VCA Inc.
VCA INC (Form: 8-K, Received: 07/26/2017 16:01:35)

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): July 26, 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. ☐

 

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Item 2.02: Results of Operations and Financial Condition

 

On July 26, 2017, VCA Inc. issued a press release which included earnings for the second 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 July 26, 2017, regarding earnings for the second quarter of fiscal year 2017.

 

 

 

 

 

 

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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.

 

 

July 26, 2017   VCA Inc.
     
     
    /s/ Tomas W. Fuller
    By: Tomas W. Fuller
    Its: Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

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EXHIBIT INDEX

 

Exhibits

 

99.1 Press release dated July 26, 2017, regarding earnings for the second quarter of fiscal year 2017.

 

 

 

 

 

 

 

 

 

 

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Exhibit 99.1

 

VCA INC. REPORTS SECOND QUARTER 2017 RESULTS

 

Revenue increased 13.7% to a second quarter record of $743.1 million
Gross profit increased 12.9% to $185.1 million
Operating income increased 7.8% to $125.1 million
Diluted earnings per common share increased 5.1% to $0.82
Non-GAAP diluted earnings per common share increased 10.3% to $0.96

 

LOS ANGELES, California, July 26, 2017 - VCA Inc. (NASDAQ: WOOF) , a leading animal healthcare company in the United States and Canada, today reported financial results for the second quarter ended June 30, 2017, as follows: revenue increased 13.7% to a second quarter record of $743.1 million; gross profit increased 12.9% to $185.1 million; operating income increased 7.8% to $125.1 million; net income increased 5.7% to $67.7 million; and diluted earnings per common share increased 5.1% to $0.82. 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 11.8% to $140.9 million; Non-GAAP net income increased 11.0% to $78.6 million; and Non-GAAP diluted earnings per common share increased 10.3% to $0.96. Our results for the prior-year quarter included transaction expenses related to the acquisition of Companion Animal Practices, North America (“CAPNA”) and debt retirement costs, detailed in the supplemental schedules of this press release.

 

We also reported our financial results for the six months ended June 30, 2017 as follows: revenue increased 16.8% to $1.4 billion; gross profit increased 12.9% to $339.6 million; operating income increased 9.3% to $220.9 million; net income increased 7.7% to $118.8 million; and diluted earnings per common share increased 7.4% to $1.45. Excluding acquisition-related amortization expense, transaction expenses related to the proposed acquisition of VCA by Mars, our financial results for the six months ended June 30, 2017, on a Non-GAAP basis, are as follows: gross profit increased 13.7% to $359.3 million; operating income increased 13.7% to $251.5 million; net income increased 12.1% to $139.5 million; and Non-GAAP diluted earnings per common share increased 11.1% to $1.70.

 

Bob Antin, Chairman and CEO, stated, “We had a good quarter highlighted by 10.3% 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.” Bob Antin added, “On a personal basis, it’s been a great pleasure to have achieved such excellent growth over the past 30 years, while at the same time working alongside many great people, including my two co-founders, Art Antin and Neil Tauber, as well as Tom Fuller, our chief financial officer, and Todd Tams, our chief medical officer, who have been with VCA since the beginning. In addition to providing consistent growth and returns to our shareholders, VCA has established itself as a leading provider of petcare, with an incredible group of people that have dedicated themselves to creating a better world for pets.

 

“Animal Hospital revenue in the second quarter increased 16.4%, to $628.8 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 5.2%. Our same-store gross profit margin increased 80 basis points to 18.6%, and our total gross margin increased 40 basis points to 17.9%. Excluding acquisition-related amortization expense, both our Non-GAAP same-store gross profit margin and Non-GAAP Animal Hospital total gross profit margin increased 40 basis points to 19.4%. During the second quarter, we acquired nine independent animal hospitals which had historical combined annual revenue of $26.7 million.

