VCA Antech, Inc. Reports Fourth Quarter 2013 Results and Provides Financial Guidance for 2014

  • Revenue increased 4.1% to a fourth quarter record of $435.5 million
  • Gross profit increased 6.9% to $87.5 million
  • Operating income increased 155.0% to $45.9 million, or 14.8% to $45.9 million, on an as adjusted basis
  • Diluted earnings per common share increased 142.4% to $0.28, or 16.7% to $0.28, on an as adjusted basis
  • Adjusted EPS Excluding Amortization increased 10.7% to $0.31

Business Wire

LOS ANGELES--(BUSINESS WIRE)--

VCA Antech, Inc. (WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the fourth quarter ended December 31, 2013, as follows: revenue increased 4.1% to $435.5 million and gross profit increased 6.9% to $87.5 million; operating income increased 155.0% to $45.9 million; net income increased 142.6% to $24.7 million and diluted earnings per common share increased 142.4% to $0.28.

The three and twelve months ended December 31, 2012 include a non-cash impairment charge of $123.6 million, $79.2 million net of tax or $0.90 per common share, primarily related to the write-down of goodwill and other long-lived assets in our Vetstreet business, included in our All Other segments category. On an as adjusted basis, operating income increased 14.8% to $45.9 million; net income increased 16.8% to $24.7 million; diluted earnings per common share increased 16.7% to $0.28. Non-GAAP earnings per diluted share, excluding acquisition-related amortization (“Adjusted EPS Excluding Amortization”), increased 10.7% to $0.31 for the three months ended December 31, 2013.

We also reported our financial results for the twelve months ended December 31, 2013, as follows: revenue increased 6.1% to $1.8 billion and gross profit increased 9.2% to $409.4 million; operating income increased 167.9% to $249.0 million; net income increased 201.9% to $137.5 million and diluted earnings per common share increased 200.0% to $1.53. Our financial results for the twelve months ended December 31, 2013, on an as adjusted basis are as follows: gross profit increased 7.7% to $407.2 million; operating income increased 13.2% to $248.6 million; net income increased 14.2% to $138.1 million and diluted earnings per common share increased 13.2% to $1.54. Adjusted EPS Excluding Amortization increased 10.5% to $1.68 for the twelve months ended December 31, 2013.

Bob Antin, Chairman and CEO, stated, “Our core Animal Hospital and Laboratory segments have continued to experience revenue growth. As a result, we are optimistic about our overall growth prospects in 2014.

“Animal Hospital revenue in the fourth quarter of 2013 increased 4.0%, to $343.2 million, driven by acquisitions made in the past twelve months and same-store revenue growth of 0.9%. Our same-store gross profit margin increased to 13.0% from 12.4% and with the expected lower margins for acquired Animal Hospitals, our consolidated gross margin increased to 12.5%, compared to 12.1% for the prior-year quarter. Our Animal Hospital operating margin increased to 9.7%, compared to 9.2%, for the prior-year quarter. During the quarter, we acquired 6 independent animal hospitals which had historical combined annual revenue of $14.6 million.

“Laboratory internal revenue in the fourth quarter increased 5.3%, to $79.2 million, driven by both an increase in the number of requisitions of 2.1% and average revenue per requisition of 3.2%. Our Laboratory gross profit margin increased to 44.3% from 42.2% and our operating margin increased to 34.4% from 32.6%."

2014 Financial Guidance

We provide the following financial guidance for the full year 2014:

  • Revenue from $1.9 billion to $1.925 billion;
  • Net income from $144 million to $153 million;
  • Diluted earnings per common share from $1.62 to $1.72; and
  • Adjusted EPS Excluding Amortization from $1.77 to $1.87.

During the first quarter, we began reporting Adjusted EPS Excluding Amortization as we believe that by providing this non-GAAP financial measure, we will provide our investors better insight into the operating performance of the business. As we continue to grow our business through acquisitions, we will use Adjusted EPS Excluding Amortization as a measure of operational performance, growth and shareholder returns.

