Covetrus (CVET) 10-Q 5 May 22 2022 Q1 Quarterly report Financial data

Cover

Cover - shares	3 Months Ended
	Mar. 31, 2022	Apr. 29, 2022
Entity [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2022
Document Transition Report	false
Entity File Number	001-38794
Entity Registrant Name	COVETRUS, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	83-1448706
Entity Address, Address Line One	7 Custom House Street
Entity Address, City or Town	Portland
Entity Address, State or Province	ME
Entity Address, Postal Zip Code	04101
City Area Code	888
Local Phone Number	280-2221
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	CVET
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		139,405,751
Amendment Flag	false
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2022
Entity Central Index Key	0001752836
Current Fiscal Year End Date	--12-31

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 117	$ 183
Accounts receivable, net of allowance of $4 and $4	538	480
Inventories, net	630	583
Other receivables	89	75
Prepaid expenses and other	43	30
Total current assets	1,417	1,351
Non-current assets:
Property and equipment, net of accumulated depreciation of $142 and $135	147	144
Operating lease right-of-use assets, net	138	137
Goodwill	1,267	1,247
Other intangibles, net of accumulated amortization of $479 and $451	414	439
Investments	48	49
Other non-current assets	39	43
Total assets	3,470	3,410
Current liabilities:
Accounts payable	507	442
Current maturities of long-term debt and other borrowings	52	32
Accrued payroll and related liabilities	52	63
Accrued taxes	19	24
Accrued expenses and other current liabilities	132	137
Total current liabilities	762	698
Non-current liabilities:
Long-term debt and other borrowings, net	995	1,014
Deferred income taxes	12	13
Other liabilities	151	151
Total liabilities	1,920	1,876
Commitments and contingencies (Note 5)
Mezzanine equity:
Redeemable non-controlling interests	22	23
Shareholders' equity:
Common stock	1	1
Accumulated other comprehensive loss (Note 8)	(81)	(79)
Additional paid-in capital	2,691	2,670
Accumulated deficit	(1,083)	(1,081)
Total shareholders’ equity	1,528	1,511
Total liabilities, mezzanine equity, and shareholders’ equity	$ 3,470	$ 3,410
Common stock, shares authorized (in shares)	675,000,000	675,000,000
Common stock, shares outstanding (in shares)	139,143,360	138,011,969
Common stock, shares issued (in shares)	139,143,360	138,011,969

CONDENSED CONSOLIDATED BALANC_2

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - Parenthetical - USD ($) $ in Millions	Mar. 31, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Accounts receivable, reserves	$ 4	$ 4
Property and equipment, accumulated depreciation	142	135
Other intangibles, accumulated amortization	$ 479	$ 451
Common stock, par value (in usd per share)	$ 0.01	$ 0.01

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Income Statement [Abstract]
Net sales	$ 1,148	$ 1,102
Cost of sales	923	892
Gross profit	225	210
Operating expenses:
Selling, general and administrative	219	213
Operating income (loss)	6	(3)
Other income (expense):
Interest expense, net	(7)	(9)
Other, net	2	0
Income (loss) before taxes	1	(12)
Less: Income tax (benefit) expense	(3)	(4)
Net income (loss)	(2)	(16)
Net (income) loss attributable to non-controlling interests	0	0
Net income (loss) attributable to Covetrus	$ (2)	$ (16)
Earnings (loss) per share: (Note 4)
Basic (in usd per share)	$ (0.02)	$ (0.11)
Diluted (in usd per share)	$ (0.02)	$ (0.11)
Weighted-average common shares outstanding:
Basic (in shares)	138	136
Diluted (in shares)	138	136

