EX-99.1 2 a5196035ex991.txt VCA ANTECH EXHIBIT 99.1 EARNINGS PRESS RELEASE Exhibit 99.1 VCA Antech, Inc. Reports Second Quarter Results LOS ANGELES--(BUSINESS WIRE)--July 26, 2006--VCA Antech, Inc. (NASDAQ:WOOF): -- Second quarter revenue increased 23.5% to $255.2 million -- Second quarter gross profit increased 23.4% to $75.0 million -- Second quarter diluted earnings per common share was $0.35 -- Second quarter adjusted diluted earnings per common share increased 29.6% to $0.35 VCA Antech, Inc. (NASDAQ:WOOF), a leading animal healthcare company in the United States, today reported financial results for the quarter ended June 30, 2006, as follows: revenue increased 23.5% to a second quarter record of $255.2 million; gross profit increased 23.4% to $75.0 million; operating income increased 22.4% to $55.6 million; net income was $29.6 million; and diluted earnings per common share was $0.35. The quarter ended June 30, 2005 included an after-tax charge of $11.5 million, or $0.14 per diluted common share, for debt retirement costs. Excluding this item, adjusted net income for the second quarter of 2006 increased 29.7% to $29.6 million and adjusted diluted earnings per common share increased 29.6% to $0.35. We also reported our financial results for the six months ended June 30, 2006, as follows: revenue increased 24.4% to a first six-months record of $489.3 million; gross profit increased 24.5% to $138.5 million; operating income increased 22.6% to $100.3 million; net income was $59.2 million; and diluted earnings per common share was $0.70. The first quarter of 2006 included a tax benefit in the amount of $6.8 million, or $0.08 per diluted common share, due to a favorable outcome of an income tax audit that resulted in a change to our estimated tax liabilities. The second quarter of 2005 included an after-tax charge of $11.5 million, or $0.14 per diluted common share, for debt retirement costs. Excluding these items from the six months ended June 30, 2006 and 2005, adjusted net income increased 30.9% to $52.4 million and adjusted diluted earnings per common share increased 29.2% to $0.62. Bob Antin, Chairman and CEO, stated, "Our operating results for the second quarter were marked by continued growth in our core businesses. Our consolidated revenue increased to $255.2 million and our consolidated gross profit margin of 29.4% remained unchanged from the comparable prior year quarter. Our consolidated operating income margin was 21.8% compared to 22.0% in the comparable prior year quarter. Operating income for the second quarter of 2006 includes share-based compensation of $669,000, or 0.3% of consolidated revenue, as a result of adopting SFAS No. 123R on January 1, 2006. In addition, during the second quarter of 2006, we made a $20.0 million prepayment of our senior term notes, which brings the total year-to-date prepaid amount to $60.0 million. "Our laboratory revenue for the second quarter of 2006 increased 15.8%, generating an 18.8% increase in laboratory gross profit and our laboratory gross profit margin increased to 48.2% compared to 47.0% in the comparable prior year quarter. Our laboratory operating margin increased to 41.8% compared to 41.2% in the comparable prior year quarter. Laboratory internal revenue growth was 14.9% for the second quarter. "Our consolidated animal hospital revenue increased 25.7% to $186.0 million. We saw improvements in the performance of those animal hospitals that we have operated for more than one year. We experienced animal hospital same-store revenue growth of 5.4% and animal hospital same-store gross profit margin increased to 21.8% from 21.7% in the comparable prior year period. We continue to experience lower gross profit margins on animal hospitals acquired within the last year, including Pet's Choice, Inc. (acquired on July 1, 2005), resulting in a consolidated animal hospital gross profit margin of 21.3% for the second quarter of 2006 as compared to 21.5% in the comparable period in 2005. Our consolidated animal hospital operating margin for the second quarter of 2006 was 18.6% compared to 19.0% in the comparable prior year quarter. "Our medical technology revenue increased 56.8% to $8.4 million and our medical technology gross profit margin increased to 37.4% compared to 30.9% in the comparable prior year quarter. Our medical technology segment reported operating income of $595,000 compared to an operating loss of $264,000 reported in the second quarter of 2005." 