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, July 26, 2017 (GLOBE NEWSWIRE) -- VCA Inc. 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.

"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."

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.

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⁽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.

Contact: Tomas Fuller
Chief Financial Officer
(310) 571-6505