EX-99.1 2 a5257562ex991.txt VCA ANTECH, INC. EXHIBIT 99.1 Exhibit 99.1 VCA Antech, Inc. Reports Third Quarter Results LOS ANGELES--(BUSINESS WIRE)--Oct. 25, 2006--VCA Antech, Inc. (NASDAQ:WOOF): -- Third quarter revenue increased 9.8% to $251.6 million -- Third quarter gross profit increased 12.5% to $70.5 million -- Third quarter diluted earnings per common share increased 23.1% to $0.32 VCA Antech, Inc. (NASDAQ:WOOF), a leading animal healthcare company in the United States, today reported financial results for the quarter ended September 30, 2006, as follows: revenue increased 9.8% to a third quarter record of $251.6 million; gross profit increased 12.5% to $70.5 million; operating income increased 16.7% to $51.5 million; net income increased 21.2% to $27.0 million; and diluted earnings per common share increased 23.1% to $0.32. We also reported our financial results for the nine months ended September 30, 2006, as follows: revenue increased 19.0% to a nine-months record of $741.0 million; gross profit increased 20.1% to $208.9 million; operating income increased 20.6% to $151.8 million; net income was $86.2 million; and diluted earnings per common share was $1.02. 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 $0.13 per diluted common share, for debt retirement costs. Excluding these items from the nine months ended September 30, 2006 and 2005, adjusted net income increased 27.5% to $79.4 million and adjusted diluted earnings per common share increased 27.0% to $0.94. Bob Antin, Chairman and CEO, stated, "We had an excellent quarter. Our consolidated revenue increased 9.8% to $251.6 million and our consolidated margins improved over the comparable prior year quarter. Our consolidated gross profit increased 12.5% and our consolidated gross profit margin increased to 28.0% compared to 27.3% in the comparable prior year quarter. In addition, our consolidated operating income increased 16.7% and our consolidated operating income margin increased to 20.5% compared to 19.3% in the comparable prior year quarter. "Our laboratory revenue increased 16.8% to $66.1 million, our laboratory gross profit increased 19.7% and our laboratory gross profit margin increased to 45.4% compared to 44.3% in the comparable prior year quarter. Our laboratory operating income increased 19.7% and our laboratory operating income margin increased to 38.8% compared to 37.9% in the comparable prior year quarter. Laboratory internal revenue growth was 15.2% for the third quarter of 2006. "Our animal hospital revenue increased 9.4% to $183.6 million, our animal hospital gross profit increased 9.4% and our animal hospital gross profit margin of 20.4% was consistent with the prior comparable quarter. Our animal hospital operating income increased 7.5% and our operating income margin was 17.6% compared to 17.9% in the comparable prior year quarter. Our animal hospital same-store revenue growth was 4.8% for the third quarter of 2006 and our animal hospital same-store gross profit margin increased to 20.6% from 20.5% in the comparable prior year quarter. "Our medical technology revenue declined 15.5% to $9.0 million and our medical technology gross profit declined 7.8%, while our medical technology gross profit margin increased to 38.3% compared to 35.1% in the comparable prior year quarter. Our medical technology operating income was $892,000 compared to $908,000 reported in the third 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 nine months ended September 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 nine months ended September 30, 2005, the only item excluded in computing adjusted net income and adjusted diluted earnings per common share was debt retirement costs, net of tax in the amount of $11.5 million 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 third quarter 2006 financial results during a conference call today, October 25, 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 800-289-0544. 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. 