News Column

VCA Antech, Inc. Reports First Quarter 2014 Results

April 24, 2014

  • Revenue increased 2.5% to a first quarter record of $449.5 million
  • Gross profit increased 4.7% to $101.5 million
  • Operating income increased 10.6% to $61.2 million
  • Diluted earnings per common share increased 11.8% to $0.38
  • Adjusted EPS Excluding Amortization increased 5.0% to $0.42

    LOS ANGELES--(BUSINESS WIRE)-- VCA Antech, 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, 2014, as follows: revenue increased 2.5% to a first quarter record of $449.5 million; gross profit increased 4.7% to $101.5 million; operating income increased 10.6% to $61.2 million; net income increased 11.7 % to $34.0 million and diluted earnings per common share increased 11.8% to $0.38. Non-GAAP earnings per diluted common share excluding acquisition-related amortization (“Adjusted EPS Excluding Amortization”) increased 5.0% to $0.42 for the three months ended March 31, 2014.

    For the three months ended March 31, 2014 and 2013, adjusted diluted earnings per share was $0.38 and $0.37, respectively. Adjusted diluted earnings per share for the three months ended March 31, 2013, excludes $3.8 million of charges related to vacated properties. The operations of two animal hospitals we vacated were consolidated into the newly constructed, VCA West Los Angeles Animal Hospital in the prior-year quarter.

    Bob Antin, Chairman and CEO, stated, "While weather presented challenges of historical proportions, we were certainly excited by our ability to achieve revenue growth in both our core Animal Hospital and Laboratory business segments. In addition, we experienced improving results in the latter portion of the quarter and we remain optimistic with respect to our full year 2014 results.

    "Animal Hospital revenue in the current quarter increased 3.2%, to $351.6 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 0.5%. Our same-store gross profit margin increased to 14.4% from 13.6%, while our consolidated gross margin increased to 13.9% from 13.3%, in the prior-year quarter. Our adjusted same-store gross profit margin increased to 14.4% from 14.1%, in the prior-year quarter. Adjusted consolidated gross margin was flat at 13.9%. Adjusted operating margin decreased slightly to 11.2%, compared to 11.4%, in the prior-year quarter. During the quarter, we acquired four independent animal hospitals which had historical combined annual revenue of $16.0 million.

    "Laboratory internal revenue in the first quarter increased 1.9%, to $88.4 million, driven by a 4.5% increase in the average revenue per requisition, offset by a 2.4% decrease in requisitions clearly affected by the significant number of weather-impacted pet care facilities throughout most of the country. Our Laboratory gross profit margin remained flat at 48.6%, and our operating margin was essentially flat at 39.6% from 39.5%.

    "Revenue from our other operations reported in our All Other segment were essentially flat at $28.1 million in the 2014 quarter compared to $28.5 million in the prior-year quarter."

    2014 Financial Guidance

    We reaffirm the annual guidance provided on February 13, 2014.

    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.”

    Conference Call

    We will discuss our first quarter 2014 financial results during a conference call today, April 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 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 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 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.

     

    VCA Antech, Inc.

    Consolidated Income Statements

    (Unaudited)

    (In thousands, except per share amounts)

           
    Three Months Ended

    March 31,
    2014         2013  
    Revenue:
    Animal hospital $ 351,588 $ 340,615
    Laboratory 88,534 87,335
    All other 28,121 28,523
    Intercompany (18,736 ) (17,867 )
    449,507   438,606  
     
    Direct costs 348,056 341,683
     
    Gross profit:
    Animal hospital 48,800 45,199
    Laboratory 43,031 42,465
    All other 9,969 9,634
    Intercompany (349 ) (375 )
    101,451   96,923  
     
    Selling, general and administrative expense:
    Animal hospital 9,128 8,325
    Laboratory 8,018 8,005
    All other 8,348 8,914
    Corporate 15,946   14,602  
    41,440   39,846  
    Net (gain) loss on sale of assets (1,221 ) 1,726
    Operating income 61,232 55,351
    Interest expense, net 4,167 4,307
    Other income (53 ) (9 )
    Income before provision for income taxes 57,118 51,053
    Provision for income taxes 22,203   19,230  
    Net income 34,915 31,823
    Net income attributable to noncontrolling interests 872   1,338  
    Net income attributable to VCA Antech, Inc $ 34,043   $ 30,485  
     
    Diluted earnings per share $ 0.38   $ 0.34  
     
    Weighted-average shares outstanding for diluted earnings per share 89,421   89,379  
     


    VCA Antech, Inc.