 

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“Our Laboratory internal revenue in the second quarter increased 4.6% to $117.2 million; laboratory gross profit margin increased 10 basis points to 54.1% and operating margin increased 20 basis points to 45.6%. Excluding acquisition-related amortization expense, Non-GAAP Laboratory gross profit increased 10 basis points to 54.5%; and Non-GAAP Laboratory operating margin increased 10 basis points to 45.9%.”

 

 

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.”

 

 

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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.

 

 

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
June 30,
  Six Months Ended
June 30,
    2017   2016   2017   2016
Revenue:                                
Animal hospital   $ 628,798     $ 540,376     $ 1,196,979     $ 998,999  
Laboratory     117,201       112,060       228,349       218,787  
All other     22,533       23,397       45,102       42,810  
Intercompany     (25,400 )     (22,344 )     (49,047 )     (43,668 )
      743,132       653,489       1,421,383       1,216,928  
                                 
Direct costs     558,039       489,541       1,081,822       916,200  
                                 
Gross profit:                                
Animal hospital     112,559       94,679       198,869       168,096  
Laboratory     63,424       60,547       123,017       117,263  
All other     9,356       8,917       18,042       15,827  
Intercompany     (246 )     (195 )     (367 )     (458 )
      185,093       163,948       339,561       300,728  
                                 
Selling, general and administrative expense:                                
Animal hospital     16,745       14,277       34,356       26,362  
Laboratory     9,975       9,702       19,881       19,998  
All other     7,512       6,022       14,152       11,321  
Corporate     25,544       18,189       49,788       40,637  
      59,776       48,190       118,177       98,318  
                                 
Net loss (gain) on sale or disposal of assets     230       (271 )     480       292  
Operating income     125,087       116,029       220,904       202,118  
Interest expense, net     10,169       7,867       19,196       14,962  
Debt retirement costs           1,600             1,600  
Other income     (280 )     (600 )     (582 )     (864 )
Income before provision for income taxes     115,198       107,162       202,290       186,420  
Provision for income taxes     44,774       40,736       79,413       72,272  
Net income     70,424       66,426       122,877       114,148  
Net income attributable to noncontrolling interests     2,712       2,376       4,072       3,871  
Net income attributable to VCA Inc.   $ 67,712     $ 64,050     $ 118,805     $ 110,277  
                                 
Diluted earnings per share   $ 0.82     $ 0.78     $ 1.45     $ 1.35  
                                 
Weighted-average shares outstanding for diluted earnings per share     82,228       81,729       82,204       81,630  

 

 

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VCA Inc.

Condensed, Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

    June 30,
2017
  December 31,
2016
Assets                
Current assets:                
Cash and cash equivalents   $ 119,052     $ 81,409  
Trade accounts receivable, net     86,323       85,593  
Inventory     56,541       57,590  
Prepaid expenses and other     42,721       44,752  
Prepaid income taxes           11,705  
Total current assets     304,637       281,049  
Property and equipment, net     656,362       613,224  
Other assets:                
Goodwill     2,264,265       2,164,422  
Other intangible assets, net     207,158       212,577  
Notes receivable     2,196       2,147  
Other     103,107       99,909  
Total assets   $ 3,537,725     $ 3,373,328  
Liabilities and Equity                
Current liabilities:                
Current portion of long-term obligations   $ 49,347     $ 38,320  
Accounts payable     57,231       68,587  
Accrued payroll and related liabilities     96,072       97,806  
Income tax payable     4,732        
Other accrued liabilities     93,053       91,783  
Total current liabilities     300,435       296,496  
Long-term obligations, net     1,325,411       1,309,397  
Deferred income taxes, net     148,368       142,535  
Other liabilities     47,472       44,560  
Total liabilities     1,821,686       1,792,988  
Redeemable noncontrolling interests     10,558       11,615  
VCA Inc. stockholders’ equity:                
Common stock     81       81  
Additional paid-in capital     40,985       32,157  
Retained earnings     1,603,196       1,484,391  
Accumulated other comprehensive loss     (37,075 )     (45,406 )
Total VCA Inc. stockholders’ equity     1,607,187       1,471,223  
Noncontrolling interests     98,294       97,502  
Total equity     1,705,481       1,568,725  
Total liabilities and equity   $ 3,537,725     $ 3,373,328  

 

 

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VCA Inc.