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 fourth quarter 2013 financial results during a conference call today, February 13th, 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 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, 2012, 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 Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2013       2012 2013       2012
Revenue:
Animal hospital $ 343,220 $ 330,067 $ 1,417,908 $ 1,331,314
Laboratory 79,806 75,165 344,831 327,801
All other 29,283 31,117 112,740 112,960
Intercompany (16,856 ) (18,157 ) (72,110 ) (72,433 )
435,453   418,192   1,803,369   1,699,642  
 
Direct costs 347,967 336,385 1,393,989 1,324,668
 
Gross profit:
Animal hospital 42,976 39,923 209,127 189,111
Laboratory 35,378 31,737 163,879 151,761
All other 9,538 11,363 38,601 38,707
Intercompany (406 ) (1,216 ) (2,227 ) (4,605 )
87,486   81,807   409,380   374,974  
 
Selling, general and administrative expense:
Animal hospital 8,410 8,029 34,133 30,826
Laboratory 8,024 7,267 31,915 29,660
All other 8,368 10,803 32,941 37,879
Corporate 15,493   15,400   58,922   58,790  
40,295 41,499 157,911 157,155
Goodwill and other long-lived assets impairment 123,573 123,573
Net loss on sale of assets 1,268   288   2,455   1,310  
Operating income (loss) 45,923 (83,553 ) 249,014 92,936
Interest expense, net 4,110 3,806 18,549 16,552
Business combination adjustment gain (5,719 )
Other expense (income) 203   151   90   (488 )
Income (loss) before provision for income taxes 41,610 (87,510 ) 230,375 82,591
Provision for income taxes 15,882   (30,485 ) 87,453   31,875  
Net income (loss) 25,728 (57,025 ) 142,922 50,716
Net income attributable to noncontrolling interests 1,011   1,026   5,411   5,165  
Net income (loss) attributable to VCA Antech, Inc. $ 24,717   $ (58,051 ) $ 137,511   $ 45,551  
 
Diluted earnings (loss) per share $ 0.28   $ (0.66 ) $ 1.53   $ 0.51  
 
Weighted-average shares outstanding for diluted earnings per share 89,650   88,060   89,663   88,671  
 
 
                       

VCA Antech, Inc.

Consolidated Balance Sheets

(Unaudited)

(In thousands)

 

December 31,

2013

December 31,

2012

Assets
Current assets:
Cash and cash equivalents $ 125,029 $ 68,435
Trade accounts receivable, net 59,900 55,912
Inventory 55,067 51,456
Prepaid expenses and other 25,417 25,086
Deferred income taxes 28,907 22,579
Prepaid income taxes 15,434   20,061
Total current assets 309,754 243,529
Property and equipment, net 448,366 403,444
Other assets:
Goodwill 1,330,917 1,291,231
Other intangible assets, net 86,671 94,823
Notes receivable, net 3,454 6,080
Deferred financing costs, net 2,987 4,232
Other 55,632   48,241
Total assets $ 2,237,781   $ 2,091,580
 
Liabilities and Equity
Current liabilities:
Current portion of long-term debt $ 51,087 $ 39,002
Accounts payable 36,962 39,416
Accrued payroll and related liabilities 57,337 49,893
Other accrued liabilities 58,762   57,131
Total current liabilities 204,148 185,442
Long-term debt, less current portion 568,558 591,641
Deferred income taxes 100,099 75,846
Other liabilities 36,758   37,267
Total liabilities 909,563 890,196
Redeemable noncontrolling interests 10,678 6,991
VCA Antech, Inc. stockholders’ equity:
Common stock 89 88
Additional paid-in capital 384,721 390,359
Retained earnings 928,720 791,209
Accumulated other comprehensive (loss) income (6,190 ) 1,847
Total VCA Antech, Inc. stockholders’ equity 1,307,340 1,183,503
Noncontrolling interests 10,200   10,890
Total equity 1,317,540   1,194,393
Total liabilities and equity $ 2,237,781   $ 2,091,580
 
 
     