    Consolidated Balance Sheets

    (Unaudited)

    (In thousands)

                   
    March 31,

    2014
    December 31,

    2013
    Assets
    Current assets:
    Cash and cash equivalents $ 137,288 $ 125,029
    Trade accounts receivable, net 64,520 59,900
    Inventory 54,227 55,067
    Prepaid expenses and other 23,713 25,417
    Deferred income taxes 29,075 28,907
    Prepaid income taxes 454   15,434  
    Total current assets 309,277 309,754
    Property and equipment, net 449,434 448,366
    Other assets:
    Goodwill 1,340,054 1,330,917
    Other intangible assets, net 85,128 86,671
    Notes receivable, net 3,225 3,454
    Deferred financing costs, net 2,683 2,987
    Other 60,130   55,632  
    Total assets $ 2,249,931   $ 2,237,781  
    Liabilities and Equity
    Current liabilities:
    Current portion of long-term debt $ 50,839 $ 51,087
    Accounts payable 36,240 36,962
    Accrued payroll and related liabilities 63,535 57,337
    Other accrued liabilities 54,830   58,762  
    Total current liabilities 205,444 204,148
    Long-term debt, less current portion 555,592 568,558
    Deferred income taxes 100,033 100,099
    Other liabilities 35,953   36,758  
    Total liabilities 897,022 909,563
    Redeemable noncontrolling interests 11,052 10,678
    VCA Antech, Inc. stockholders’ equity:
    Common stock 88 89
    Additional paid-in capital 380,267 384,721
    Retained earnings 962,763 928,720
    Accumulated other comprehensive loss (11,283 ) (6,190 )
    Total VCA Antech, Inc. stockholders’ equity 1,331,835 1,307,340
    Noncontrolling interests 10,022   10,200  
    Total equity 1,341,857   1,317,540  
    Total liabilities and equity $ 2,249,931   $ 2,237,781  
     


    VCA Antech, Inc.

    Consolidated Statements of Cash Flows

    (Unaudited)

    (In thousands)

           
    Three Months Ended

    March 31,
    2014           2013  
    Cash flows from operating activities:
    Net income $ 34,915 $ 31,823
    Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization 19,767 18,239
    Amortization of debt issue costs 304 314
    Provision for uncollectible accounts 890 1,093
    Net (gain) loss on sale of assets (1,221 ) 1,726
    Share-based compensation 4,544 3,770
    Deferred income taxes 2,868
    Excess tax benefit from exercise of stock options (392 ) (62 )
    Other (905 ) (414 )
    Changes in operating assets and liabilities:
    Trade accounts receivable (5,825 ) (16,126 )
    Inventory, prepaid expense and other assets (1,389 ) (2,491 )
    Accounts payable and other accrued liabilities (3,773 ) 12,127
    Accrued payroll and related liabilities 6,247 9,149
    Income taxes 15,165   13,235  
    Net cash provided by operating activities 68,327   75,251  
    Cash flows from investing activities:
    Business acquisitions, net of cash acquired (17,295 ) (6,756 )
    Real estate acquired in connection with business acquisitions (510 )
    Property and equipment additions (16,619 ) (17,969 )
    Proceeds from sale of assets 859 177
    Other 520   (115 )
    Net cash used in investing activities (32,535 ) (25,173 )
    Cash flows from financing activities:
    Repayment of debt (12,806 ) (8,733 )
    Distributions to non-controlling interest partners (1,090 ) (1,197 )
    Purchase of non-controlling interest (326 ) (5,032 )
    Proceeds from issuance of common stock under stock option plans 372 1,876
    Excess tax benefit from exercise of stock options 392 62
    Stock repurchases (9,793 ) (59 )

    Net cash used in financing activities

    (23,251 ) (13,083 )
    Effect of currency exchange rate changes on cash and cash equivalents (282 ) (144 )
    Increase in cash and cash equivalents 12,259 36,851
    Cash and cash equivalents at beginning of period 125,029   68,435  
    Cash and cash equivalents at end of period $ 137,288   $ 105,286  
     


    VCA Antech, Inc.

