LOS ANGELES--(BUSINESS WIRE)--July 24, 2014--VCA Inc. (NASDAQ: WOOF), a leading animal healthcare company in the United States and Canada, today reported financial results for the second quarter ended June 30, 2014, as follows: revenue increased 5.2% to a second quarter record of $489.5 million; gross profit increased 5.4% to $120.4 million; operating income increased 5.6% to $79.9 million; net income increased 9.4% to $45.6 million and diluted earnings per common share increased 10.9% to $0.51. Non-GAAP earnings per diluted common share excluding acquisition-related amortization ("Adjusted EPS Excluding Amortization") increased 10.0% to $0.55 for the three months ended June 30, 2014. The increase in our earnings per share was aided by our share buyback program.

For the six months ended June 30, 2014 and 2013, diluted earnings per share was $0.89 and $0.81, respectively. Adjusted EPS Excluding Amortization was $0.96 and $0.90 for the six months ended June 30, 2014 and 2013, respectively. The adjusted diluted earnings per share for the six months ended June 30, 2013, excludes $3.8 million of pre-tax charges related to vacated properties. The operations of two animal hospitals we vacated were consolidated into the newly constructed, VCA West Los Angeles Animal Hospital in the prior year.

Bob Antin, Chairman and CEO, stated, "We are very pleased with the increase in our organic revenue growth rates and related margin improvement in both our core Animal Hospital and Laboratory business segments. Accordingly, we remain optimistic with respect to our results for the second half of the year.

"Animal Hospital revenue in the current quarter increased 5.9%, to $386.8 million, driven by acquisitions made during the past 12 months and same-store revenue growth of 2.2%. Our same-store gross profit margin increased to 16.8% from 16.6%, while our total gross margin decreased slightly to 16.4%, from 16.5% in the prior-year quarter. The following margins are adjusted excluding amortization: adjusted same-store gross profit margin increased to 17.7%, from 17.4% in the prior-year quarter; adjusted total gross margin increased to 17.4%, from 17.3% in the prior-year quarter; adjusted operating margin decreased to 14.8%, from 14.9% in the prior-year quarter. During the quarter, we acquired six independent animal hospitals which had historical combined annual revenue of $12.1 million.

"Laboratory internal revenue in the second quarter increased 5.0%, to $95.8 million. Our Laboratory gross profit margin increased to 51.2% from 49.6%, and our operating margin increased as well to 42.5%, from 40.8% in the prior-year quarter. Excluding amortization expense, our adjusted Laboratory gross profit margin increased to 51.4%, from 49.8% in the prior-year quarter, and our adjusted operating margin likewise increased to 42.8%, from 41.1% in the prior-year quarter.

"Revenue from our other operations reported in our All Other segment decreased to $23.7 million, from $27.5 million in the prior-year quarter. Sound-Eklin, our medical technology business included in this segment, was negatively impacted by the May 2014 fire, which destroyed their offices and manufacturing facility. We are grateful for the support of our clients, VCA family and friends in the veterinary industry as we work to bring their operations back to normal."

We believe investors’ understanding of our total performance is enhanced by disclosing adjusted net income, adjusted diluted earnings per common share and Adjusted EPS Excluding Amortization. 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."

We will discuss our second quarter 2014 financial results during a conference call today, July 24^th, at 4:30 p.m. Eastern Time. A live broadcast of the call may be accessed by visiting our website at investor.vcaantech.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.

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 2014 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.

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 Ended						Six Months Ended
	June 30,						June 30,
		2014			2013			2014			2013
Revenue:
Animal hospital	$	386,776		$	365,205		$	738,364		$	705,820
Laboratory		95,955			91,230			184,489			178,565
All other		23,712			27,472			51,833			55,995
Intercompany		(16,971	)		(18,652	)		(35,707	)		(36,519	)
		489,472			465,255			938,979			903,861

Direct costs		369,057			350,961			717,113			692,644

Gross profit:
Animal hospital		63,336			60,113			112,136			105,312
Laboratory		49,092			45,226			92,123			87,691
All other		7,648			9,423			17,617			19,057
Intercompany		339			(468	)		(10	)		(843	)
		120,415			114,294			221,866			211,217