VCA Antech, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

Twelve Months Ended

December 31,

2013                   2012
Cash flows from operating activities:
Net income $ 142,922 $ 50,716
Adjustments to reconcile net income to net cash provided by operating activities:
Goodwill and other long-lived assets impairment 123,573
Depreciation and amortization 77,409 76,227
Amortization of debt issue costs 1,245 1,278
Provision for uncollectible accounts 7,360 6,396
Business combination adjustment gain (5,719 )
Net loss on sale of assets 2,455 1,310
Share-based compensation 14,104 14,087
Deferred income taxes 18,064 (33,398 )
Excess tax benefit from exercise of stock options (3,446 ) (2,868 )
Other (377 ) (584 )
Changes in operating assets and liabilities:
Trade accounts receivable (11,048 ) 1,640
Inventory, prepaid expense and other assets (7,134 ) (10,329 )
Accounts payable and other accrued liabilities 557 3,640
Accrued payroll and related liabilities 6,502 7,181
Income taxes 7,759   4,103  
Net cash provided by operating activities 256,372   237,253  
Cash flows from investing activities:
Business acquisitions, net of cash acquired (52,688 ) (134,916 )
Real estate acquired in connection with business acquisitions (5,328 ) (5,337 )
Property and equipment additions (73,270 ) (76,807 )
Proceeds from sale of assets 7,096 115
Other (2,541 ) (2,313 )
Net cash used in investing activities (126,731 ) (219,258 )
Cash flows from financing activities:
Repayment of debt (41,129 ) (60,775 )
Proceeds from issuance of long-term debt 50,000
Proceeds from revolving credit facility 50,000
Repayment of revolving credit facility (50,000 )
Payment of financing costs (122 )
Distributions to noncontrolling interest partners (4,866 ) (4,481 )
Purchase of noncontrolling interest (6,581 )
Proceeds from issuance of common stock under stock option plans 17,233 9,533
Excess tax benefit from exercise of stock options 3,446 2,868
Stock repurchases (39,367 ) (8,159 )
Other (749 ) (2,378 )
Net cash used in financing activities (72,013 ) (13,514 )
Effect of currency exchange rate changes on cash and cash equivalents (1,034 ) 303
Increase in cash and cash equivalents 56,594 4,784
Cash and cash equivalents at beginning of period 68,435   63,651  
Cash and cash equivalents at end of period $ 125,029   $ 68,435  
 
 
                       

VCA Antech, Inc.

Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

 
Table #1

Reconciliation of net income attributable to VCA Antech, Inc., to adjusted net income attributable to VCA Antech, Inc., excluding amortization (1)

 

Three Months Ended

December 31,

   

Twelve Months Ended

December 31,

 

 

2013 2012 2013 2012
 

Net income (loss) attributable to VCA Antech, Inc.

$ 24,717 $ (58,051 ) $ 137,511 $ 45,551
Goodwill and other long-lived assets impairment (2) 123,573 123,573

Tax benefit from goodwill and other long-lived assets impairment (2), (8)

(44,353 ) (44,353 )
Vacant property adjustments (3) 3,804
Tax benefit from vacant property adjustments (3), (8) (1,489 )
Inventory adjustment (4) (2,808 )
Tax expense from inventory adjustment (4), (8) 1,099
Business combination adjustment gain (5) (5,719 )
Depreciation expense adjustment (6) 3,051
Tax benefit from depreciation expense adjustment (6), (8) (1,194 )
       
Adjusted net income attributable to VCA Antech Inc. $ 24,717 $ 21,169 $ 138,117 $ 120,909

Addback of intangible asset amortization associated with acquisitions, net of tax (7), (8)

2,910   3,591   12,740   13,834  

Adjusted net income attributable to VCA Antech, Inc. excluding amortization

$ 27,627   $ 24,760   $ 150,857   $ 134,743  
 
 

Table #2

 

Three Months Ended

December 31,

   

Twelve Months Ended

December 31,

Reconciliation of diluted earnings per share to Adjusted EPS excluding amortization (1)

 

2013 2012 2013 2012
 

Diluted earnings (loss) per share

$ 0.28 $ (0.66 ) $ 1.53 $ 0.51

Impact of goodwill and other long-lived assets impairment, net of tax (2)

0.90 0.89
Impact of vacant property adjustments, net of tax (3) 0.03
Impact of inventory adjustment, net of tax (4) (0.02 )
Impact of business combination adjustment gain (5) (0.06 )
Impact of depreciation expense adjustment, net of tax (6) 0.02
       
Adjusted Earnings per share $ 0.28 $ 0.24 $ 1.54 $ 1.36

Impact of intangible asset amortization associated with acquisitions, net of tax (7)

0.03   0.04   0.14   0.16  
Adjusted EPS excluding amortization $ 0.31   $ 0.28   $ 1.68   $ 1.52  
 
Shares used for computing diluted loss per share 88,060  

Shares used for computing adjusted diluted earnings per share

89,650   88,914   89,663   88,671  
 
           

VCA Antech, Inc.

