratory internal revenue in the first quarter increased 5.5% to $111.1 million; laboratory gross profit margin increased 50 basis points to 53.6% and our operating margin increased 120 basis points to 44.7%. Excluding acquisition-related amortization expense, Non-GAAP Laboratory gross profit increased 50 basis points to 54.0%; and Non-GAAP Laboratory operating margin increased 110 basis points to 45.0%.”

 

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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.”

 

Forward-Looking Statements

 

We have included herein statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements in this document using words like “believe,” “intend,” “expect,” “estimate,” “may,” “plan,” “should,” “could,” “forecast,” “looking ahead,” “possible,” “will,” “project,” “contemplate,” “anticipate,” “predict,” “potential,” “continue,” or similar expressions. You may find some of these statements below and elsewhere in this document. These forward-looking statements are not historical facts and are inherently uncertain and outside of our control. Any or all of our forward-looking statements in this document may turn out to be incorrect. They can be affected by inaccurate assumptions we might make, or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this document will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially. Many factors could cause actual future events to differ materially from the forward-looking statements in this document, including but not limited to: (i) the risk that the proposed transaction with Mars may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of the common stock of the Company; (ii) the failure to satisfy or obtain waivers of the conditions to the consummation of the proposed transaction with Mars, including the receipt of certain governmental and regulatory approvals; (iii) the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed transaction with Mars; (iv) the effect of the announcement or pendency of the proposed transaction on the Company’s business relationships, operating results and business generally; (v) risks that the proposed transaction disrupts current plans and operations of the Company, including the risk of adverse reactions or changes to business relationships with customers, suppliers and other business partners of the Company; (vi) potential difficulties in the hiring or retention of employees of the Company as a result of the proposed transaction; (vii) risks related to diverting management’s attention from the Company’s ongoing business operations; (viii) potential litigation relating to the proposed transaction with Mars; (ix) unexpected costs, charges or expenses resulting from the proposed transaction; (x) competitive responses to the proposed transaction; and (xi) legislative, regulatory and economic developments. The foregoing list of factors is not exclusive. Additional risks and uncertainties that could affect the Company’s financial and operating results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in the Company’s most recent Annual Report on Form 10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2017, and the Company’s more recent reports filed with the SEC. The Company can give no assurance that the conditions to the proposed transaction will be satisfied, or that it will close within the anticipated time period. Investors and security holders are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which statements were made. Except as required by applicable law, the Company undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

 

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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.

 

Contact:   Tomas Fuller

Chief Financial Officer

(310) 571-6505

 

Source: VCA Inc.

 

 

 

 

 

 

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VCA Inc.

Condensed, Consolidated Income Statements

(Unaudited)

(In thousands, except per share amounts)

 

    Three Months Ended
March 31,
    2017   2016
Revenue:        
Animal hospital   $ 568,181     $ 458,623  
Laboratory     111,148       106,727  
All other     22,569       19,413  
Intercompany     (23,647 )     (21,324 )
      678,251       563,439  
                 
Direct costs     523,783       426,659  
                 
Gross profit:                
Animal hospital     86,310       73,417  
Laboratory     59,593       56,716  
All other     8,686       6,910  
Intercompany     (121 )     (263 )
      154,468       136,780  
                 
Selling, general and administrative expense:                
Animal hospital     17,611       12,085  
Laboratory     9,906       10,296  
All other     6,640       5,299  
Corporate     24,244       22,448  
      58,401       50,128  
                 
Net loss on sale or disposal of assets     250       563  
Operating income     95,817       86,089  
Interest expense, net     9,027       7,095  
Other income     (302 )     (264 )
Income before provision for income taxes     87,092       79,258  
Provision for income taxes     34,639       31,536  
Net income     52,453       47,722  
Net income attributable to noncontrolling interests     1,360       1,495  
Net income attributable to VCA Inc.   $ 51,093     $ 46,227  
                 
Diluted earnings per share   $ 0.62     $ 0.57  
                 
Weighted-average shares outstanding for diluted earnings per share     82,179       81,523  

 

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VCA Inc.