Selling, general and administrative expense:
Animal hospital		9,864			8,720			18,992			17,045
Laboratory		8,281			7,965			16,299			15,970
All other		7,411			8,041			15,759			16,955
Corporate		14,375			14,297			30,321			28,899
		39,931			39,023			81,371			78,869

Net loss (gain) on sale or disposal of assets		578			(430	)		(643	)		1,296
Operating income		79,906			75,701			141,138			131,052
Interest expense, net		4,030			5,658			8,197			9,965
Other expense (income)		43			(18	)		(10	)		(27	)
Income before provision for income taxes		75,833			70,061			132,951			121,114
Provision for income taxes		28,925			26,601			51,128			45,831
Net income		46,908			43,460			81,823			75,283
Net income attributable to noncontrolling interests		1,324			1,798			2,196			3,136
Net income attributable to VCA Inc.	$	45,584		$	41,662		$	79,627		$	72,147

Diluted earnings per share	$	0.51		$	0.46		$	0.89		$	0.81

Weighted-average shares outstanding for diluted earnings per share		89,191			89,653			89,312			89,531


VCA Inc.
Condensed, Consolidated Balance Sheets
(Unaudited)
(In thousands)

	June 30,			December 31,
		2014			2013
Assets
Current assets:
Cash and cash equivalents	$	122,535		$	125,029
Trade accounts receivable, net		65,979			59,900
Inventory		42,483			55,067
Prepaid expenses and other		39,921			25,417
Deferred income taxes		28,908			28,907
Prepaid income taxes		9,369			15,434
Total current assets		309,195			309,754
Property and equipment, net		445,199			448,366
Other assets:
Goodwill		1,355,396			1,330,917
Other intangible assets, net		82,746			86,671
Notes receivable		3,199			3,454
Deferred financing costs, net		2,383			2,987
Other		61,120			55,632
Total assets	$	2,259,238		$	2,237,781
Liabilities and Equity
Current liabilities:
Current portion of long-term debt	$	50,808		$	51,087
Accounts payable		43,827			36,962
Accrued payroll and related liabilities		61,192			57,337
Other accrued liabilities		53,168			58,762
Total current liabilities		208,995			204,148
Long-term debt, less current portion		542,978			568,558
Deferred income taxes		100,219			100,099
Other liabilities		36,505			36,758
Total liabilities		888,697			909,563
Redeemable noncontrolling interests		10,984			10,678
VCA Inc. stockholders’ equity:
Common stock		87			89
Additional paid-in capital		346,792			384,721
Retained earnings		1,008,347			928,720
Accumulated other comprehensive loss		(6,852	)		(6,190	)
Total VCA Inc. stockholders’ equity		1,348,374			1,307,340
Noncontrolling interests		11,183			10,200
Total equity		1,359,557			1,317,540
Total liabilities and equity	$	2,259,238		$	2,237,781


VCA Inc.
Condensed, Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)

	Six Months Ended
	June 30,
		2014			2013
Cash flows from operating activities:
Net income	$	81,823		$	75,283
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		39,797			37,739
Amortization of debt issue costs		604			626
Provision for uncollectible accounts		2,612			3,364
Net (gain) loss on sale or disposal of assets		(643	)		1,296
Share-based compensation		8,571			7,419
Deferred income taxes		—			2,868
Excess tax benefit from exercise of stock options		(2,092	)		(771	)
Other		(53	)		(384	)
Changes in operating assets and liabilities:
Trade accounts receivable		(8,945	)		(17,709	)
Inventory, prepaid expense and other assets		(6,610	)		(470	)
Accounts payable and other accrued liabilities		1,171			4,329
Accrued payroll and related liabilities		3,816			1,886
Income taxes		8,062			12,595
Net cash provided by operating activities		128,113			128,071
Cash flows from investing activities:
Business acquisitions, net of cash acquired		(29,271	)		(21,835	)
Real estate acquired in connection with business acquisitions		(1,493	)		(510	)
Property and equipment additions		(27,979	)		(33,095	)
Proceeds from sale of assets		4,456			595
Other		55			(1,042	)
Net cash used in investing activities		(54,232	)		(55,887	)
Cash flows from financing activities:
Repayment of debt		(26,218	)		(17,442	)
Distributions to non-controlling interest partners		(2,259	)		(2,234	)
Purchase of non-controlling interest		(326	)		(5,030	)
Proceeds from issuance of common stock under stock option plans		467			4,181
Excess tax benefit from exercise of stock options		2,092			771
Repurchase of common stock		(49,091	)		(7,956	)
Other		(838	)		(99	)
Net cash used in financing activities		(76,173	)		(27,809	)
Effect of currency exchange rate changes on cash and cash equivalents		(202	)		(540	)
(Decrease) increase in cash and cash equivalents		(2,494	)		43,835
Cash and cash equivalents at beginning of period		125,029			68,435
Cash and cash equivalents at end of period	$	122,535		$	112,270