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 June 30, 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 Nine Months Ended September 30, 2006 and 2005 (Unaudited - In Thousands, Except Per Share Amounts) Three Months Nine Months Ended September 30, Ended September 30, -------------------- -------------------- 2006 2005 2006 2005 ---------- --------- ---------- --------- Revenue: Laboratory $ 66,054 $ 56,555 $195,064 $168,271 Animal hospital 183,592 167,815 540,117 449,128 Medical technology 8,956 10,595 25,348 20,437 Intercompany (6,970) (5,723) (19,567) (15,147) ---------- --------- ---------- --------- 251,632 229,242 740,962 622,689 ---------- --------- ---------- --------- Direct costs 181,167 166,598 532,014 448,783 Gross profit: Laboratory 30,013 25,077 91,087 76,324 Animal hospital 37,460 34,244 109,708 91,796 Medical technology 3,426 3,714 9,072 6,411 Intercompany (434) (391) (919) (625) ---------- --------- ---------- --------- 70,465 62,644 208,948 173,906 ---------- --------- ---------- --------- Selling, general and administrative: Laboratory 4,350 3,636 12,793 10,347 Animal hospital 5,161 4,072 15,107 11,582 Medical technology 2,534 2,806 7,734 6,295 Corporate 6,901 7,880 21,681 19,719 ---------- --------- ---------- --------- 18,946 18,394 57,315 47,943 ---------- --------- ---------- --------- Loss (gain) on sale of assets 3 115 (200) 27 ---------- --------- ---------- --------- Operating income 51,516 44,135 151,833 125,936 Interest expense, net 6,084 6,034 18,323 18,782 Other (income) expense 73 (130) (24) 1 Minority interest expense 846 778 2,520 2,309 Debt retirement costs - - - 19,282 ---------- --------- ---------- --------- Income before provision for income taxes 44,513 37,453 131,014 85,562 Provision for income taxes 17,536 15,196 44,825 34,797 ---------- --------- ---------- --------- Net income $ 26,977 $ 22,257 $ 86,189 $ 50,765 ========== ========= ========== ========= Diluted earnings per common share $ 0.32 $ 0.26 $ 1.02 $ 0.61 ========== ========= ========== ========= Shares used for computing diluted earnings per common share 85,187 84,019 84,864 83,818 ========== ========= ========== ========= VCA ANTECH, INC. CONSOLIDATED BALANCE SHEETS As of September 30, 2006 and December 31, 2005 (Unaudited - In thousands) September 30, December 31, 2006 2005 ---------------- --------------- ASSETS Current assets: Cash and cash equivalents $ 32,821 $ 58,488 Trade accounts receivable, net 41,091 36,104 Inventory 20,483 17,856 Prepaid expenses and other 12,315 9,867 Deferred income taxes 11,850 10,972 Prepaid income taxes 18,235 12,337 ---------------- --------------- Total current assets 136,795 145,624 Property and equipment, net 159,287 143,781 Other assets: Goodwill 615,784 586,444 Other intangible assets, net 15,006 10,735 Deferred financing costs, net 1,041 1,340 Other 10,459 9,149 ---------------- --------------- Total assets $ 938,372 $ 897,073 ================ =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $ 6,620 $ 5,884 Accounts payable 18,021 20,718 Accrued payroll and related liabilities 28,203 30,131 Accrued interest 314 306 Other accrued liabilities 28,778 23,930 ---------------- --------------- Total current liabilities 81,936 80,969 Long-term obligations, less current portion 385,403 446,828 Deferred income taxes 38,267 30,803 Other liabilities 13,975 19,775 Minority interest 10,181 9,947 Stockholders' equity: Common stock 83 83 Additional paid-in capital 272,603 258,402 Retained earnings 135,246 49,057 Accumulated other comprehensive income 678 1,209 ---------------- --------------- Total stockholders' equity 408,610 308,751 ---------------- --------------- Total liabilities and stockholders' equity $ 938,372 $ 897,073 ================ =============== VCA ANTECH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 2006 and 2005 (Unaudited - In thousands) Nine Months Ended September 30, -------------------------------- 2006 2005 ---------------- --------------- Cash flows from operating activities: Net income $ 86,189 $ 50,765 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 16,347 13,947 Amortization of debt costs 299 482 Provision for uncollectible accounts 4,174 2,996 Debt retirement costs - 19,282 Loss (gain) on sale of assets (200) 27 Share-based compensation 2,326 - Minority interest in income of subsidiaries 2,520 2,309 Distributions to minority interest partners (2,439) (1,968) Deferred income taxes 7,222 4,029 Excess tax benefit from exercise of stock options (5,774) - Other (750) (337) Changes in operating assets and liabilities: Increase in accounts receivable (8,500) (7,009) Increase in inventory, prepaid expenses and other assets (6,816) (5,796) Increase (decrease) in accounts payable and other accrued liabilities (2,507) 4,439 Decrease in accrued payroll and related