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 adjusted net income and adjusted diluted earnings per common share as the reported items, adjusted to exclude certain significant items. Adjusted diluted earnings per common share is adjusted net income divided by diluted common shares outstanding. Management uses adjusted net income and adjusted diluted earnings per common share 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 our future performance and related trends. For the six months ended June 30, 2006, the only item excluded in computing adjusted net income and adjusted diluted earnings per common share was the $6.8 million tax benefit recorded during the first quarter of 2006. For the six months ended June 30, 2005, the only item excluded in computing adjusted net income and adjusted diluted earnings per common share was debt retirement costs recorded during the second quarter of 2005. There is a material limitation associated with the use of these non-GAAP financial measures: our computation of adjusted net income excludes the impact of certain 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 2006 financial results during a conference call today, July 26, 2006 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 via telephone by dialing 800-289-0496. 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, including our statement regarding continued growth in our core businesses. Among the important factors that could cause actual results to differ are: a material adverse change in our financial condition or operations; the rate of our laboratory internal revenue growth and animal hospital same-store revenue growth; the level of direct costs and our ability to maintain revenue at a level necessary to maintain expected operating margins; the level of selling, general and administrative costs; the effects of our recent acquisitions, including Pet's Choice, Inc., and our ability to effectively manage our growth and achieve operating synergies; a continued decline in demand for some 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; changes in prevailing interest rates; our ability to service our debt; and general economic conditions. These and other risk factors are discussed in our Report on Form 10-K for the year ended December 31, 2005 and our Report on Form 10-Q for the quarter ended March 31, 2006, 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 ultrasound and digital radiography equipment to the veterinary industry. VCA Antech, Inc. Consolidated Income Statements For the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited - In Thousands, Except Per Share Amounts) Three Months Six Months Ended June 30, Ended June 30, ------------------- ------------------- 2006 2005 2006 2005 -------- -------- -------- -------- Revenue: Laboratory $ 67,473 $ 58,277 $129,010 $111,716 Animal hospital 186,002 147,959 356,525 281,313 Medical technology 8,400 5,358 16,392 9,842 Intercompany (6,725) (5,010) (12,597) (9,424) -------- -------- -------- -------- 255,150 206,584 489,330 393,447 -------- -------- -------- -------- Direct costs 180,188 145,849 350,847 282,185 Gross profit: Laboratory 32,524 27,378 61,074 51,247 Animal hospital 39,651 31,817 72,248 57,552 Medical technology 3,144 1,658 5,646 2,697 Intercompany (357) (118) (485) (234) -------- -------- -------- -------- 74,962 60,735 138,483 111,262 -------- -------- -------- -------- Selling, general and administrative: Laboratory 4,349 3,346 8,443 6,711 Animal hospital 5,123 3,807 9,946 7,510 Medical technology 2,549 1,922 5,200 3,489 Corporate 7,463 6,342 14,780 11,839 -------- -------- -------- -------- 19,484 15,417 38,369 29,549 -------- -------- -------- -------- Gain on sale of assets (85) (78) (203) (88) -------- -------- -------- -------- Operating income 55,563 45,396 100,317 81,801 Interest expense, net 5,927 6,081 12,239 12,748 Other (income) expense (31) 67 (97) 131 Minority interest expense 900 846 1,674 1,531 Debt retirement costs - 19,282 - 19,282 -------- -------- -------- -------- Income before provision for income taxes 48,767 19,120 86,501 48,109 Provision for income taxes 19,214 7,858 27,289 19,601 -------- -------- -------- -------- Net income $ 29,553 $ 11,262 $ 59,212 $ 28,508 ======== ======== ======== ======== Diluted earnings per common share $ 0.35 $ 0.13 $ 0.70 $ 0.34 ======== ======== ======== ======== Shares used for computing diluted earnings per common share 84,838 83,874 84,699 83,709 ======== ======== ======== ======== VCA ANTECH, INC. CONSOLIDATED BALANCE SHEETS As of June 30, 2006 and December 31, 2005 (Unaudited - In thousands) June 30, December 31, 2006 2005 --------------- -------------- ASSETS Current assets: Cash and cash equivalents $ 20,801 $ 58,488 Trade accounts receivable, net 39,734 36,104 Inventory 18,851 17,856 Prepaid expenses and other 13,779 9,867 Deferred income taxes 11,952 10,972 Prepaid income taxes 9,913 12,337 --------------- -------------- Total current assets 115,030 145,624 Property and equipment, net 154,188 143,781 Other assets: Goodwill 610,658 586,444 Other intangible assets, net 14,495 10,735 Deferred financing costs, net 1,114 1,340 Other 10,357 9,149 --------------- -------------- Total assets $ 905,842 $ 897,073 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $ 6,619 $ 5,884 Accounts payable 17,317 20,718 Accrued payroll and related liabilities 24,675 25,201 Accrued interest 246 306 Other accrued liabilities 31,349 28,860 --------------- -------------- Total current liabilities 80,206 80,969 Long-term obligations, less current portion 386,729 446,828 Deferred income taxes 36,734 30,803 Other liabilities 13,803 19,775 Minority interest 10,282 9,947 Stockholders' equity: