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8-K - VCA ANTECH, INC. 8-K - VCA INCa6477248.htm

Exhibit 99.1

VCA Antech, Inc. Reports Third Quarter 2010 Results and Updates Financial Guidance for 2010

  • Third quarter revenue increased 5.9% to $358.7 million
  • Third quarter diluted earnings per common share of $0.32
  • Third quarter adjusted diluted earnings per common share of $0.37

LOS ANGELES--(BUSINESS WIRE)--October 21, 2010--VCA Antech, Inc. (NASDAQ NM: WOOF), a leading animal healthcare company in the United States, today reported financial results for the third quarter ended September 30, 2010 as follows: revenue increased 5.9% to a third quarter record of $358.7 million and diluted earnings per common share of $0.32.

Our earnings for the quarter ended September 30, 2010 include debt retirement costs of $2.6 million, or $1.6 million net of tax, related to the refinancing of our long-term debt and $5.4 million, or $3.5 million net of tax, related to additional state tax payments required as a result of a tax-audit settlement reached during the quarter. Excluding these items, adjusted diluted earnings per common share was $0.37.

Our financial results for the nine months ended September 30, 2010, were as follows: revenue increased 4.4% to a nine-month record of $1.043 billion; net income was $88.8 million; diluted earnings per common share was $1.02.

The nine months ended September 30, 2010 include $14.5 million, or $8.9 million net of tax, for future compensation in connection with executive consulting agreements, $2.6 million, or 1.6 million net of tax, of debt retirement costs and $5.4 million, or $3.5 million net of tax related to the aforementioned state tax payments. Excluding these charges, adjusted diluted earnings per share was $1.18. The nine months ended September 30, 2009 included a non-cash charge of $5.3 million, or $3.2 million net of tax, related to the abandonment of an internally developed software project. Excluding this charge, adjusted diluted earnings per share was $1.27.

Results for the three months ended September 30, 2010 include approximately $1.2 million in transaction costs incurred in connection with the Pet DRx transaction.

Animal Hospital revenue in the third quarter increased 7.5% to $276.7 million driven by acquisitions made in the past twelve months. The combination of a decline in same-store margins due to a decline in same-store revenue and, lower margins at acquired animal hospitals has caused our Animal Hospital gross margin to decrease to 16.8% compared to 19.9% for the comparable prior year quarter, and our Animal Hospital operating margin to decline to 14.8% compared to 17.7% for the comparable prior year quarter. Our same-store revenue declined by 4.0% and our same-store gross profit margin declined to 17.3% from 20.0%. During the quarter, we acquired 29 animal hospitals which had historical combined annual revenue of $84.3 million.

Laboratory revenue in the third quarter decreased 0.8% to $77.3 million. Internal revenue growth was negative 0.9% driven by a decline in the number of requisitions. Our laboratory gross profit margin decreased by 120 basis points to 44.9% and our operating margin decreased 280 basis points to 36.1%.


Medical Technology revenue in the third quarter increased 30.7% to $17.4 million and gross profit increased 29.2% to $5.3 million. Gross profit margin was 30.2% compared to 30.6% in the prior year primarily due to product mix and the operating margin increased to 8.7% from 2.4% as SG&A expenses remained flat year over year.

2010 Financial Guidance

Bob Antin, Chairman and CEO, stated, “Our results have continued to be impacted by the slow pace of the economic recovery, particularly in the consumer sector. Current uncertainty in the economy and the lack of visibility regarding the timing and degree of the recovery in our business sector is making it particularly difficult to predict consumer demand for our services and to provide guidance relative to future results. Further, the foregoing factors make it more likely that our actual results could differ from expectations. Assuming that our internal growth rate for the remainder of the year is similar to that experienced in the third quarter, we expect that our diluted earnings per common share for the full fiscal year would range from $1.38 to $1.40.”

Non-GAAP Financial Measures

We believe investors’ understanding of our total performance is enhanced by disclosing adjusted net income and adjusted diluted earnings per common share. We define these adjusted measures as the reported amounts, adjusted to exclude certain significant items. Adjusted diluted earnings per common share are adjusted net income divided by diluted common shares outstanding.

