- Second quarter revenue increased 2.6% to $353.9 million
- Second quarter diluted earnings per common share was $0.44
LOS ANGELES, July 22, 2010 (GLOBE NEWSWIRE) -- VCA Antech, Inc. (Nasdaq:WOOF), a leading animal healthcare company in the United States, today reported financial results for the second quarter ended June 30, 2010 as follows: revenue increased 2.6% to a second quarter record of $353.9 million; and diluted earnings per common share of $0.44.
For the three and six months ended June 30, 2010 and 2009 diluted earnings per share were $0.44 and $0.81, respectively. The second quarter of 2009 included a non-cash charge of $5.3 million, or $3.2 million after tax, related to the abandonment of an internally developed software project. Excluding this charge, adjusted diluted earnings per share for the three and six months ended June 30, 2009 were $0.48 and $0.85, respectively.
Bob Antin, Chairman and CEO, stated, "We continued to grow revenue during the quarter as a result of acquisitions. However, the economy continues to negatively impact internal revenue growth in both our Animal Hospital and Laboratory business segments. The pace of the economic recovery slowed during the second quarter which impacted both our Animal Hospital and Laboratory business segment's organic growth. We remain optimistic with respect to our ability to grow revenue through acquisitions. On July 1st, we acquired a majority interest in Pet DRx Corporation, which operated 23 animal hospitals in California.
"Animal hospital revenue in the second quarter increased 2.4% to $267.6 million driven by acquisitions made in the past twelve months. The combination of lower margins at acquired animal hospitals, and a decline in same-store margins due to a decline in same-store revenue, has caused our animal hospital gross margin to decrease to 18.3% compared to 20.3% for the comparable prior year quarter, and our animal hospital operating margin to decline to 16.2% compared to 18.2% for the comparable prior year quarter. Our same-store revenue declined by 2.0% and our same-store gross profit margin declined to 18.6% from 20.4%. During the quarter, we acquired seven animal hospitals which had historical combined annual revenue of $9.5 million.
"Laboratory revenue in the second quarter decreased 0.2% to $83.0 million. Internal revenue growth was negative 0.5% driven by a decline in the number of requisitions. Our laboratory gross profit decreased by 50 basis points to 48.9% and our operating margin was down slightly at 41.0%.
"Sound-Eklin revenue in the second quarter increased 42.3% to $14.6 million and gross profit increased 23.3% to $4.3 million. Gross profit margin was 29.8% compared to 34.3% in the prior year primarily due to product mix and the operating margin decreased to 6.4% from 11.0%."
2010 Financial Guidance
We revise our financial guidance as follows:
- Diluted earnings per common share from $1.43 to $1.53.
Our senior term notes are scheduled to mature in 2011, although they are currently scheduled to be refinanced in August, 2010. The guidance above is based on our capital structure before the effect of our debt refinancing, which we expect to have approximately $0.01 to $0.02 negative impact on diluted earnings per common share. Accordingly, the attached Consolidated Balance Sheet reflects these senior-term notes in the current portion of long-term obligations.
Current uncertainty in the economy and the lack of visibility regarding the timing and degree of any recovery in our business sector makes it particularly difficult to predict consumer demand for our services and makes it more likely that our actual results could differ materially from expectations.
Non-GAAP Financial Measures
We believe investors' understanding of our total performance is enhanced by disclosing adjusted operating income, 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 six months ended June 30, 2009, we adjusted our reported amounts for the non-cash charge of $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 second quarter 2010 financial results during a conference call today, July 22nd, 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) 280-7473. 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 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 Firehouse Ventures, LLC and 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.