CONDENSED CONSOLIDATED STATEM_2

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (2)	$ (16)
Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)	(2)	(11)
Gain (loss) on derivative instruments	0	2
Total other comprehensive income (loss)	(2)	(9)
Comprehensive income (loss)	(4)	(25)
Comprehensive (income) loss attributable to non-controlling interests:
Net (income) loss	0	0
Foreign currency translation (gain) loss	0	(1)
Comprehensive (income) loss attributable to non-controlling interests	0	(1)
Comprehensive income (loss) attributable to Covetrus	$ (4)	$ (26)

CONDENSED CONSOLIDATED STATEM_3

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Millions	Total	Common Stock	Accumulated Other Comprehensive Income (Loss)	Additional Paid-in Capital	Accumulated Deficit
Beginning balance (in shares) at Dec. 31, 2020		136,017,964
Beginning balance at Dec. 31, 2020	$ 1,537	$ 1	$ (66)	$ 2,629	$ (1,027)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to Covetrus	(16)				(16)
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes (in shares)		324,072
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes	(3)			(3)
Share-based compensation	11			11
Other comprehensive income (loss)	(9)		(9)
Ending balance (in shares) at Mar. 31, 2021		136,342,036
Ending balance at Mar. 31, 2021	$ 1,520	$ 1	(75)	2,637	(1,043)
Beginning balance (in shares) at Dec. 31, 2021	138,011,969	138,011,969
Beginning balance at Dec. 31, 2021	$ 1,511	$ 1	(79)	2,670	(1,081)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss) attributable to Covetrus	(2)				(2)
Issuance of shares in connection with the Acquisition (in shares)		573,365
Issuance of shares in connection with acquisitions	10			10
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes (in shares)		558,026
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes	(2)			(2)
Share-based compensation	13			13
Other comprehensive income (loss)	$ (2)		(2)
Ending balance (in shares) at Mar. 31, 2022	139,143,360	139,143,360
Ending balance at Mar. 31, 2022	$ 1,528	$ 1	$ (81)	$ 2,691	$ (1,083)

CONDENSED CONSOLIDATED STATEM_4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Cash flows from operating activities:
Net income (loss)	$ (2)	$ (16)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	40	43
Amortization of right-of-use assets	8	3
Share-based compensation expense	13	11
Benefit for deferred income taxes	1	(3)
Amortization of debt issuance costs	1	1
Other	0	3
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(57)	(18)
Inventories, net	(44)	(33)
Other assets and liabilities	(43)	(49)
Accounts payable and accrued expenses	50	1
Net cash provided by (used for) operating activities	(33)	(57)
Cash flows from investing activities:
Investments in property, equipment, and software	(11)	(15)
Payments related to equity investments and business acquisitions, net of cash acquired	(18)	0
Net cash provided by (used for) investing activities	(29)	(15)
Cash flows from financing activities:
Proceeds from revolving line of credit	112	0
Repayments of Lines of Credit	(112)	0
Proceeds from share-based awards	2	1
Tax payments related to share-based awards	(4)	(3)
Payments related to the buy-out of non-controlling interests in subsidiaries of Covetrus	(3)	(1)
Net cash provided by (used for) financing activities	(5)	(3)
Effect of exchange rate changes on cash and cash equivalents	1	(4)
Net change in cash and cash equivalents	(66)	(79)
Cash and cash equivalents, beginning of period	183	290
Cash and cash equivalents, end of period	117	211
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities	7	3
Common stock issued in business acquisition	$ 10	$ 0

Business Overview and Significa

Business Overview and Significant Accounting Policies	3 Months Ended
	Mar. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Business Overview and Significant Accounting Policies	1. BUSINESS OVERVIEW AND SIGNIFICANT ACCOUNTING POLICIES Business We are a global animal-health technology and services company dedicated to supporting the companion, equine, and large-animal veterinary markets. Basis of Presentation and Principles of Consolidation The unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022, have been prepared in accordance with applicable rules and regulations of the SEC for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Form 10-K filed with the SEC on February 28, 2022. The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. Intercompany transactions and balances are eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method. Certain prior period amounts were reclassified or rounded to conform to the presentation of the current period. Accounting Pronouncements • ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference LIBOR. The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. Our debt agreements that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. The banking syndicate associated with our Credit Facilities ceased using the 1-week and 2-month USD LIBOR at the end of 2021, and the other USD Tenors will cease June 30, 2023. We will continue to monitor, and, to the extent our Credit Facilities require amendment to reflect a replacement rate prior to December 31, 2022, we will evaluate the benefits of adopting this ASU.

