WOOF Petco Health and Wellness Company Inc

• Revenue increased 10.4% to a third quarter record of $551.7 million
• Gross profit increased 11.2% to $137.7 million
• Operating income increased 81.5% to $97.1 million
• Non-GAAP operating income increased 14.7% to $98.4 million
• Diluted earnings per common share increased 116.1% to $0.67
• Non-GAAP diluted earnings per common share increased 21.4% to $0.68

VCA Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the third quarter ended September 30, 2015, as follows: revenue increased 10.4% to a third quarter record of $551.7 million; gross profit increased 11.2% to $137.7 million; operating income increased 81.5% to $97.1 million; net income increased 99.8% to $54.9 million; diluted earnings per common share increased 116.1% to $0.67.

Our results for the quarter included business interruption proceeds of $4.5 million, $2.8 million net of tax, or $0.03 per diluted common share. Our results for the 2014 quarter included a non-cash impairment charge of $27.0 million, $17.0 million net of tax, or $0.20 per diluted common share; debt retirement costs of $1.7 million, $1.0 million net of tax, or $0.01 per diluted common share. Excluding these items and acquisition-related amortization expense, our Non-GAAP gross profit increased 11.2% to $143.4 million; Non-GAAP operating income increased 14.7% to $98.4 million; Non-GAAP net income increased 14.2% to $55.6 million; and Non-GAAP diluted earnings per common share increased 21.4% to $0.68.

Bob Antin, Chairman and CEO, stated, "We had another excellent quarter. We continued to experience robust organic revenue growth rates in our Animal Hospital and Laboratory business segments. We remain very optimistic with respect to our results for the full year ended December 2015.

"Animal Hospital revenue in the third quarter increased 11.6%, to $441.9 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 5.4%. Our same-store gross profit margin was 17.3%, slightly down from 17.5% in the prior-year quarter and our total gross margin decreased to 17.0%, from 17.3% in the prior-year quarter. During the 2015 third quarter, we acquired 19 independent animal hospitals which had historical combined annual revenue of $43.6 million.

"Laboratory revenue increased 9.1%, to $100.3 million. Our Laboratory internal revenue growth increased 6.0% to $97.4 million from $91.9 million; laboratory gross profit margin increased 220 basis points to 51.2%, from 49.0%; and our operating margin increased 210 basis points to 41.7%, from 39.6% in the prior-year quarter.

"During the quarter we repurchased 1,030,000 shares of our common stock for $58.5 million. Since the Board authorized our repurchase programs in April 2013, through the end of the third quarter 2015, we have acquired 10.1 million shares for $424.2 million.

"Our financial results for the nine months ended September 30, 2015 are as follows: revenue increased 11.2% to $1.6 billion; gross profit increased 13.5% to $392.4 million; operating income increased 35.3% to $263.4 million; net income increased 37.7% to $147.5 million; and diluted earnings per common share increased 47.1% to $1.78. Our financial results for the nine months ended September 30, 2015, on a Non-GAAP basis, are as follows: gross profit increased 13.4% to $409.4 million, operating income increased 16.4% to $276.1 million, net income increased 15.2% to $155.2 million, and Non- GAAP diluted earnings per common share increased 23.7% to $1.88."

2015 Guidance

We reaffirm our previously provided guidance as follows:

• Revenue from $2.12 billion to $2.13 billion;

• Net income from $172 million to $181 million;

• Diluted earnings per common share from $2.08 to $2.18; and

• Non-GAAP diluted earnings per common share of $2.25 to $2.35

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.”

Conference Call

We will discuss our third quarter 2015 financial results during a conference call today, October 28th, at 9:00 a.m. Eastern Time. A live broadcast of the call may be accessed by visiting our website at investor.vca.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 2015 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 Inc.

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 Inc. Condensed, Consolidated Income Statements (Unaudited)

(In thousands, except per share amounts)

        Three Months EndedSeptember 30, Nine Months EndedSeptember 30, 2015     2014 2015     2014 Revenue: Animal hospital $ 441,924 $ 395,820 $ 1,270,326 $ 1,134,184 Laboratory 100,309 91,903 300,503 276,392 All other 30,838 30,081 93,734 81,914 Intercompany (21,354 ) (18,227 ) (64,608 ) (53,934 ) 551,717   499,577   1,599,955   1,438,556     Direct costs 414,051 375,820 1,207,580 1,092,933   Gross profit: Animal hospital 74,941 68,537 203,810 180,673 Laboratory 51,408 45,024 156,093 137,147 All other 11,761 10,136 34,574 27,753 Intercompany (444 ) 60   (2,102 ) 50   137,666   123,757   392,375   345,623     Selling, general and administrative expense: Animal hospital 10,677 9,269 32,351 28,261 Laboratory 9,542 8,610 27,894 24,909 All other 7,660 8,023 24,088 23,782 Corporate 16,981   16,890   49,410   47,211   44,860   42,792   133,743   124,163     Impairment of goodwill and other long-lived assets — 27,019 — 27,019 Business interruption insurance proceeds, net (4,523 ) — (4,523 ) — Net loss (gain) on sale or disposal of assets 250   470   (234 ) (173 ) Operating income 97,079 53,476 263,389 194,614 Interest expense, net 5,455 4,367 15,396 12,564 Debt retirement costs — 1,709 — 1,709 Other expense 59   188   88   178   Income before provision for income taxes 91,565 47,212 247,905 180,163 Provision for income taxes 35,097   18,261   95,961   69,389   Net income 56,468 28,951 151,944 110,774 Net income attributable to noncontrolling interests 1,614   1,499   4,490   3,695   Net income attributable to VCA Inc. $ 54,854   $ 27,452   $ 147,454   $ 107,079     Diluted earnings per share $ 0.67   $ 0.31   $ 1.78   $ 1.21     Weighted-average shares outstanding for diluted earnings per share 81,795   87,360   82,744   88,665     VCA Inc. Condensed, Consolidated Balance Sheets (Unaudited)