    Supplemental Operating Data

    (Unaudited - In thousands, except per share amounts)

                     
    Table #1
    Reconciliation of net income attributable toThree Months Ended

    March 31,
    VCA Antech, Inc., to adjusted net income
    attributable to VCA Antech, Inc., excluding amortization (1)2014   2013  
     
    Net income attributable to VCA Antech, Inc. $ 34,043 $ 30,485
    Vacant property adjustments (2) 3,804
    Tax benefit from vacant property adjustments (2)   (1,489 )
     
    Adjusted net income attributable to VCA Antech Inc. $ 34,043 $ 32,800
    Impact of intangible asset amortization associated with acquisitions,

    net of tax (3)

    3,132   3,070  
    Adjusted net income attributable to VCA Antech, Inc. excluding amortization $ 37,175   $ 35,870  
     
    Table #2Three Months Ended

    March 31,
    Reconciliation of diluted earnings per share to
    adjusted diluted earnings per share, excluding amortization (1)2014   2013  
     
    Diluted earnings per share $ 0.38 $ 0.34
    Impact of vacant property adjustments, net of tax (2) 0.03
           
    Adjusted Earnings per share $ 0.38 $ 0.37
    Impact of intangible asset amortization associated with acquisitions,
    net of tax (3) 0.04   0.03  
    Adjusted diluted earnings per share excluding amortization (3) $ 0.42   $ 0.40  
     
    Shares used for computing adjusted diluted earnings per share 89,421   89,379  
     


    VCA Antech, Inc.

    Supplemental Operating Data (cont)

    (Unaudited - In thousands, except per share amounts)

                 
    Table #3Three Months Ended

    March 31,
    Reconciliation of gross profit to
    adjusted gross profit, excluding amortization (1)2014                 2013  
     
    Consolidated gross profit $ 101,451 $ 96,923
    Impact of vacant property adjustments (2)   2,046  
    Consolidated adjusted gross profit $ 101,451 $ 98,969
    Consolidated adjusted gross profit margin22.6%22.6%
    Intangible asset amortization associated with acquisitions (3) 5,080   5,063  
    Consolidated adjusted gross profit excluding amortization 106,531   104,032  
    Consolidated adjusted gross profit margin excluding amortization23.7%23.7%
     
    Table #4

    Three Months Ended

    March 31,

    Reconciliation of operating income to
    adjusted operating income, excluding amortization (1)2014   2013  
     
    Consolidated operating income $ 61,232 $ 55,351
    Impact of vacant property adjustments (2)   3,804  
    Consolidated adjusted operating income $ 61,232 $ 59,155

    Consolidated adjusted operating income margin

    13.6

    %13.5%
    Intangible asset amortization associated with acquisitions (3) 5,147   5,044  
    Consolidated adjusted operating income excluding amortization 66,379   64,199  

    Consolidated adjusted operating income margin excluding amortization

    14.8%14.6%
     


    _________________________________________________

    (1)   Management uses adjusted net income excluding acquisition-related amortization, adjusted EPS excluding amortization, adjusted gross profit excluding acquisition-related amortization and adjusted operating income excluding acquisition-related amortization 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 , adjusted EPS excluding amortization, consolidated adjusted gross profit excluding acquisition-related amortization, consolidated adjusted operating income excluding acquisition-related 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 of 2013, 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) In the first quarter of 2013, we began to 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.
     


    VCA Antech, Inc.

    Supplemental Operating Data (cont)

    (Unaudited - In thousands, except per share amounts)

                   
    As of
    Table #5March 31,

    2014
                  December 31,

    2013
    Selected consolidated balance sheet data
    Debt:
    Senior term notes $ 545,078 $ 556,914
    Other debt and capital leases 61,353   62,731  
    Total debt $ 606,431   $ 619,645  
     
    Three Months Ended

    March 31,
    Table #6
    Selected expense data2014   2013  
     
    Rent expense $ 16,929   $ 18,625  
     
    Depreciation and amortization included
    in direct costs:
    Animal hospital $ 14,574 $ 13,179
    Laboratory 2,516 2,486
    All other 1,731 1,241
    Intercompany (465 ) (439 )
    $ 18,356 $ 16,467
    Depreciation and amortization included in selling,
    general and administrative expense 1,411   1,772  
    Total depreciation and amortization $ 19,767   $ 18,239  
     
    Share-based compensation included in direct costs:
    Laboratory $ 150 $ 109
     
    Share-based compensation included in
    selling, general and administrative expense:
    Animal hospital 517 641
    Laboratory 381 299
    All other 182 186
    Corporate 3,314   2,535  
    4,394   3,661  
    Total share-based compensation $ 4,544   $ 3,770  





    VCA Antech, Inc.

    Tomas Fuller

    Chief Financial Officer

    310-571-6505

    Source: VCA Antech, Inc.


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