Segment Data

Segment Data	3 Months Ended
	Mar. 31, 2022
Segment Reporting [Abstract]
Segment Data	2. SEGMENT DATA We are organized based upon geographic region and focus on delivering our platform of products and services to our customers on a geographical basis which reflect how the CODM reviews financial information and makes operating decisions. Our three reportable segments are (i) North America, (ii) Europe, and (iii) APAC & Emerging Markets. Our major product groups that we disaggregate within our reportable segments are (i) supply chain services, (ii) prescription management, and (iii) software services. See Note 3 - Revenue from Contracts with Customers for our third-party, net revenue disaggregated by major product category and reportable segment. We do not allocate expenses managed at the corporate level to our segments, such as corporate wages and related benefits, corporate occupancy costs, professional services utilized at the corporate level, and non-recurring expenses. All intersegment balances and transactions have been eliminated in consolidation. The following table reflects net sales based on geographic location: (In millions) Three Months Ended Net Sales March 31, 2022 March 31, 2021 North America $ 696 $ 635 Europe 344 361 APAC & Emerging Markets 112 112 Eliminations (4) (6) Total net sales $ 1,148 $ 1,102 The following tables reflect adjusted EBITDA by geographic location and a reconciliation of Net Income (Loss) Attributable to Covetrus to Non-GAAP Adjusted EBITDA: (In millions) Three Months Ended Adjusted EBITDA March 31, 2022 March 31, 2021 North America $ 57 $ 52 Europe 18 21 APAC & Emerging Markets 10 10 Corporate (22) (26) Eliminations — — Total Adjusted EBITDA $ 63 $ 57 Three Months Ended (In millions) March 31, 2022 March 31, 2021 Reconciliation of Net Income (Loss) Attributable to Covetrus to Non-GAAP Adjusted EBITDA Net income (loss) attributable to Covetrus $ (2) $ (16) Plus: Depreciation and amortization 40 43 Plus: Interest expense, net 7 9 Less: Income tax (benefit) expense 3 4 Earnings (loss) before interest, taxes, depreciation, and amortization 48 40 Plus: Share-based compensation 13 11 Plus: Strategic consulting — 2 Plus: Transaction costs 1 1 Plus: Formation of Covetrus — 2 Plus: Equity method investments and non-consolidated affiliates 1 1 Plus: Other impairments — 1 Plus: Other items, net — (1) Non-GAAP Adjusted EBITDA $ 63 $ 57 Below is a listing of adjustments to EBITDA included in the reconciliation above: Share-based compensation - Share-based compensation is a non-cash expense. Strategic consulting - Related to third-party consulting services. Included within this line item are variable performance fees earned for services rendered under a third-party consulting agreement. Transaction costs - Includes legal, accounting, tax, and other professional fees incurred in connection with contemplated and completed acquisitions and divestitures. The completion of acquisitions and divestitures is often dependent on factors that may be outside of our control and unrelated to us or to the continuing operations of the acquired or divested business. In addition, the amount of acquisition-related cost is generally driven by the complexity inherent in the transaction and may not necessarily indicate the future costs of the acquired business. Excluding transaction costs allows for a better comparison of our historical performance. Formation of Covetrus - Includes professional and consulting fees, duplicative costs associated with TSAs, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company. Equity method investment and non-consolidated affiliates - Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%. Other impairments - Includes customer relationships intangible impairments as the asset groups were not recoverable due a significant reduction in cash flows.