(In thousands)

        September 30, 2015 December 31, 2014 Assets Current assets: Cash and cash equivalents $ 74,992 $ 81,383 Trade accounts receivable, net 74,654 60,482 Inventory 51,597 56,050 Prepaid expenses and other 30,827 36,924 Deferred income taxes 30,329 30,331 Prepaid income taxes —   18,277   Total current assets 262,399 283,447 Property and equipment, net 492,532 468,041 Other assets: Goodwill 1,489,843 1,415,861 Other intangible assets, net 100,939 88,175 Notes receivable 2,345 2,807 Deferred financing costs, net 6,568 7,874 Other 76,564   65,815   Total assets $ 2,431,190   $ 2,332,020   Liabilities and Equity Current liabilities: Current portion of long-term debt $ 34,043 $ 19,356 Accounts payable 45,512 46,284 Accrued payroll and related liabilities 82,966 64,359 Income tax payable 1,827 — Other accrued liabilities 75,179   67,219   Total current liabilities 239,527 197,218 Long-term debt, less current portion 847,112 775,412 Deferred income taxes 104,425 103,502 Other liabilities 31,969   33,190   Total liabilities 1,223,033 1,109,322 Redeemable noncontrolling interests 11,273 11,077 VCA Inc. stockholders’ equity: Common stock 81 83 Additional paid-in capital 16,135 155,802 Retained earnings 1,211,612 1,064,158 Accumulated other comprehensive loss (43,909 ) (19,397 ) Total VCA Inc. stockholders’ equity 1,183,919 1,200,646 Noncontrolling interests 12,965   10,975   Total equity 1,196,884   1,211,621   Total liabilities and equity $ 2,431,190   $ 2,332,020     VCA Inc. Condensed, Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

    Nine Months EndedSeptember 30, 2015     2014 Cash flows from operating activities: Net income $ 151,944 $ 110,774 Adjustments to reconcile net income to net cash provided by operating activities: Impairment of goodwill and other long-lived assets — 27,019 Depreciation and amortization 60,634 59,659 Amortization of debt issue costs 1,306 957 Provision for uncollectible accounts 6,723 4,388 Debt retirement costs — 1,709 Net gain on sale or disposal of assets (234 ) (173 ) Share-based compensation 12,086 12,234 Excess tax benefit from stock based compensation (8,008 ) (3,808 ) Other (431 ) 381 Changes in operating assets and liabilities: Trade accounts receivable (20,568 ) (9,678 ) Inventory, prepaid expense and other assets (931 ) (8,233 ) Accounts payable and other accrued liabilities (2,451 ) 2,920 Accrued payroll and related liabilities 18,892 14,761 Income taxes 28,054   12,137   Net cash provided by operating activities 247,016   225,047   Cash flows from investing activities: Business acquisitions, net of cash acquired (119,336 ) (65,415 ) Property and equipment additions (61,470 ) (50,093 ) Proceeds from sale of assets 6,469 4,464 Other (434 ) (202 ) Net cash used in investing activities (174,771 ) (111,246 ) Cash flows from financing activities: Repayment of debt (20,174 ) (563,976 ) Proceeds from issuance of long-term debt — 600,000 Proceeds from revolving credit facility 97,000 — Payment of financing costs — (7,987 ) Distributions to non-controlling interest partners (3,810 ) (3,577 ) Purchase of non-controlling interests (1,493 ) (326 ) Proceeds from issuance of common stock under stock option plans 1,571 926 Excess tax benefit from stock based compensation 8,008 3,808 Repurchase of common stock (161,117 ) (139,910 ) Other 2,210   (838 ) Net cash used in financing activities (77,805 ) (111,880 ) Effect of currency exchange rate changes on cash and cash equivalents (831 ) (443 ) (Decrease) increase in cash and cash equivalents (6,391 ) 1,478 Cash and cash equivalents at beginning of period 81,383   125,029   Cash and cash equivalents at end of period $ 74,992   $ 126,507     VCA Inc. Supplemental Operating Data

(Unaudited - In thousands, except per share amounts)