VCA Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)

Table #1
Reconciliation of net income attributable to	Three Months Ended June 30,				Six Months Ended June 30,
VCA Inc., to adjusted net income attributable	Three Months Ended June 30,				Six Months Ended June 30,
to VCA Inc., excluding amortization ⁽¹⁾	2014		2013		2014			2013

Net income attributable to VCA Inc.	$	45,584	$	41,662	$	79,627	$	72,147
Vacant property adjustments ⁽²⁾		—		—		—		3,804
Tax benefit from vacant property adjustments ⁽²⁾		—		—		—		(1,489	)

Adjusted net income attributable to VCA Inc.	$	45,584	$	41,662	$	79,627	$	74,462
Impact of intangible asset amortization associated with acquisitions, net of tax ⁽³⁾		3,181		3,360		6,314		6,430
Adjusted net income attributable to VCA Inc., excluding amortization	$	48,765	$	45,022	$	85,941	$	80,892

Table #2	Three Months Ended June 30,				Six Months Ended June 30,
Reconciliation of diluted earnings per share to	Three Months Ended June 30,				Six Months Ended June 30,
adjusted diluted earnings per share, excluding amortization ⁽¹⁾	2014		2013		2014			2013

Diluted earnings per share	$	0.51	$	0.46	$	0.89	$	0.81
Impact of vacant property adjustments, net of tax ⁽²⁾		—		—		—		0.03

Adjusted Earnings per share ⁽⁴⁾	$	0.51	$	0.46	$	0.89	$	0.83
Impact of intangible asset amortization associated with acquisitions, net of tax ⁽³⁾		0.04		0.04		0.07		0.07
Adjusted diluted earnings per share excluding amortization ⁽³⁾	$	0.55	$	0.50	$	0.96	$	0.90

Shares used for computing adjusted diluted earnings per share		89,191		89,653		89,312		89,531


VCA Inc.
Supplemental Operating Data
(Unaudited - In thousands, except per share amounts)

Table #3	Three Months Ended June 30,					Six Months Ended June 30,
Reconciliation of gross profit to	Three Months Ended June 30,					Six Months Ended June 30,
adjusted gross profit, excluding amortization ⁽¹⁾		2014		2013			2014		2013

Consolidated gross profit	$	120,415	$	114,294		$	221,866		211,217
Impact of vacant property adjustments ⁽²⁾		—		—			—		2,046
Impact of rent expense adjustments ⁽⁵⁾		—		(1,396	)		—		(1,396	)
Consolidated adjusted gross profit	$	120,415	$	112,898		$	221,866	$	211,867
Consolidated adjusted gross profit margin	24.6%		24.3%			23.6%		23.4%
Intangible asset amortization associated with acquisitions ⁽³⁾		5,160		5,452			10,240		10,515
Consolidated adjusted gross profit excluding amortization	$	125,575	$	118,350		$	232,106	$	222,382
Consolidated adjusted gross profit margin excluding amortization	25.7%		25.4%			24.7%		24.6%

Table #4	Three Months Ended June 30,					Six Months Ended June 30,
Reconciliation of operating income to	Three Months Ended June 30,					Six Months Ended June 30,
adjusted operating income, excluding amortization ⁽¹⁾		2014		2013			2014		2013