The VCA Antech, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=4252
| VCA Antech, Inc. | ||||
| Consolidated Income Statements | ||||
| (Unaudited) | ||||
| (In thousands, except per share amounts) | ||||
|
Three Months Ended June 30, |
Six Months Ended June 30, |
|||
| 2010 | 2009 | 2010 | 2009 | |
| Revenue: | ||||
| Animal hospital | $ 267,595 | $ 261,287 | $ 514,263 | $ 499,645 |
| Laboratory | 82,972 | 83,176 | 161,152 | 161,038 |
| Medical technology | 14,602 | 10,263 | 30,399 | 19,048 |
| Intercompany | (11,250) | (9,850) | (21,161) | (19,005) |
| 353,919 | 344,876 | 684,653 | 660,726 | |
| Direct costs | 260,435 | 247,528 | 508,374 | 481,209 |
| Gross profit: | ||||
| Animal hospital | 49,028 | 53,133 | 90,705 | 96,297 |
| Laboratory | 40,556 | 41,074 | 77,084 | 77,105 |
| Medical technology | 4,347 | 3,525 | 9,178 | 6,753 |
| Intercompany | (447) | (384) | (688) | (638) |
| 93,484 | 97,348 | 176,279 | 179,517 | |
| Selling, general and administrative expense: | ||||
| Animal hospital | 5,673 | 5,378 | 11,260 | 10,762 |
| Laboratory | 6,527 | 5,644 | 12,681 | 11,211 |
| Medical technology | 3,404 | 2,394 | 6,919 | 5,206 |
| Corporate | 10,915 | 9,525 | 21,799 | 18,679 |
| 26,519 | 22,941 | 52,659 | 45,858 | |
| (Gain) loss on sale and disposal of assets | (14) | 5,443 | 11 | 5,195 |
| Operating income | 66,979 | 68,964 | 123,609 | 128,464 |
| Interest expense, net | 2,778 | 5,726 | 5,945 | 11,844 |
| Other income | (335) | (20) | (310) | (130) |
| Income before provision for income taxes | 64,536 | 63,258 | 117,974 | 116,750 |
| Provision for income taxes | 25,147 | 24,290 | 45,653 | 44,901 |
| Net income | 39,389 | 38,968 | 72,321 | 71,849 |
| Net income attributable to noncontrolling interests | 1,113 | 1,223 | 2,110 | 2,134 |
| Net income attributable to VCA Antech, Inc. | $ 38,276 | $ 37,745 | $ 70,211 | $ 69,715 |
| Diluted earnings per share | $ 0.44 | $ 0.44 | $ 0.81 | $ 0.81 |
| Shares used for computing diluted earnings per share | 87,144 | 85,937 | 87,013 | 85,629 |
| VCA Antech, Inc. | ||
| Consolidated Balance Sheets | ||
| (Unaudited) | ||
| (In thousands) | ||
|
June 30, 2010 |
December 31, 2009 |
|
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $ 193,757 | $ 145,181 |
| Trade accounts receivable, net | 53,407 | 49,186 |
| Inventory | 34,088 | 32,031 |
| Prepaid expenses and other | 22,299 | 27,242 |
| Deferred income taxes | 18,966 | 18,318 |
| Prepaid income taxes | 12,093 | 6,252 |
| Total current assets | 334,610 | 278,210 |
| Property and equipment, net | 302,515 | 289,415 |
| Other assets: | ||
| Goodwill | 1,006,562 | 985,674 |
| Other intangible assets, net | 42,019 | 44,280 |
| Deferred financing costs, net | 342 | 581 |
| Other | 33,789 | 29,244 |
| Total assets | $ 1,719,837 | $ 1,627,404 |
| Liabilities and Equity | ||
| Current liabilities: | ||
| Current portion of long-term obligations | $ 508,687 | $ 17,195 |
| Accounts payable | 28,814 | 28,326 |
| Accrued payroll and related liabilities | 46,372 | 33,539 |
| Other accrued liabilities | 44,873 | 43,298 |
| Total current liabilities | 628,746 | 122,358 |
| Long-term obligations, less current portion | 23,607 | 527,860 |
| Deferred income taxes | 89,329 | 75,197 |
| Other liabilities | 10,747 | 10,651 |
| VCA Antech, Inc. stockholders' equity: | ||
| Common stock | 86 | 86 |
| Additional paid-in capital | 340,552 | 335,114 |
| Retained earnings | 610,221 | 540,010 |
| Accumulated other comprehensive loss | (48) | (163) |
| Total VCA Antech, Inc. stockholders' equity | 950,811 | 875,047 |
| Noncontrolling interest | 16,597 | 16,291 |
| Total equity | 967,408 | 891,338 |
| Total liabilities and equity | $ 1,719,837 | $ 1,627,404 |
| VCA Antech, Inc. | ||
| Consolidated Statements of Cash Flows | ||
| (Unaudited) | ||
| (In thousands) | ||
|
Six Months Ended June 30, |
||
| 2010 | 2009 | |
| Cash flows from operating activities: | ||
| Net income | $ 72,321 | $ 71,849 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||
| Depreciation and amortization | 21,706 | 18,840 |
| Amortization of debt costs | 239 | 241 |
| Provision for uncollectible accounts | 3,143 | 2,936 |
| Net loss on sale and disposal of assets | 11 | 5,195 |
| Share-based compensation | 4,066 | 3,920 |
| Deferred income taxes | 10,853 | 10,944 |
| Excess tax benefit from exercise of stock options | (331) | (154) |
| Other | (226) | (218) |
| Changes in operating assets and liabilities: | ||
| Accounts receivable | (7,344) | (7,989) |
| Inventory, prepaid expenses and other assets | (727) | (2,929) |
| Accounts payable and other accrued liabilities | 956 | 4,357 |
| Accrued payroll and related liabilities | 12,656 | 2,134 |