Supplemental Operating Data (continued)

(Unaudited - In thousands, except per share amounts)

 
Table #3  

Three Months Ended

December 31,

   

Twelve Months Ended

December 31,

Reconciliation of gross profit to adjusted gross profit (1)

 

2013       2012 2013       2012
 
Consolidated gross profit $ 87,486 $ 81,807 $ 409,380 $ 374,974
Impact of vacant property adjustments (3) 2,046
Impact of inventory adjustment (4) (2,808 )
Impact of depreciation expense adjustment (6) 3,051
Impact of rent expense adjustments (9) (1,396 )
       
Consolidated adjusted gross profit $ 87,486   $ 81,807   $ 407,222   $ 378,025  
Consolidated adjusted gross profit margin 20.1 % 19.6 % 22.6 % 22.2 %
 
 
Table #4  

Three Months Ended

December 31,

   

Twelve Months Ended

December 31,

Reconciliation of operating income to adjusted operating income (1)

 

2013 2012 2013 2012
 
Consolidated operating income (loss) $ 45,923 $ (83,553 ) $ 249,014 $ 92,936
Impact of goodwill and other long-lived assets impairment (2) 123,573 123,573
Impact of vacant property adjustments (3) 3,804
Impact of inventory adjustment (4) (2,808 )
Impact of depreciation expense adjustment (6) 3,051
Impact of rent expense adjustments (9) (1,396 )
       
Consolidated adjusted operating income $ 45,923   $ 40,020   $ 248,614   $ 219,560  
Consolidated adjusted operating margin 10.5 % 9.6 % 13.8 % 12.9 %
 
(1)     Management uses adjusted net income excluding acquisition-related amortization, adjusted EPS excluding amortization, adjusted gross profit and adjusted operating income 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 and its components and adjusted EPS excluding 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 prior year quarter, we recorded a non-cash impairment charge of $123.6 million, of which $122.4 million relates to the write-down of goodwill and other long-lived assets in our Vetstreet business, reported in our All Other segment.
 
(3) During the first quarter, 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.
 
(4) In the third quarter, we recorded a non-cash physical inventory adjustment in our Animal Hospital business segment which resulted in a $2.8 million credit adjustment to direct costs.
 
(5) As a result of the acquisition of a controlling interest in AVC, we recorded in the first quarter of 2012, a gain for the increase in value of our previously held interest in AVC, which we acquired in 2008.
 
(6) Due to corrections in the calculation of depreciation on certain assets, we recognized an additional depreciation expense during the second quarter of 2012.
 
(7) Beginning the first quarter of 2013, we 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.
 
(8) The rate used to calculate the tax benefit is the statutory rate of the applicable year.
 
(9) In the second quarter, we recorded a reduction in rent expense as a result of a capital lease that was previously treated as an operating lease in our Animal Hospital segment.
 
 
                 

VCA Antech, Inc.

Supplemental Operating Data (continued)

(Unaudited - In thousands, except per share amounts)

 
As of

Table #5

December 31,

2013

     

December 31,

2012

Selected consolidated balance sheet data
Debt:
Senior term notes $ 556,914 $ 592,422
Other debt and capital leases 62,731   38,221  
Total debt $ 619,645   $ 630,643  
 
 
 

Three Months Ended

December 31,

   

Twelve Months Ended

December 31,

Table #6

Selected expense data 2013 2012 2013 2012
 
Rent expense $ 16,940   $ 17,105   $ 67,615   $ 66,032  
 

Depreciation and amortization included in direct costs:

Animal hospital $ 14,530 $ 13,865 $ 57,011 $ 53,932
Laboratory 2,571 2,431 10,157 9,775
All other 1,519 1,172 5,122 6,485
Intercompany (448 ) (427 ) (1,783 ) (1,529 )
$ 18,172 $ 17,041 $ 70,507 $ 68,663

Depreciation and amortization included in selling, general and administrative expense

1,454   2,304   6,902   7,564  
Total depreciation and amortization $ 19,626   $ 19,345   $ 77,409   $ 76,227  
 
Share-based compensation included in direct costs:
Laboratory $ 120 $ 86 $ 448 $ 330
 

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

Animal hospital 306 291 1,723 1,049
Laboratory 319 294 1,198 1,141
All other 236 166 794 602
Corporate 2,783   2,784   9,941   10,965  
3,644   3,535   13,656   13,757  
Total share-based compensation $ 3,764   $ 3,621   $ 14,104   $ 14,087  
 

Contact:
VCA Antech, Inc.
Tomas Fuller
Chief Financial Officer
(310) 571-6505
View Comments (0)