                Table #1 Reconciliation of net income attributable to Three Months EndedSeptember 30, Nine Months EndedSeptember 30, VCA Inc., to Non-GAAP net income attributable to VCA Inc. (1) 2015 2014 2015 2014   Net income attributable to VCA Inc. $ 54,854 $ 27,452 $ 147,454 $ 107,079 Impairment of goodwill and other long-lived assets (2) — 27,019 — 27,019 Tax benefit on impairment charge (2) — (9,978 ) — (9,978 ) Debt retirement costs (3) — 1,709 — 1,709 Tax benefit from debt retirement costs (3) — (669 ) — (669 ) Business interruption proceeds (4) (4,523 ) — (4,523 ) — Tax expense on business interruption proceeds (4) 1,771 — 1,771 — Acquisitions related amortization (1) 5,811 5,231 17,195 15,605 Tax benefit from acquisitions related amortization (1) (2,274 ) (2,047 ) (6,730 ) (6,108 ) Non-GAAP net income attributable to VCA Inc. $ 55,639   $ 48,717   $ 155,167   $ 134,657     Table #2 Three Months EndedSeptember 30, Nine Months EndedSeptember 30, Reconciliation of diluted earnings per share to Non-GAAP diluted earnings per share (1) 2015 2014 2015 2014   Diluted earnings per share $ 0.67 $ 0.31 $ 1.78 $ 1.21 Impact of impairment charge, net of tax (2) — 0.20 — 0.19 Impact of debt retirement costs, net of tax (3) — 0.01 — 0.01 Impact of business interruption proceeds, net of tax (4) (0.03 ) — (0.03 ) — Impact of acquisitions related amortization, net of tax (1) 0.04   0.04   0.13   0.11   Non-GAAP diluted earnings per share $ 0.68   $ 0.56   $ 1.88   $ 1.52   Shares used for computing diluted earnings per share 81,795   87,360   82,744   88,665       Table #3 Three Months EndedSeptember 30, Nine Months EndedSeptember 30, Reconciliation of consolidated gross profit to Non-GAAP consolidated gross profit (1) 2015 2014 2015 2014   Consolidated gross profit $ 137,666 $ 123,757 $ 392,375 $ 345,623 Impact of acquisitions related amortization (1) 5,750   5,166   17,013   15,406   Non-GAAP consolidated gross profit $ 143,416   $ 128,923   $ 409,388   $ 361,029   Non-GAAP consolidated gross profit margin 26.0% 25.8% 25.6% 25.1%   Table #4 Three Months EndedSeptember 30, Nine Months EndedSeptember 30, Reconciliation of consolidated operating income to Non-GAAP consolidated operating income (1) 2015 2014 2015 2014   Consolidated operating income $ 97,079 $ 53,476 $ 263,389 $ 194,614 Impact of impairment charge (2) — 27,019 — 27,019 Impact of business interruption proceeds (4) (4,523 ) — (4,523 ) — Impact of acquisitions related amortization (1) 5,811   5,231   17,195   15,605   Non-GAAP consolidated operating income $ 98,367   $ 85,726   $ 276,061   $ 237,238   Non-GAAP consolidated operating margin 17.8% 17.2% 17.3% 16.5%  

_________________________________________________

(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)

We recognized a non-cash impairment charge of $27.0 million related to the write-down of goodwill and other long-lived assets in our Vetstreet business.

 

(3)

We incurred debt retirement costs of $1.7 million related to the refinancing of our senior credit facility.

 

(4)

We received insurance proceeds related to the fire that damaged the headquarters of our Medical Technology business resulting in a net gain of $4.5 million.

  VCA Inc. Supplemental Operating Data (cont)

(Unaudited - In thousands, except per share amounts)

        As of Table #5     September 30, 2015     December 31, 2014 Selected consolidated balance sheet data Debt: Senior term notes $ 592,500 $ 600,000 Revolving credit 232,000 135,000 Other debt and capital leases 56,655   59,768   Total debt $ 881,155   $ 794,768     Three Months EndedSeptember 30, Nine Months EndedSeptember 30, Table #6 Selected expense data 2015 2014 2015 2014   Rent expense $ 19,140   $ 17,476   $ 56,761   $ 51,284    

Depreciation and amortization included in direct costs:

Animal hospital $ 16,465 $ 15,044 $ 48,808 $ 44,573 Laboratory 2,701 2,650 7,852 7,709 All other 968 1,505 2,871 4,907 Intercompany (549 ) (479 ) (1,602 ) (1,417 ) $ 19,585 $ 18,720 $ 57,929 $ 55,772

Depreciation and amortization included in selling, general and administrative expense

886   1,142   2,705   3,887   Total depreciation and amortization $ 20,471   $ 19,862   $ 60,634   $ 59,659     Share-based compensation included in direct costs: Laboratory $ 144 $ 154 $ 468 $ 437  

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

Animal hospital 644 470 1,981 1,411 Laboratory 364 340 1,106 1,073 All other 226 232 626 605 Corporate 2,439   2,467   7,905   8,708   3,673   3,509   11,618   11,797   Total share-based compensation $ 3,817   $ 3,663   $ 12,086   $ 12,234    

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