Common stock 83 83 Additional paid-in capital 267,840 258,402 Retained earnings 108,269 49,057 Accumulated other comprehensive income 1,896 1,209 --------------- -------------- Total stockholders' equity 378,088 308,751 --------------- -------------- Total liabilities and stockholders' equity $ 905,842 $ 897,073 =============== ============== VCA ANTECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2006 and 2005 (Unaudited - In thousands) Six Months Ended June 30, -------------------------------- 2006 2005 --------------- -------------- Cash flows from operating activities: Net income $ 59,212 $ 28,508 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 10,851 8,785 Amortization of debt costs 226 351 Provision for uncollectible accounts 2,976 2,025 Debt retirement costs - 19,282 Gain on sale of assets (203) (88) Share-based compensation 1,445 - Minority interest in income of subsidiaries 1,674 1,531 Distributions to minority interest partners (1,339) (1,145) Deferred income taxes 4,701 2,713 Excess tax benefit from exercise of stock options (3,939) - Other (561) (377) Changes in operating assets and liabilities (10,902) (7,160) --------------- -------------- Net cash provided by operating activities 64,141 54,425 --------------- -------------- Cash flows used in investing activities: Business acquisitions, net of cash acquired (30,172) (22,174) Real estate acquired in connection with business acquisitions (1,781) (221) Property and equipment additions (15,067) (14,681) Proceeds from sale of assets 297 338 Other 161 3,039 --------------- -------------- Net cash used in investing activities (46,562) (33,699) --------------- -------------- Cash flows used in financing activities: Repayment of long-term obligations (62,781) (409,187) Proceeds from the issuance of long- term obligations - 475,000 Payment of financing costs - (3,216) Proceeds from issuance of common stock under stock option plans 3,576 1,228 Excess tax benefit from exercise of stock options 3,939 - --------------- -------------- Net cash used in financing activities (55,266) 63,825 --------------- -------------- Increase (decrease) in cash and cash equivalents (37,687) 84,551 Cash and cash equivalents at beginning of period 58,488 30,964 --------------- -------------- Cash and cash equivalents at end of period $ 20,801 $ 115,515 =============== ============== VCA Antech, Inc. Supplemental Operating Data For the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited - In Thousands, Except Per Share Amounts) Table #1 Three Months Six Months Ended June 30, Ended June 30, ----------------- ----------------- Reconciliation of net income to adjusted net income 2006 2005 2006 2005 ------- ------- ------- ------- Net income $29,553 $11,262 $59,212 $28,508 Certain significant items: Tax benefit - - (6,806) - Debt retirement costs, net of tax - 11,517 - 11,517 ------- ------- ------- ------- Adjusted net income $29,553 $22,779 $52,406 $40,025 ======= ======= ======= ======= Table #2 Reconciliation of diluted earnings per common share to adjusted diluted earnings per common share Diluted earnings per common share $ 0.35 $ 0.13 $ 0.70 $ 0.34 Certain significant item as detailed in Table #1 - 0.14 (0.08) 0.14 ------- ------- ------- ------- Adjusted diluted earnings per common share $ 0.35 $ 0.27 $ 0.62 $ 0.48 ======= ======= ======= ======= Shares used for computing adjusted diluted earnings per common share 84,838 83,874 84,699 83,709 ======= ======= ======= ======= Table #3 Depreciation and amortization Depreciation and amortization included in direct costs: Laboratory $ 1,065 $ 863 $ 2,122 $ 1,750 Animal hospital 3,543 2,888 7,049 5,614 Medical technology 289 278 607 556 Intercompany (37) (16) (68) (16) ------- ------- ------- ------- 4,860 4,013 9,710 7,904 Depreciation and amortization included in selling, general and administrative expense 569 430 1,141 881 ------- ------- ------- ------- Total depreciation and amortization $ 5,429 $ 4,443 $10,851 $ 8,785 ======= ======= ======= ======= VCA Antech, Inc. Supplemental Operating Data - Continued As of June 30, 2006 and December 31, 2005 (Unaudited - In Thousands) Table #4 Selected consolidated balance sheet June 30, December 31, data 2006 2005 ---------------- --------------- Debt: Revolving credit facility $ - $ - Senior term notes 374,565 436,613 Other debt and capital leases 18,783 16,099 --------------- -------------- Total debt $ 393,348 $ 452,712 =============== ============== For the Three and Six Months Ended June 30, 2006 and 2005 (Unaudited - In Thousands) For the Three For the Six Months Months Table #5 Ended June 30, Ended June 30, --------------- ----------------- Selected expense data 2006 2005 2006 2005 ------ ------ ------- ------- Rent expense $7,905 $6,284 $15,604 $12,389 Share-based compensation included in: Lab direct costs $ 160 $ - $ 320 $ - Lab SG&A 126 - 254 - Animal hospital SG&A 216 - 431 - Corporate SG&A 167 - 440 - ------ ------ ------- ------- Total share-based compensation $ 669 $ - $ 1,445 $ - ====== ====== ======= ======= CONTACT: VCA Antech, Inc. Tom Fuller, 310-571-6505