Management uses adjusted measures because they exclude the effect of significant items that we believe are not representative of our core operations for the periods presented. 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. For the three and nine months ended September 30, 2010, we made the following adjustments: $2.6 million, or $1.6 million after tax, and $0.02 per diluted common share for debt retirement costs related to the refinancing of our senior term notes and financing of our new revolver; and $5.4 million, or $3.5 million net of tax, or $0.04 per diluted common share for tax expense related to the settlement of state taxes assessed on taxable income for the tax years 2004 through 2007. Further, for the nine months ended September 30, 2010, we adjusted our reported amounts for $14.5 million, or $8.9 million net of tax, or $0.10 per diluted common share, for future compensation in connection to executive consulting agreements. For the nine months ended September 30, 2009 we adjusted our reported amount for $5.3 million, or $3.2 million after tax, and $0.04 per diluted share related to the abandonment of an internally-developed software project.

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 company’s third quarter 2010 financial results during a conference call today, October 21st, at 4:30 p.m. Eastern Time. You can access a live broadcast of the call by visiting our website at http://investor.vcaantech.com. You can also access the call by dialing (877) 293-5492. Interested parties should call at least 10 minutes prior to the start of the call to register.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may and likely will differ materially from this forward-looking information. Our Animal Hospital and Laboratory revenues have been materially adversely impacted by the current economic recession. We are unable to forecast accurately the timing or degree of any economic recovery. Further, trends in the general economy may not be reflected in our business at the same time or in the same degree as in the general economy. The timing and degree of any economic recovery, and its impact on our business, are among the important factors that could cause actual results to differ from this forward-looking information. Among other factors that could cause our actual results to differ from this forward-looking information are: an increase in the level of direct costs or a failure to increase revenue at a level necessary to maintain our expected operating margins, a material adverse change in our financial condition or operations; the level of selling, general and administrative costs; the effects of our recent and future acquisitions (including Pet DRx Corporation) and our ability to effectively manage our growth and achieve operating synergies; a decline in demand for any of our products and services; any disruption in our information technology systems or transportation networks; the effects of competition; any impairment in the carrying value of our goodwill and other intangible assets; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risks are discussed in our Report on Form 10-K for the year ended December 31, 2009 and the reader is directed to these statements for a further discussion of important factors that could cause actual results to differ materially from those in the forward-looking statements.

We own, operate and manage the largest networks of freestanding veterinary hospitals and veterinary-exclusive clinical laboratories in the country, and we supply diagnostic imaging equipment to the veterinary industry.


               
VCA Antech, Inc.
Consolidated Income Statements
(Unaudited)
(In thousands, except per share amounts)
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2010     2009     2010     2009  
Revenue:
Animal hospital $ 276,739 $ 257,385 $ 791,002 $ 757,030
Laboratory 77,292 77,879 238,444 238,917
Medical technology 17,406 13,315 47,805 32,363
Intercompany   (12,734 )   (10,017 )   (33,895 )   (29,022 )
  358,703     338,562     1,043,356     999,288  
 
Direct costs 273,404 247,985 781,778 729,194
 
Gross profit:
Animal hospital 46,626 51,213 137,331 147,510
Laboratory 34,713 35,903 111,797 113,008
Medical technology 5,254 4,068 14,432 10,821
Intercompany   (1,294 )   (607 )   (1,982 )   (1,245 )
  85,299     90,577     261,578     270,094  
 
Selling, general and administrative expense:
Animal hospital 5,599 5,162 16,859 15,924
Laboratory 6,804 5,621 19,485 16,832
Medical technology 3,731 3,753 10,650 8,959
Corporate   10,971     10,159     47,296     28,838  
  27,105     24,695     94,290     70,553  
 
Loss on sale and disposal of assets   152     409     163     5,604  
 
Operating income 58,042 65,473 167,125 193,937
 
Interest expense, net 3,619 4,808 9,564 16,652
Other income (180 ) (1 ) (490 ) (131 )
Debt retirement costs   2,550     -     2,550     -  