Revenue from Contracts with Cus

Revenue from Contracts with Customers	3 Months Ended
	Mar. 31, 2022
Revenue from Contract with Customer [Abstract]
Revenue from Contracts with Customers	3. REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of Revenue The tables below present our net revenue disaggregated by major product category and reportable segment. Effective for the first quarter of 2022, we are presenting our disaggregation of net revenue on a third-party basis, excluding intersegment sales. See Note 2 - Segment Data , for net revenue generated by our reportable segments, including inter-segment revenues, with eliminations shown as a separate column prior to consolidation. Three Months Ended March 31, 2022 Supply Chain Services Prescription Management Software Services Total North America $ 537 $ 140 $ 19 $ 696 Europe 337 — 3 340 APAC & Emerging Markets 109 — 3 112 Total third-party net sales $ 983 $ 140 $ 25 $ 1,148 Three Months Ended March 31, 2021 Supply Chain Services Prescription Management Software Services Total North America $ 503 $ 112 $ 20 $ 635 Europe 352 — 3 355 APAC & Emerging Markets 109 — 3 112 Total third-party net sales $ 964 $ 112 $ 26 $ 1,102 Contract Assets and Contract Liabilities Contract asset balances as of March 31, 2022 and December 31, 2021 were not material. There have been no material changes in our current portion of contract liabilities since the end of fiscal year 2021, and the amounts related to non-current contract liabilities were not material as of March 31, 2022 and December 31, 2021. See Note 1 - Business Overview and Significant Accounting Policies and Note 3 - Revenue from Contracts with Customers of our Form 10-K. Performance Obligations Estimated future revenues expected to be generated from our long-term contracts with unsatisfied performance obligations as of March 31, 2022 were not material.

Earnings (Loss) Per Share

Earnings (Loss) Per Share	3 Months Ended
	Mar. 31, 2022
Earnings Per Share [Abstract]
Earnings (Loss) Per Share	4. EARNINGS (LOSS) PER SHARE The following is a reconciliation of the numerator and denominator of the basic and diluted EPS computation for earnings (loss) per share: Three Months Ended March 31, (In millions, except per share amounts) 2022 2021 Numerator: Net income (loss) available to common shareholders $ (2) $ (16) Denominator: Basic Weighted-average common shares outstanding 138 136 Diluted Effect of dilutive shares — — Weighted-average common shares outstanding 138 136 Earnings (loss) per share: Basic $ (0.02) $ (0.11) Diluted $ (0.02) $ (0.11) Potentially dilutive securities (a) 5 6 (a) Potentially dilutive securities include stock options, RSUs, RSAs, and PSUs which are excluded from the computation of diluted earnings per share because the securities would have had an antidilutive effect

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 31, 2022
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	5. COMMITMENTS AND CONTINGENCIES We are involved in various legal proceedings that arise in the ordinary course of business. Substantial judgment is required in predicting the outcome of these legal proceedings, many of which may take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and can be reasonably estimated. No material loss contingencies were accrued as of March 31, 2022. Securities Litigation Matter On September 30, 2019, the City of Hollywood (Florida) Police Officers' Retirement System filed a putative securities class action lawsuit in the United States District Court for the Eastern District of New York, purportedly on behalf of purchasers of Covetrus common stock from February 8, 2019 through August 12, 2019, against the Defendants. The complaint alleges that the Defendants violated Sections 10(b) and 20(a) of the Exchange Act, by making allegedly false and misleading statements and omissions, primarily regarding the Company’s financial prospects and the integration costs relating to the business combination involving the Animal Health Business and Vets First Choice. The suit seeks unspecified damages, fees, interest, and costs. On August 3, 2021, the Court issued an order granting in part and denying in part Defendants’ motions to dismiss. In particular, the Court dismissed, with prejudice, all claims asserted against our Former Chief Financial Officer, a director, and our Former Parent, as well as certain claims based on alleged misrepresentations attributed to the Company and our Former Chief Executive Officer. The Company has reached a settlement with plaintiffs in the City of Hollywood (Florida) Police Officers' Retirement System putative securities class action lawsuit, filed in the United States District Court for the Eastern District of New York on September 30,2019. The settlement, which must be approved by the Court, provides for a fully insured payment to the plaintiff’s, in full satisfaction and release of all claims arising out of the lawsuit. The Company is responsible for certain defense costs and expenses which are accounted for in the current period. Purchase Obligations We are party to an exclusive supply agreement with an unconditional commitment to purchase certain products within the U.S. market until 2025. As of March 31, 2022, there have been no material changes in our purchase obligations since fiscal year end 2021. See Note 8 - Commitments and Contingencies of our Form 10-K.