| Prepaid income taxes | (5,987) | 1,073 |
| Net cash provided by operating activities | 111,336 | 110,199 |
| Cash flows from investing activities: | ||
| Business acquisitions, net of cash acquired | (20,344) | (28,144) |
| Real estate acquired in connection with business acquisitions | (1,300) | (3,828) |
| Property and equipment additions | (27,925) | (25,208) |
| Proceeds from sale of assets | 9 | 108 |
| Other | (162) | (281) |
| Net cash used in investing activities | (49,722) | (57,353) |
| Cash flows from financing activities: | ||
| Repayment of debt | (12,859) | (3,899) |
| Distributions to noncontrolling interest partners | (2,021) | (1,493) |
| Proceeds from issuance of common stock under stock option plans | 3,770 | 2,895 |
| Repurchase of common stock | (2,253) | (549) |
| Excess tax benefit from exercise of stock options | 331 | 154 |
| Net cash used in financing activities | (13,032) | (2,892) |
| Effect of currency exchange rate changes on cash and cash equivalents | (6) | (18) |
| Increase in cash and cash equivalents | 48,576 | 49,936 |
| Cash and cash equivalents at beginning of period | 145,181 | 88,959 |
| Cash and cash equivalents at end of period | $ 193,757 | $ 138,895 |
| VCA Antech, Inc. | ||||
| Supplemental Operating Data | ||||
| (Unaudited - In thousands, except per share amounts) | ||||
| Table #1 | ||||
| Reconciliation of net income attributable to | Three Months Ended | Six Months Ended | ||
| VCA Antech, Inc., to adjusted net income | June 30, | June 30, | ||
| attributable to VCA Antech, Inc. | 2010 | 2009 | 2010 | 2009 |
| Net income attributable to VCA Antech, Inc. | $ 38,276 | $ 37,745 | $ 70,211 | $ 69,715 |
| Write-down of internal-use software | -- | 5,271 | -- | 5,271 |
| Tax benefit from write-down of internal-use software (1) | -- | (2,051) | -- | (2,051) |
| Adjusted net income attributable to VCA Antech, Inc. | $ 38,276 | $ 40,965 | $ 70,211 | $ 72,935 |
| (1) The rate used to calculate the tax benefit is the statutory tax rate for the year. | ||||
| Table #2 | Three Months Ended | Six Months Ended | ||
| Reconciliation of diluted earnings per share to | June 30, | June 30, | ||
| adjusted diluted earnings per share | 2010 | 2009 | 2010 | 2009 |
| Diluted earnings per share | $ 0.44 | $ 0.44 | $ 0.81 | $ 0.81 |
| Impact of internal-use software write-down, net of tax | -- | 0.04 | -- | 0.04 |
| Adjusted diluted earnings per share | $ 0.44 | $ 0.48 | $ 0.81 | $ 0.85 |
| Shares used for computing adjusted diluted earnings per share | 87,144 | 85,937 | 87,013 | 85,629 |
| Table #3 | Three Months Ended | Six Months Ended | ||
| Reconciliation of operating income to adjusted | June 30, | June 30, | ||
| operating income | 2010 | 2009 | 2010 | 2009 |
| Consolidated operating income | $ 66,979 | $ 68,964 | $ 123,609 | $ 128,464 |
| Write-down of internal-use software | -- | 5,271 | -- | 5,271 |
| Consolidated adjusted operating income | $ 66,979 | $ 74,235 | $ 123,609 | $ 133,735 |
| Consolidated adjusted operating margin | 18.9% | 21.5% | 18.1% | 20.2% |
| VCA Antech, Inc. | ||||
| Supplemental Operating Data | ||||
| (Unaudited - In thousands) | ||||
| As of | ||||
| Table #4 | June 30, | December 31, | ||
| Selected consolidated balance sheet data | 2010 | 2009 | ||
| Debt: | ||||
| Senior term notes | $ 505,448 | $ 516,889 | ||
| Other debt and capital leases | 26,846 | 28,166 | ||
| Total debt | $ 532,294 | $ 545,055 | ||
| Table #5 |
Three Months Ended June 30, |
Six Months Ended June 30, |
||
| Selected expense data | 2010 | 2009 | 2010 | 2009 |
| Rent expense | $ 12,378 | $ 11,758 | $ 24,487 | $ 23,167 |
| Depreciation and amortization included in direct costs: | ||||
| Animal hospital | $ 7,569 | $ 6,483 | $ 14,848 | $ 12,702 |
| Laboratory | 2,305 | 2,278 | 4,629 | 4,458 |
| Medical technology | 378 | 199 | 752 | 395 |
| Intercompany | (250) | (200) | (490) | (387) |
| 10,002 | $ 8,760 | 19,739 | $ 17,168 | |
|
Depreciation and amortization included in selling, general and administrative expense |
997 | 928 | 1,967 | 1,672 |
| Total depreciation and amortization | $ 10,999 | $ 9,688 | $ 21,706 | $ 18,840 |
| Share-based compensation included in direct costs: | ||||
| Laboratory | $ 171 | $ 150 | $ 332 | $ 305 |
|
Share-based compensation included in selling, general and administrative expense: |
||||
| Animal hospital | 372 | 360 | 749 | 731 |
| Laboratory | 326 | 297 | 641 | 598 |
| Medical technology | 55 | 67 | 132 | 142 |
| Corporate | 1,054 | 1,070 | 2,212 | 2,144 |
| 1,807 | 1,794 | 3,734 | 3,615 | |
| Total share-based compensation | $ 1,978 | $ 1,944 | $ 4,066 | $ 3,920 |