liabilities (1,928) (3,862) Increase (decrease) in accrued interest 8 (1,251) Decrease in prepaid income taxes 567 13,161 ---------------- --------------- Net cash provided by operating activities 90,738 91,214 ---------------- --------------- Cash flows from investing activities: Business acquisitions, net of cash acquired (37,612) (83,702) Real estate acquired in connection with business acquisitions (2,872) (2,929) Property and equipment additions (23,800) (22,725) Proceeds from sale of assets 533 368 Other 268 3,540 ---------------- --------------- Net cash used in investing activities (63,483) (105,448) ---------------- --------------- Cash flows from financing activities: Repayment of long-term obligations (64,106) (445,721) Proceeds from the issuance of long- term obligations - 475,000 Payment of financing costs - (3,257) Proceeds from issuance of common stock under stock option plans 5,410 1,749 Excess tax benefit from exercise of stock options 5,774 - ---------------- --------------- Net cash provided by (used in) financing activities (52,922) 27,771 ---------------- --------------- Increase (decrease) in cash and cash equivalents (25,667) 13,537 Cash and cash equivalents at beginning of period 58,488 30,964 ---------------- --------------- Cash and cash equivalents at end of period $ 32,821 $ 44,501 ================ =============== VCA Antech, Inc. Supplemental Operating Data For the Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited - In Thousands, Except Per Share Amounts) Three Months Nine Months Ended September 30, Ended September 30, ------------------- ------------------- 2006 2005 2006 2005 ---------- -------- -------- ---------- Table #1 Reconciliation of net income to adjusted net income Net income $ 26,977 $22,257 $86,189 $ 50,765 Certain significant items: Tax benefit - - (6,806) - Debt retirement costs, net of tax - - - 11,517 ---------- -------- -------- ---------- Adjusted net income $ 26,977 $22,257 $79,383 $ 62,282 ========== ======== ======== ========== Table #2 Reconciliation of diluted earnings per common share to adjusted diluted earnings per common share Diluted earnings per common share $ 0.32 $ 0.26 $ 1.02 $ 0.61 Certain significant items as detailed in Table #1 - - (0.08) 0.13 ---------- -------- -------- ---------- Adjusted diluted earnings per common share $ 0.32 $ 0.26 $ 0.94 $ 0.74 ========== ======== ======== ========== Shares used for computing adjusted diluted earnings per common share 85,187 84,019 84,864 83,818 ========== ======== ======== ========== Table #3 Depreciation and amortization Depreciation and amortization included in direct costs: Laboratory $ 1,206 $ 1,010 $ 3,328 $ 2,760 Animal hospital 3,531 3,363 10,580 8,977 Medical technology 284 276 891 832 Intercompany (41) (20) (109) (36) ---------- -------- -------- ---------- 4,980 4,629 14,690 12,533 Depreciation and amortization included in selling, general and administrative expense 516 533 1,657 1,414 ---------- -------- -------- ---------- Total depreciation and amortization $ 5,496 $ 5,162 $16,347 $ 13,947 ========== ======== ======== ========== VCA Antech, Inc. Supplemental Operating Data - Continued As of September 30, 2006 and December 31, 2005 (Unaudited - In Thousands) September 30, December 31, 2006 2005 ---------------- --------------- Table #4 Selected consolidated balance sheet data Debt: Revolving credit facility $ - $ - Senior term notes 373,616 436,613 Other debt and capital leases 18,407 16,099 ---------------- --------------- Total debt $ 392,023 $ 452,712 ================ =============== For the Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited - In Thousands) For the Three Months For the Nine Months Ended September 30, Ended September 30, --------------------- ------------------- 2006 2005 2006 2005 ----------- --------- ---------- -------- Table #5 Selected expense data Rent expense $ 8,095 $ 7,484 $ 23,699 $19,873 Share-based compensation included in direct costs: Laboratory $ 172 $ - $ 492 $ - Share-based compensation included in selling, general and administrative expense: Laboratory 128 - 382 - Animal hospital 376 - 807 - Corporate 205 - 645 - ----------- --------- ---------- -------- 709 - 1,834 - ----------- --------- ---------- -------- Total share-based compensation $ 881 $ - $ 2,326 $ - =========== ========= ========== ======== CONTACT: VCA Antech, Inc. Tom Fuller, Chief Financial Officer, 310-571-6505