Derivatives and Fair Value Disc

Derivatives and Fair Value Disclosures	3 Months Ended
	Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Derivatives and Fair Value Disclosures	6. DERIVATIVES AND FAIR VALUE DISCLOSURES We are exposed to the impact of changes in foreign currency exchange rates and interest rates in the normal course of business. Our financial risk management program is designed to manage the exposure arising from this cash flow risk and uses derivative financial instruments to minimize this risk. We do not enter into derivative financial instruments for trading or speculative purposes. Assets and Liabilities that are non-designated hedging instruments Foreign currency exchange rate forward contracts From time to time, we enter into non-designated foreign currency exchange rate forward contracts to manage foreign currency balance sheet exposure risk. These forward agreements are related to foreign currency balance sheet exposure resulting from intercompany loans and provide economic hedges but were not designated as hedges for accounting purposes. The terms of these forward contracts are approximately one month and are expected to be settled in cash upon maturity. The following table presents the notional amounts and fair value of our derivative instruments included in accrued expenses and other current liabilities on our condensed consolidated balance sheets: March 31, 2022 December 31, 2021 (In millions) Notional Amount Liability Notional Amount Liability Non-Designated Hedging Instruments Foreign currency exchange rate forward contracts $ 70 $ 1 $ 56 $ — Total contracts $ 70 $ 1 $ 56 $ — The estimated fair value of our forward contracts is based on month-end spot rates adjusted by market-based current activity and are classified as level 2 instruments. The changes in the fair values of these foreign currency forward exchange contracts and the underlying hedged exposures are generally offsetting and recorded immediately in other, net on the condensed consolidated statement of operations. The loss recognized from our forward contracts for the three months ended March 31, 2022 was not material. There were no changes in valuation approaches or techniques during the three months ended March 31, 2022. See Note 14 - Fair Value in our Form 10-K for a description of our valuation techniques. Assets and Liabilities Measured at Fair Value on a Recurring Basis Other than our foreign currency contracts there were no additional assets and liabilities measured on a recurring basis as of March 31, 2022 and December 31, 2021. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis. These assets and liabilities are recognized at amounts equal to the fair value determined at the date of acquisition or purchase. We do not periodically adjust carrying value to fair value for these assets or liabilities; rather, the carrying value of the asset is reduced to its fair value when there is evidence of impairment. We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2022. Assets and Liabilities Not Measured at Fair Value Financial Assets and Liabilities The carrying amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivables, other receivables, accounts payable, and accrued expenses approximate their fair value due to the short maturity of those instruments. Long-term Debt Our long-term debt is classified as a level 2 instrument. The carrying amount of the term loan approximates fair value given the underlying interest rate applied to such amounts outstanding is currently reset to the prevailing monthly market rate.
Derivatives and Fair Value Disclosure	6. DERIVATIVES AND FAIR VALUE DISCLOSURES We are exposed to the impact of changes in foreign currency exchange rates and interest rates in the normal course of business. Our financial risk management program is designed to manage the exposure arising from this cash flow risk and uses derivative financial instruments to minimize this risk. We do not enter into derivative financial instruments for trading or speculative purposes. Assets and Liabilities that are non-designated hedging instruments Foreign currency exchange rate forward contracts From time to time, we enter into non-designated foreign currency exchange rate forward contracts to manage foreign currency balance sheet exposure risk. These forward agreements are related to foreign currency balance sheet exposure resulting from intercompany loans and provide economic hedges but were not designated as hedges for accounting purposes. The terms of these forward contracts are approximately one month and are expected to be settled in cash upon maturity. The following table presents the notional amounts and fair value of our derivative instruments included in accrued expenses and other current liabilities on our condensed consolidated balance sheets: March 31, 2022 December 31, 2021 (In millions) Notional Amount Liability Notional Amount Liability Non-Designated Hedging Instruments Foreign currency exchange rate forward contracts $ 70 $ 1 $ 56 $ — Total contracts $ 70 $ 1 $ 56 $ — The estimated fair value of our forward contracts is based on month-end spot rates adjusted by market-based current activity and are classified as level 2 instruments. The changes in the fair values of these foreign currency forward exchange contracts and the underlying hedged exposures are generally offsetting and recorded immediately in other, net on the condensed consolidated statement of operations. The loss recognized from our forward contracts for the three months ended March 31, 2022 was not material. There were no changes in valuation approaches or techniques during the three months ended March 31, 2022. See Note 14 - Fair Value in our Form 10-K for a description of our valuation techniques. Assets and Liabilities Measured at Fair Value on a Recurring Basis Other than our foreign currency contracts there were no additional assets and liabilities measured on a recurring basis as of March 31, 2022 and December 31, 2021. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Certain assets and liabilities may be required to be measured at fair value on a nonrecurring basis. These assets and liabilities are recognized at amounts equal to the fair value determined at the date of acquisition or purchase. We do not periodically adjust carrying value to fair value for these assets or liabilities; rather, the carrying value of the asset is reduced to its fair value when there is evidence of impairment. We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the three months ended March 31, 2022. Assets and Liabilities Not Measured at Fair Value Financial Assets and Liabilities The carrying amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivables, other receivables, accounts payable, and accrued expenses approximate their fair value due to the short maturity of those instruments. Long-term Debt Our long-term debt is classified as a level 2 instrument. The carrying amount of the term loan approximates fair value given the underlying interest rate applied to such amounts outstanding is currently reset to the prevailing monthly market rate.