Condensed, Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

    Six Months Ended
June 30,
    2017   2016
Cash flows from operating activities:                
Net income   $ 122,877     $ 114,148  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     60,920       46,978  
Amortization of debt issue costs     767       865  
Provision for uncollectible accounts     4,319       2,891  
Debt retirement costs           1,600  
Net loss on sale or disposal of assets
    480       292  
Share-based compensation     7,993       9,104  
Excess tax benefits from share-based compensation           (1,421 )
Other     (1,332 )     6,665  
Changes in operating assets and liabilities:                
Trade accounts receivable     (5,318 )     (7,065 )
Inventory, prepaid expense and other assets     1,287       (15,607 )
Accounts payable and other accrued liabilities     8,777       5,889  
Accrued payroll and related liabilities     (1,936 )     2,817  
Income taxes     16,449       23,557  
Net cash provided by operating activities     215,283       190,713  
Cash flows from investing activities:                
Business acquisitions, net of cash acquired     (123,852 )     (540,878 )
Property and equipment additions     (54,638 )     (58,814 )
Proceeds from sale of assets     1,747       282  
Other     (7,900 )     (4,924 )
Net cash used in investing activities     (184,643 )     (604,334 )
Cash flows from financing activities:                
Repayment of long-term obligations     (58,259 )     (1,256,250 )
Proceeds from issuance of long-term obligations           1,255,000  
Proceeds from revolving credit facility     70,000       435,000  
Payment of financing costs           (3,829 )
Distributions to noncontrolling interest partners     (2,333 )     (2,554 )
Proceeds from formation of noncontrolling interests     335        
Purchase of noncontrolling interests     (1,401 )     (3,730 )
Proceeds from issuance of common stock under stock incentive plans     90       1,122  
Excess tax benefits from share-based compensation           1,421  
Stock repurchases     (129 )     (843 )
Other     (1,479 )     (1,233 )
Net cash provided by financing activities     6,824       424,104  
Effect of currency exchange rate changes on cash and cash equivalents     179       313  
Increase in cash and cash equivalents     37,643       10,796  
Cash and cash equivalents at beginning of period     81,409       98,888  
Cash and cash equivalents at end of period   $ 119,052     $ 109,684  

 

 

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VCA Inc.

Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

 

Table #1                
Reconciliation of net income attributable to   Three Months Ended
June 30,
  Six Months Ended
June 30,
VCA Inc., to Non-GAAP net income attributable                
to VCA Inc. (1)   2017   2016   2017   2016
                 
Net income attributable to VCA Inc.   $ 67,712     $ 64,050     $ 118,805     $ 110,277  
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)           141             728  
Debt retirement costs, net of tax (5)           974             974  
Transaction costs related to the Mars transaction (6)     4,468             7,851        
Acquisitions related amortization, net of tax (1)     6,411       5,628       12,876       9,419  
                                 
Non-GAAP net income attributable to VCA Inc.   $ 78,591     $ 70,793     $ 139,532     $ 124,483  

 

                 
Table #2   Three Months Ended
June 30,
  Six Months Ended
June 30,
Reconciliation of diluted earnings per share to                
Non-GAAP diluted earnings per share (1)   2017   2016   2017   2016
                 
Diluted earnings per share   $ 0.82     $ 0.78     $ 1.45     $ 1.35  
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  
Debt retirement costs, net of tax (5)           0.01             0.01  
Transaction costs related to the Mars transaction (6)     0.05             0.10        
Acquisitions related amortization, net of tax (1)     0.08       0.07       0.16       0.12  
Non-GAAP diluted earnings per share (7)   $ 0.96     $ 0.87     $ 1.70     $ 1.53  
                                 
