Covetrus Announces Financial Results for First Quarter of 2019

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PORTLAND, Maine, May 15, 2019 (GLOBE NEWSWIRE) -- Covetrus (Nasdaq: CVET), a global leader in animal-health technology and services, today announced financial results for the first quarter of 2019, which ended March 31, 2019.  On February 7, 2019, Covetrus became an independent company through the consummation of the spin-off by Henry Schein of its Animal Health business and the completion of its merger with Vets First Choice.  On February 8, 2019, Covetrus began trading on the Nasdaq Stock Market under the ticker symbol “CVET.”

"We had a strong launch of Covetrus during the first quarter, accomplishing a significant amount of work in just three months since our formation," said Benjamin Shaw, Covetrus’ president and chief executive officer. "At Covetrus, we put the veterinarian at the center of everything we do, offering a compelling value proposition for our more than 100,000 veterinary practice customers across the globe. While we are early in our journey, we are excited about our platform of capabilities, strong global market position, passionate and complementary teams and the progress we have made on delivering on our core long-term strategic growth drivers."

* Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for non-GAAP financial items to the most directly comparable GAAP financial items are provided under 

Results provided in accordance with Generally Accepted Accounting Principles in the United States of America (US GAAP) reflect the operations of Animal Health from January 1, 2019 to March 31, 2019 and Vets First Choice for the period from February 8, 2019 to March 31, 2019.  To aid investors and analysts with year-over-year comparability for the combined businesses of Animal Health and Vets First Choice, Covetrus is including certain non-GAAP pro forma financial information that combines the stand-alone Animal Health and Vets First Choice financial information as if the acquisition had taken place on December 31, 2017. Non-GAAP adjusted results exclude costs directly associated with the spin-off and mergers, the ongoing integration process and other one-time charges. Prior year non-GAAP adjusted results include allocations for direct costs and indirect costs which were attributed to the Animal Health business of Henry Schein whereas 2019 non-GAAP adjusted results are based on a direct cost associated with our standalone operations and not allocations. The tables in at the end of this press release provide reconciliations from GAAP to Non-GAAP pro forma and Non-GAAP adjusted results.

Revenue for the first quarter of 2019 was $941 million, down 1% compared to the first quarter of 2018, with the contribution from Vets First Choice offset by negative foreign exchange fluctuations year-over-year. Non-GAAP pro forma revenue, which includes full quarter results from Vets First Choice in both periods, was $965 million, down 3% from the first quarter of 2018.  Non-GAAP pro forma organic revenue growth was up 3%, which excludes the impact of foreign exchange fluctuations and normalizes for revenue recognition adjustments for manufacturer switches from direct to agency sales in the United States.

Non-GAAP pro forma organic revenue growth in the first quarter of 2019 was driven by strength in prescription management in North America and strong performance across Europe, offset by slightly lower North American market growth, including the negative impact of weather earlier in the quarter, and a modest decline in APAC and Emerging Markets.  Our organic growth includes two known headwinds prior to the merger closing – the previously announced loss of a large customer in North America and the loss of a manufacturer relationship in the fourth quarter of 2018 in APAC. These two events are included in our GAAP results and negatively impacted non-GAAP pro forma organic revenue growth by more than 1% in the first quarter of 2019.

Loss before taxes for the first quarter of 2019 was $(18) million versus income before taxes of $34 million in the prior period.  Net loss attributable to Covetrus was $(13) million or $(0.14) per diluted share, which compared to net income of $23 million in the first quarter of 2018.  The primary driver of the decline in net income year-over-year was a result of the impact from the spin-off and merger, including incremental amortization of intangibles assets, stock-based compensation and interest expense associated with our debt financing in February.

Non-GAAP adjusted EBITDA was $52 million for the first quarter of 2019 versus $54 million in the prior year quarter. A decline in North America, including the impact of Vets First Choice, and a $2 million FX headwind negatively impacted year-over-year results during Q1. Normalizing for a full-quarter ownership of Vets First Choice in both periods, Non-GAAP pro forma adjusted EBITDA was $50 million in the first quarter of 2019 vs. $52 million in the prior year. Excluding the impact from foreign exchange fluctuations, non-GAAP pro forma adjusted EBITDA was relatively flat year-over-year in Q1 off a difficult comparison from the prior year, particularly in North America.

Non-GAAP pro forma adjusted net income was $13 million, which includes Vets First Choice in both periods and normalizes for certain one-time items as seen in the non-GAAP reconciliation, compared to $13 million in the prior year period, impacted by the same items above.