Business Acquisitions

Business Acquisitions	3 Months Ended
	Mar. 31, 2022
Business Combination and Asset Acquisition [Abstract]
Business Acquisitions	7. BUSINESS ACQUISITIONS Great Pet Care On March 8, 2022, we acquired 100% interest in Great Pet Care, for an aggregate contractual purchase price of $24 million, consisting of $14 million in cash and $10 million in common stock. We have accounted for $1.5 million of the common stock consideration as deferred compensation for continuing employees. Of the aggregate purchase price, $19 million was allocated to goodwill, which is not tax deductible. This acquisition advances our strategy to accelerate the unification of our consumer-oriented solutions, including prescription management, currently within North America, into one tool that empowers Customers and delivers a holistic health experience for Animal-Owners. The results of operations have been included in our North American segment since the acquisition date. Other On January 4, 2022, we acquired the remaining 90% interest in Next2Vet AB that we did not own for an aggregate purchase price of $4 million. Both Great Pet Care and Next2Vet are immaterial individually and in the aggregate to our condensed consolidated financial statements. All related acquisition expenses incurred were not material.

Accumulated Other Comprehensive

Accumulated Other Comprehensive Income (Loss)	3 Months Ended
	Mar. 31, 2022
Equity [Abstract]
Accumulated Other Comprehensive Income (Loss)	8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table presents the changes in accumulated other comprehensive loss, net of applicable taxes, by component: Three Months Ended March 31, 2022 Derivative Gain (Loss) Foreign Currency Translation Gain (Loss) Total Balance at December 31, 2021 $ — $ (79) $ (79) Other comprehensive loss before reclassifications — (2) (2) Reclassified from Accumulated other comprehensive loss to earnings — — — Period Change — (2) (2) Balance at March 31, 2022 $ — $ (81) $ (81) Three Months Ended March 31, 2021 Balance at December 31, 2020 $ (3) $ (63) $ (66) Other comprehensive loss before reclassifications — (11) (11) Reclassified from Accumulated other comprehensive loss to earnings 2 — 2 Period Change 2 (11) (9) Balance at March 31, 2021 $ (1) $ (74) $ (75)

Business Overview and Signifi_2

Business Overview and Significant Accounting Policies (Policies)	3 Months Ended
	Mar. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Basis of Presentation	Basis of Presentation and Principles of Consolidation The unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022, have been prepared in accordance with applicable rules and regulations of the SEC for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Form 10-K filed with the SEC on February 28, 2022.
Principles of Consolidation	The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. Intercompany transactions and balances are eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method. Certain prior period amounts were reclassified or rounded to conform to the presentation of the current period.