Shares used for computing diluted earnings per share     82,228       81,729       82,204       81,630  

 

                 
Table #3   Three Months Ended
June 30,
  Six Months Ended
June 30,
Reconciliation of consolidated gross profit to                
Non-GAAP consolidated gross profit (1)   2017   2016   2017   2016
                 
Consolidated gross profit   $ 185,093     $ 163,948     $ 339,561     $ 300,728  
Acquisitions related amortization (1)     9,606       9,187       19,757       15,415  
Non-GAAP consolidated gross profit   $ 194,699     $ 173,135     $ 359,318     $ 316,143  
Non-GAAP consolidated gross profit margin     26.2 %     26.5 %     25.3 %     26.0 %

 

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VCA Inc.

Supplemental Operating Data (cont)

(Unaudited - In thousands, except per share amounts)

 

Table #4   Three Months Ended
June 30,
  Six Months Ended
June 30,
Reconciliation of consolidated operating income to                
Non-GAAP consolidated operating income (1)   2017   2016   2017   2016
                 
Consolidated operating income   $ 125,087     $ 116,029     $ 220,904     $ 202,118  
Adjustments to other long-term liabilities (2)                       1,954  
Transaction costs related to the CAPNA acquisition (4)           231             1,197  
Transaction costs related to the Mars transaction (6)     4,468             7,851        
Acquisitions related amortization (1)     11,338       9,799       22,763       16,027  
Non-GAAP consolidated operating income   $ 140,893     $ 126,059     $ 251,518     $ 221,296  
Non-GAAP consolidated operating margin     19.0 %     19.3 %     17.7 %     18.2 %

 

_______________________________________________

 

(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) As of the second quarter of 2016, we have recorded transaction costs of $1.2 million or $728,000 net of tax related to our acquisition of CAPNA.

 

(5) In June of 2016, we incurred debt retirement costs of $1.6 million, or $974,000 net of tax, in connection with our new credit facility.

 

(6) As of the second quarter of 2017, we have recorded transaction costs of $7.9 million related to the proposed transaction with Mars.

 

(7) Amounts may not foot due to rounding.

 

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VCA Inc.

Supplemental Operating Data (cont)

(Unaudited - In thousands, except per share amounts)

 

    As of
Table #5   June 30,
2017
  December 31,
2016
Selected consolidated balance sheet data                
Long-term obligations:                
Senior term notes   $ 858,000     $ 869,000  
Revolving credit     440,000       400,000  
Other debt and capital leases     82,689       85,415  
Total long-term obligations   $ 1,380,689     $ 1,354,415  

 

Table #6   Three Months Ended
June 30,
  Six Months Ended
June 30,
Selected expense data   2017   2016   2017   2016
                 
Rent expense   $ 25,609     $ 23,449     $ 50,777     $ 44,313  
                                 
Depreciation and amortization included                                
in direct costs:                                
Animal hospital   $ 25,196     $ 21,190     $ 50,575     $ 38,714  
Laboratory     3,139       2,803       6,011       5,551  
All other     124       767       698       1,519  
Intercompany     (704 )     (597 )     (1,390 )     (1,183 )
    $ 27,755     $ 24,163     $ 55,894     $ 44,601  
Depreciation and amortization included in selling,                                
general and administrative expense     2,764       1,526       5,026       2,377  
Total depreciation and amortization   $ 30,519     $ 25,689     $ 60,920     $ 46,978  
                                 
Share-based compensation included in direct costs:                                
Laboratory   $ 192     $ 181     $ 381     $ 358  
                                 
Share-based compensation included in                                
selling, general and administrative expense:                                
Animal hospital     864       724       1,696       1,508  
Laboratory     362       407       703       836  
All other     159       147       313       300  
Corporate     2,454       2,739       4,900       6,102  
      3,839       4,017       7,612       8,746  
Total share-based compensation   $ 4,031     $ 4,198     $ 7,993     $ 9,104  

 

 

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