For the three months ended March 31, 2019, segment revenue increased 4% to  $497 million, driven by the inclusion of Vets First Choice. Normalizing for Vets First Choice in both periods and revenue recognition adjustments for manufacturer switches from direct to agency sales in the United States, non-GAAP pro forma organic revenue increased 2% year-over-year. A reclassification of rebate revenue negatively impacted organic growth by 1% and has not been adjusted for in Q1.  The major driver of the year-over-year Non-GAAP pro forma organic increase was strength in our Vets First Choice business, which ended 1Q19 with more than 8,000 practices on its prescription management technology and experienced 51% prescription management revenue growth during Q1 when normalized for business day variances. This strength offset lower market growth, including the impact from weather, and the headwind from a previously announced customer loss.  Enrollments on the Vets First Choice prescription management technology increased 18% year-over-year in Q1.

Covetrus used $39 million of net cash for operating activities in the first quarter of 2019.  Free cash flow, a non-GAAP financial measure that is defined as cash flow from operating activities less purchases of fixed assets, was negative $42 million.  Our cash flow performance in the first quarter was consistent with seasonality and compared to the negative $36 million in prior year.

At quarter end, the Company had $73 million in cash and cash equivalents, an untapped $300 million revolving credit facility and $1.2 billion in total debt.  Management believes Covetrus’ steady cash flows and ample liquidity provide substantial flexibility to manage the business, de-leverage the balance sheet over time and invest in further innovation.

“Our fiscal 2019 guidance reflects our early integration efforts and additional investments in innovation to accelerate our strategic priorities and capitalize on the momentum we have across our business,” said Christine T. Komola, executive vice president and chief financial officer. “We have made notable progress across multiple fronts since the merger closed and have been pleased by the pace of growth following our commercial launch as one integrated global team in March, reinforcing our conviction in our differentiated value proposition we bring to market and our ability to deliver double digit adjusted EBITDA growth long-term.”

The Company has not reconciled its non-GAAP pro forma adjusted EBITDA guidance to GAAP net income, because stock-based compensation expense, restructuring costs and other one-time items tied to formation of Covetrus, the reconciling items between such GAAP and non-GAAP financial measures, cannot be reasonably predicted due to the uncertainty and inherent difficultly predicting the occurrence, the financial impact, and the periods in which the non-GAAP adjustments may be recognized and therefore is not available without unreasonable effort.  For more information regarding the non-GAAP financial measures discussed in this release, please see the reconciliations of GAAP financial measures to non-GAAP financial measures and the section titled “Non-GAAP Financial Measures and Other Business Metrics” below.

The dial-in number for the live call will be 866-789-2492 for U.S./Canada participants, or 409-937-8901 for international participants. The conference passcode is 7556207.  The live call will also be webcast via the Company’s website at . Users are encouraged to log on to the webcast approximately 10 minutes in advance of the scheduled start time of the call.

Replays of the call will be made available via telephone and webcast. A replay of the webcast will be posted on  approximately two hours after the completion of the call and will remain available for 30 days. The telephone replay will also be available approximately two hours after the completion of the call and will remain available for 14 days. To access the telephone replay from within the U.S., dial (855) 859-2056. From outside the U.S., dial (404) 537-3406. The access code for the replay is 7556207.

Audio webcasts will be available live and archived on the company’s Investor Relations website at .  A complete listing of upcoming events for the investment community is available on the company’s Investor Relations website.

The following tables reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.  Covetrus management believes that these non-GAAP financial measures provide useful additional information to investors regarding Covetrus’ results of operations as they provide another measure of Covetrus’ profitability and ability to service its debt and are considered important to financial analysts covering Covetrus’ industry.

These non-GAAP financial measures have limitations as an analytic tool and should not be considered in isolation or as a substitute for income from operations, net income or any other measure of financial performance reported in accordance with GAAP.  Covetrus’ non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows.  When analyzing Covetrus’ performance, it is important to evaluate each adjustment in the reconciliation tables and use adjusted measures in addition to, and not as an alternative to, GAAP measures.

Pro forma organic revenue growth is a non-GAAP measure that Covetrus uses to evaluate period-over-period financial performance.  We believe this non-GAAP financial metric provides useful information about our operating results, enhances the overall understanding of past financial performance and future prospects and is a useful measure for period-to-period comparisons of our business.  Pro forma organic revenue growth includes a full quarter of Vets First Choice in both periods, excludes the impact of foreign exchange fluctuations and normalizes for revenue recognition adjustments for manufacturer switches from direct to agency sales in the United States, which can impact year-over-year comparisons.

The following tables summarize non-GAAP pro forma revenue and non-GAAP pro forma organic growth for Covetrus and each reportable segment:

Kiní SchoopDirector, Public Relations207-550-8018

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Globe Newswire: 12:00 GMT Wednesday 15th May 2019

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