Accounting Pronouncements	Accounting Pronouncements • ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference LIBOR. The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. Our debt agreements that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. The banking syndicate associated with our Credit Facilities ceased using the 1-week and 2-month USD LIBOR at the end of 2021, and the other USD Tenors will cease June 30, 2023. We will continue to monitor, and, to the extent our Credit Facilities require amendment to reflect a replacement rate prior to December 31, 2022, we will evaluate the benefits of adopting this ASU.

Segment Data (Tables)

Segment Data (Tables)	3 Months Ended
	Mar. 31, 2022
Segment Reporting [Abstract]
Schedule of Segment Reporting Information, by Segment	The following table reflects net sales based on geographic location: (In millions) Three Months Ended Net Sales March 31, 2022 March 31, 2021 North America $ 696 $ 635 Europe 344 361 APAC & Emerging Markets 112 112 Eliminations (4) (6) Total net sales $ 1,148 $ 1,102 The following tables reflect adjusted EBITDA by geographic location and a reconciliation of Net Income (Loss) Attributable to Covetrus to Non-GAAP Adjusted EBITDA: (In millions) Three Months Ended Adjusted EBITDA March 31, 2022 March 31, 2021 North America $ 57 $ 52 Europe 18 21 APAC & Emerging Markets 10 10 Corporate (22) (26) Eliminations — — Total Adjusted EBITDA $ 63 $ 57 Three Months Ended (In millions) March 31, 2022 March 31, 2021 Reconciliation of Net Income (Loss) Attributable to Covetrus to Non-GAAP Adjusted EBITDA Net income (loss) attributable to Covetrus $ (2) $ (16) Plus: Depreciation and amortization 40 43 Plus: Interest expense, net 7 9 Less: Income tax (benefit) expense 3 4 Earnings (loss) before interest, taxes, depreciation, and amortization 48 40 Plus: Share-based compensation 13 11 Plus: Strategic consulting — 2 Plus: Transaction costs 1 1 Plus: Formation of Covetrus — 2 Plus: Equity method investments and non-consolidated affiliates 1 1 Plus: Other impairments — 1 Plus: Other items, net — (1) Non-GAAP Adjusted EBITDA $ 63 $ 57

Revenue from Contracts with C_2

Revenue from Contracts with Customers (Tables)	3 Months Ended
	Mar. 31, 2022
Revenue from Contract with Customer [Abstract]
Disaggregation of Revenue	Three Months Ended March 31, 2022 Supply Chain Services Prescription Management Software Services Total North America $ 537 $ 140 $ 19 $ 696 Europe 337 — 3 340 APAC & Emerging Markets 109 — 3 112 Total third-party net sales $ 983 $ 140 $ 25 $ 1,148 Three Months Ended March 31, 2021 Supply Chain Services Prescription Management Software Services Total North America $ 503 $ 112 $ 20 $ 635 Europe 352 — 3 355 APAC & Emerging Markets 109 — 3 112 Total third-party net sales $ 964 $ 112 $ 26 $ 1,102