Condensed, Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

    March 31,
2017
  December 31,
2016
Assets                
Current assets:                
Cash and cash equivalents   $ 89,531     $ 81,409  
Trade accounts receivable, net     85,611       85,593  
Inventory     56,833       57,590  
Prepaid expenses and other     38,432       44,752  
Prepaid income taxes           11,705  
Total current assets     270,407       281,049  
Property and equipment, net     645,652       613,224  
Other assets:                
Goodwill     2,228,189       2,164,422  
Other intangible assets, net     211,630       212,577  
Notes receivable     2,136       2,147  
Other     102,664       99,909  
Total assets   $ 3,460,678     $ 3,373,328  
Liabilities and Equity                
Current liabilities:                
Current portion of long-term obligations   $ 43,877     $ 38,320  
Accounts payable     61,532       68,587  
Accrued payroll and related liabilities     73,247       97,806  
Income tax payable     15,874        
Other accrued liabilities     95,045       91,783  
Total current liabilities     289,575       296,496  
Long-term obligations, net     1,342,607       1,309,397  
Deferred income taxes, net     147,851       142,535  
Other liabilities     43,913       44,560  
Total liabilities     1,823,946       1,792,988  
Redeemable noncontrolling interests     10,398       11,615  
VCA Inc. stockholders’ equity:                
Common stock     81       81  
Additional paid-in capital     37,012       32,157  
Retained earnings     1,535,484       1,484,391  
Accumulated other comprehensive loss     (43,084 )     (45,406 )
Total VCA Inc. stockholders’ equity     1,529,493       1,471,223  
Noncontrolling interests     96,841       97,502  
Total equity     1,626,334       1,568,725  
Total liabilities and equity   $ 3,460,678     $ 3,373,328  

 

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VCA Inc.

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

    Three Months Ended
March 31,
    2017   2016
Cash flows from operating activities:                
Net income   $ 52,453     $ 47,722  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     30,401       21,289  
Amortization of debt issue costs     383       433  
Provision for uncollectible accounts     1,794       851  
Net loss on sale or disposal of assets
    250       563  
Share-based compensation     3,962       4,906  
Excess tax benefits from share-based compensation           (445 )
Other     884       4,489  
Changes in operating assets and liabilities:                
Trade accounts receivable     (1,594 )     (3,339 )
Inventory, prepaid expense and other assets     5,507       (7,569 )
Accounts payable and other accrued liabilities     3,491       (4,801 )
Accrued payroll and related liabilities     (24,748 )     12,955  
Income taxes     27,508       16,855  
Net cash provided by operating activities     100,291       93,909  
Cash flows from investing activities:                
Business acquisitions, net of cash acquired     (81,721 )     (160,385 )
Property and equipment additions     (28,919 )     (25,806 )
Proceeds from sale of assets     349       12  
Other     (6,203 )     (7,346 )
Net cash used in investing activities     (116,494 )     (193,525 )
Cash flows from financing activities:                
Repayment of long-term obligations     (17,813 )     (9,678 )
Proceeds from revolving credit facility     45,000       90,000  
Distributions to noncontrolling interest partners     (1,138 )     (1,238 )
Proceeds from formation of noncontrolling interests     335        
Purchase of noncontrolling interests     (1,400 )     (3,730 )
Proceeds from issuance of common stock under stock incentive plans     90       286  
Excess tax benefits from share-based compensation           445  
Stock repurchases     (95 )     (843 )
Other     (812 )     (333 )
Net cash provided by financing activities     24,167       74,909  
Effect of currency exchange rate changes on cash and cash equivalents     158       299  
Increase (decrease) in cash and cash equivalents     8,122       (24,408 )
Cash and cash equivalents at beginning of period     81,409       98,888  
Cash and cash equivalents at end of period   $ 89,531     $ 74,480  

 

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VCA Inc.

Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

 

Table #1

Reconciliation of net income at tributable to

VCA Inc., to Non-GAAP net income attributable

  Three Months Ended
March 31,
to VCA Inc. (1)   2017   2016
                 
Net income attributable to VCA Inc.   $ 51,093     $ 46,227  
Adjustments to Other Long-term liabilities, net of tax (2)           2,040  
Discrete tax items (3)           1,045  
Transaction costs related to the CAPNA acquisition, net of tax (4)           587  
Transaction costs related to the Mars transaction, net of tax (5)     2,059        
Acquisitions related amortization, net of tax (1)     6,465       3,791  
                 
Non-GAAP net income attributable to VCA Inc.   $ 59,617     $ 53,690  

 

Table #2

Reconciliation of diluted earnings per share to   Three Months Ended
March 31,
Non-GAAP diluted earnings per share (1)   2017   2016
         
Diluted earnings per share   $ 0.62     $ 0.57  
Adjustments to Other Long-term liabilities, net of tax (2)           0.02  
Discrete tax items (3)           0.01  
Transaction costs related to the CAPNA acquisition, net of tax (4)           0.01  
Transaction costs related to the Mars transaction, net of tax (5)     0.03        
Acquisitions related amortization, net of tax (1)     0.08       0.05  
Non-GAAP diluted earnings per share   $ 0.73     $ 0.66  
                 
Shares used for computing diluted earnings per share     82,179       81,523  

 

Table #3

Reconciliation of consolidated gross profit to   Three Months Ended
March 31,
Non-GAAP consolidated gross profit (1)   2017   2016
         
Consolidated gross profit   $ 154,468     $ 136,780  
Acquisitions related amortization (1)     10,151       6,228  
Non-GAAP consolidated gross profit   $ 164,619     $ 143,008  
Non-GAAP consolidated gross profit margin     24.3 %     25.4 %

 

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VCA Inc.

Supplemental Operating Data (cont)

(Unaudited - In thousands, except per share amounts)

Table #4

Reconciliation of consolidated operating income to   Three Months Ended
March 31,
Non-GAAP consolidated operating income (1)   2017   2016
         
Consolidated operating income   $ 95,817     $ 86,089  
Adjustments to Other Long-term liabilities (2)           1,954  
Transaction costs related to the CAPNA acquisition (4)           966  
Transaction costs related to the Mars transaction (5)     3,383        
Acquisitions related amortization (1)     11,425       6,228  
Non-GAAP consolidated operating income   $ 110,625     $ 95,237  
Non-GAAP consolidated operating margin     16.3 %     16.9 %

 

_______________________________________________

 

(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 first quarter of 2016, we recorded a non-cash charge to adjust certain long-term liabilities for $3.4 million, or $2.0 million net of tax. $2.0 million of this amount relates to compensation and $1.4 million relates to interest accretion.

 

(3) In the first quarter of 2016, we recorded a tax adjustment to our income tax liabilities for $1.0 million.

 

(4) In the first quarter of 2016, we recorded transaction costs of $966,000 or $587,000 net of tax related to our acquisition of CAPNA.

 

(5) During the first quarter of 2017, we have recorded transaction costs of $3.4 million, or $2.1 million net of tax, related to the proposed transaction with Mars.

 

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VCA Inc.

Supplemental Operating Data (cont)

(Unaudited - In thousands, except per share amounts)

 

    As of
Table #5   March 31,
2017
  December 31,
2016
Selected consolidated balance sheet data                
Debt:                
Senior term notes   $ 863,500     $ 869,000  
Revolving credit     445,000       400,000  
Other debt and capital leases     84,297       85,415  
Total debt   $ 1,392,797     $ 1,354,415  

 

Table #6   Three Months Ended
March 31,
Selected expense data   2017   2016
         
Rent expense   $ 25,168     $ 20,864  
                 
Depreciation and amortization included                
in direct costs:                
Animal hospital   $ 25,379     $ 17,524  
Laboratory     2,872       2,748  
All other     574       752  
Intercompany     (686 )     (586 )
    $ 28,139     $ 20,438  
Depreciation and amortization included in selling,                
general and administrative expense     2,262       851  
Total depreciation and amortization   $ 30,401     $ 21,289  
                 
Share-based compensation included in direct costs:                
Laboratory   $ 189     $ 177  
                 
Share-based compensation included in                
selling, general and administrative expense:                
Animal hospital     832       784  
Laboratory     341       429  
All other     154       153  
Corporate     2,446       3,363  
      3,773       4,729  
Total share-based compensation   $ 3,962     $ 4,906  

 

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