Income before provision for income taxes

52,053 60,666 155,501 177,416
Provision for income taxes   23,466     23,180     63,465     68,081  
Net income   28,587     37,486     92,036     109,335  
Net income attributable to noncontrolling interests   1,156     1,125     3,266     3,259  
Net income attributable to VCA Antech, Inc. $ 27,431   $ 36,361   $ 88,770   $ 106,076  
 
Diluted earnings per share $ 0.32   $ 0.42   $ 1.02   $ 1.23  

 

Shares used for computing diluted earnings per share

  86,964     86,431     86,998     85,893  
 

       
VCA Antech, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands)
 
September 30, December 31,
  2010   2009  
Assets
 
Current assets:
Cash and cash equivalents $ 132,233 $ 145,181
Trade accounts receivable, net 51,606 49,186
Inventory 34,580 32,031
Prepaid expenses and other 20,785 27,242
Deferred income taxes 19,445 18,318
Prepaid income taxes   15,598   6,252  
Total current assets 274,247 278,210
Property and equipment, net 324,222 289,415
Other assets:
Goodwill 1,074,316 985,674
Other intangible assets, net 45,854 44,280
Deferred financing costs, net 6,689 581
Other   38,169   29,244  
Total assets $ 1,763,497 $ 1,627,404  
 
Liabilities and Equity
 
Current liabilities:
Current portion of long-term obligations $ 28,202 $ 17,195
Accounts payable 28,464 28,326
Accrued payroll and related liabilities 39,873 33,539
Other accrued liabilities   50,959   43,298  
Total current liabilities 147,498 122,358
Long-term obligations, less current portion 502,177 527,860
Deferred income taxes 90,089 75,197
Other liabilities 29,307 10,651
VCA Antech, Inc. stockholders' equity:
Common stock 86 86
Additional paid-in capital 344,895 335,114
Retained earnings 628,780 540,010
Accumulated other comprehensive income (loss)   347   (163 )
Total VCA Antech, Inc. stockholders' equity 974,108 875,047
Noncontrolling interests   20,318   16,291  
Total equity   994,426   891,338  
Total liabilities and equity $ 1,763,497 $ 1,627,404  
 

       
VCA Antech, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
 
Nine Months Ended
September 30,
  2010     2009  
Cash flows from operating activities:
Net income $ 92,036 $ 109,335

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 33,387 28,986
Amortization of debt costs 461 363
Provision for uncollectible accounts 5,388 5,075
Debt retirement costs 2,550 -
Net loss on sale and disposal of assets 163 5,604
Share-based compensation 7,490 5,940
Deferred income taxes 10,992 16,057
Excess tax benefit from exercise of stock options (370 ) (591 )
Other (550 ) (299 )
Changes in operating assets and liabilities:
Accounts receivable (7,533 ) (8,312 )
Inventory, prepaid expenses and other assets (1,754 ) (7,820 )
Accounts payable and other accrued liabilities 7,038 742
Accrued payroll and related liabilities 3,717 (4,339 )
Prepaid income taxes   (9,545 )   5,580  
Net cash provided by operating activities   143,470     156,321  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (74,555 ) (51,853 )
Real estate acquired in connection with business acquisitions (5,834 ) (3,828 )
Property and equipment additions (47,675 ) (38,522 )
Proceeds from sale of assets 15 123
Other   188     (440 )
Net cash used in investing activities   (127,861 )   (94,520 )
Cash flows from financing activities:
Repayment of debt (519,028 ) (5,898 )
Proceeds from issuance of long term debt 500,000 -
Payment of financing costs (9,112 ) -
Distributions to noncontrolling interest partners (3,314 ) (3,018 )
Proceeds from issuance of common stock under stock option plans 4,781 13,110
Stock repurchases (2,292 ) (561 )
Excess tax benefit from exercise of stock options   370     591  
Net cash (used in) provided by financing activities   (28,595 )   4,224  
Effect of currency exchange rate changes on cash and cash equivalents   38     17  
(Decrease) increase in cash and cash equivalents (12,948 ) 66,042
Cash and cash equivalents at beginning of period   145,181     88,959  
Cash and cash equivalents at end of period $ 132,233   $ 155,001  
 