Consolidated operating income	$	79,906	$	75,701		$	141,138	$	131,052
Impact of vacant property adjustments ⁽²⁾		—		—			—		3,804
Impact of rent expense adjustments ⁽⁵⁾		—		(1,396	)		—		(1,396	)
Consolidated adjusted operating income	$	79,906	$	74,305		$	141,138	$	133,460
Consolidated adjusted operating income margin	16.3%		16.0%			15.0%		14.8%
Intangible asset amortization associated with acquisitions ⁽³⁾		5,227		5,521			10,374		10,565
Consolidated adjusted operating income excluding amortization	$	85,133	$	79,826		$	151,512	$	144,025
Consolidated adjusted operating income margin excluding amortization	17.4%		17.2%			16.1%		15.9%

_________________________________________________
⁽¹⁾		Management uses adjusted net income excluding acquisition-related amortization, adjusted EPS excluding amortization, adjusted gross profit excluding acquisition-related amortization and adjusted operating income excluding acquisition-related amortization and its components among other factors, to measure the performance of the overall Company. Further, we believe that investors' understanding of our performance is enhanced by disclosing these measures. Adjusted net income excluding acquisition-related amortization, adjusted EPS excluding amortization, consolidated adjusted gross profit excluding acquisition-related amortization, consolidated adjusted operating income excluding acquisition-related amortization measures are not, and should not be viewed as substitutes for U.S. generally accepted accounting principles (GAAP) net income and its components and diluted earnings per share.

⁽²⁾		During the first quarter of 2013, we recorded a write-down to net realizable value of $1.8 million related to a vacant property that is held for sale, and we accrued costs totaling $2.0 million related to a vacant leased property.

⁽³⁾		In the first quarter of 2013, we began to report Adjusted EPS Excluding Amortization to exclude acquisition-related amortization, and other infrequent charges and credits. We believe Adjusted EPS Excluding Amortization will provide our investors with better insight into the operating performance of the business.

⁽⁴⁾		Amounts may not add due to rounding.

⁽⁵⁾		In the second quarter of 2013, we recorded a reduction in rent expense as a result of a capital lease that was previously treated as an operating lease in our Animal Hospital segment.


VCA Inc.
Supplemental Operating Data (cont)
(Unaudited - In thousands, except per share amounts)

							As of
							June 30,			December 31,
Table #5							2014			2013
Selected consolidated balance sheet data
Debt:
Senior term notes							$	533,242		$	556,914
Other debt and capital leases								60,544			62,731
Total debt							$	593,786		$	619,645

	Three Months Ended June 30,						Six Months Ended June 30,
Table #6	Three Months Ended June 30,						Six Months Ended June 30,
Selected expense data		2014			2013			2014			2013

Rent expense	$	16,879		$	15,162		$	33,808		$	33,787

Depreciation and amortization included in direct costs:
Animal hospital	$	14,955		$	14,462		$	29,529		$	27,641
Laboratory		2,543			2,569			5,059			5,055
All other		1,671			1,103			3,402			2,344
Intercompany		(473	)		(446	)		(938	)		(885	)
	$	18,696		$	17,688		$	37,052		$	34,155
Depreciation and amortization included in selling, general and administrative expense		1,334			1,812			2,745			3,584
Total depreciation and amortization	$	20,030		$	19,500		$	39,797		$	37,739

Share-based compensation included in direct costs:
Laboratory	$	133		$	109		$	283		$	218

Share-based compensation included in selling, general and administrative expense:
Animal hospital		424			402			941			1,043
Laboratory		352			307			733			606
All other		191			186			373			372
Corporate		2,927			2,645			6,241			5,180
		3,894			3,540			8,288			7,201
Total share-based compensation	$	4,027		$	3,649		$	8,571		$	7,419

July 24, 2014	VCA Inc.



	/s/ Tomas W. Fuller
	By:	Tomas W. Fuller
	Its:	Chief Financial Officer

Exhibits

99.1		Press release dated July 24, 2014, regarding earnings for the second quarter of fiscal year 2014.