               
VCA Antech, Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)
 
Table #1
Reconciliation of net income attributable to Three Months Ended Nine Months Ended
VCA Antech, Inc., to adjusted net income September 30, September 30,
attributable to VCA Antech, Inc.   2010     2009     2010     2009  
 
Net income attributable to VCA Antech, Inc. $ 27,431 $ 36,361 $ 88,770 $ 106,076
Debt retirement costs 2,550 - 2,550 -
Tax benefit from debt retirement costs (992 ) - (992 ) -
Tax settlement 5,400 - 5,400 -
Tax benefit from tax settlement (1,920 ) - (1,920 ) -
Compensation charges - - 14,525 -
Tax benefit from compensation charges - - (5,653 ) -
Write-down of internal-use software - - - 5,271
Tax benefit from write-down of internal use software   -     -     -     (2,051 )
Adjusted net income attributable to VCA Antech, Inc. $ 32,469   $ 36,361   $ 102,680   $ 109,296  
 
The rate used to calculate the tax benefit is the statutory tax rate for the year.
 
Table #2 Three Months Ended Nine Months Ended
Reconciliation of diluted earnings per share to September 30, September 30,
adjusted diluted earnings per share   2010     2009     2010     2009  
 
Diluted earnings per share $ 0.32 $ 0.42 $ 1.02 $ 1.23
Impact of debt retirement costs, net of tax 0.02 - 0.02 -
Impact of tax settlement, net of tax 0.04 - 0.04 -
Impact of compensation charges, net of tax - - 0.10 -
Impact of write-down of internal-use software, net of tax   -     -     -     0.04  
Adjusted diluted earnings per share $ 0.37   $ 0.42   $ 1.18   $ 1.27  

 

Shares used for computing adjusted diluted earnings per share

  86,964     86,431     86,998     85,893  
 
Per share amounts may not add due to rounding.
 
Table #3 Three Months Ended Nine Months Ended
Reconciliation of operating income to adjusted September 30, September 30,
operating income   2010     2009     2010     2009  
 
Consolidated operating income $ 58,042 $ 65,473 $ 167,125 $ 193,937
Compensation charges - - 14,525
Write-down of internal-use software   -     -     -     5,271  
Consolidated adjusted operating income $ 58,042   $ 65,473   $ 181,650   $ 199,208  
Consolidated adjusted operating margin 16.2 % 19.3 % 17.4 % 19.9 %
 

   
VCA Antech, Inc.
Supplemental Operating Data
(Unaudited - In thousands)
 
        As of
Table #4 September 30,     December 31,
Selected consolidated balance sheet data   2010     2009  
 
Debt:
Senior term notes $ 500,000 $ 516,889
Other debt and capital leases   30,379     28,166  
Total debt $ 530,379   $ 545,055  
 
Three Months Ended Nine Months Ended
Table #5 September 30, September 30,
Selected expense data   2010     2009     2010     2009  
 
Rent expense $ 13,211   $ 11,714   $ 37,698   $ 34,881  
 

Depreciation and amortization included in direct costs:

Animal hospital $ 8,189 $ 6,705 $ 23,037 $ 19,407
Laboratory 2,317 2,362 6,946 6,820
Medical technology 387 389 1,139 784
Intercompany   (263 )   (214 )   (753 )   (601 )
10,630 $ 9,242 30,369 $ 26,410

 

Depreciation and amortization included in selling, general and administrative expense

  1,051     904     3,018     2,576  
Total depreciation and amortization $ 11,681   $ 10,146   $ 33,387   $ 28,986  
 

Share-based compensation included in direct costs:

Laboratory $ 156 $ 158 $ 488 $ 463
 

Share-based compensation included in selling, general and administrative expense:

Animal hospital 361 377 1,110 1,108
Laboratory 309 311 950 909
Medical technology 63 71 195 213
Corporate   746     1,103     4,747     3,247  
  1,479     1,862     7,002     5,477  
Total share-based compensation $ 1,635   $ 2,020   $ 7,490   $ 5,940  
 

CONTACT:
VCA Antech, Inc.
Tomas Fuller
Chief Financial Officer
310-571-6505