Earnings (Loss) Per Share (Tabl

Earnings (Loss) Per Share (Tables)	3 Months Ended
	Mar. 31, 2022
Earnings Per Share [Abstract]
Reconciliation of Basic Shares to Diluted Shares	The following is a reconciliation of the numerator and denominator of the basic and diluted EPS computation for earnings (loss) per share: Three Months Ended March 31, (In millions, except per share amounts) 2022 2021 Numerator: Net income (loss) available to common shareholders $ (2) $ (16) Denominator: Basic Weighted-average common shares outstanding 138 136 Diluted Effect of dilutive shares — — Weighted-average common shares outstanding 138 136 Earnings (loss) per share: Basic $ (0.02) $ (0.11) Diluted $ (0.02) $ (0.11) Potentially dilutive securities (a) 5 6 (a) Potentially dilutive securities include stock options, RSUs, RSAs, and PSUs which are excluded from the computation of diluted earnings per share because the securities would have had an antidilutive effect

Derivatives and Fair Value Di_2

Derivatives and Fair Value Disclosures (Tables)	3 Months Ended
	Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]
Schedule of Derivative Fair Value and Balance Sheet Location	The following table presents the notional amounts and fair value of our derivative instruments included in accrued expenses and other current liabilities on our condensed consolidated balance sheets: March 31, 2022 December 31, 2021 (In millions) Notional Amount Liability Notional Amount Liability Non-Designated Hedging Instruments Foreign currency exchange rate forward contracts $ 70 $ 1 $ 56 $ — Total contracts $ 70 $ 1 $ 56 $ —

Accumulated Other Comprehensi_2

Accumulated Other Comprehensive Income (Loss) (Tables)	3 Months Ended
	Mar. 31, 2022
Equity [Abstract]
Schedule of Accumulated Other Comprehensive Loss	The following table presents the changes in accumulated other comprehensive loss, net of applicable taxes, by component: Three Months Ended March 31, 2022 Derivative Gain (Loss) Foreign Currency Translation Gain (Loss) Total Balance at December 31, 2021 $ — $ (79) $ (79) Other comprehensive loss before reclassifications — (2) (2) Reclassified from Accumulated other comprehensive loss to earnings — — — Period Change — (2) (2) Balance at March 31, 2022 $ — $ (81) $ (81) Three Months Ended March 31, 2021 Balance at December 31, 2020 $ (3) $ (63) $ (66) Other comprehensive loss before reclassifications — (11) (11) Reclassified from Accumulated other comprehensive loss to earnings 2 — 2 Period Change 2 (11) (9) Balance at March 31, 2021 $ (1) $ (74) $ (75)

Segment Data - Operating Result

Segment Data - Operating Results by Segment (Details) $ in Millions	3 Months Ended
	Mar. 31, 2022USD ($)reportable_segment	Mar. 31, 2021USD ($)
Segment Reporting [Abstract]
Number of Reportable Segments | reportable_segment	3
Segment Reporting Information [Line Items]
Net sales	$ 1,148	$ 1,102
Adjusted EBITDA	63	57
Net income (loss) attributable to Covetrus	(2)	(16)
Plus: Depreciation and amortization	40	43
Plus: Interest expense, net	7	9
Less: Income tax (benefit) expense	3	4
Earnings (loss) before interest, taxes, depreciation, and amortization	48	40
Plus: Share-based compensation	13	11
Plus: Strategic consulting	0	2
Plus: Transaction costs	1	1
Plus: Formation of Covetrus	0	2
Plus: Equity method investments and non-consolidated affiliates	1	1
Plus: Other impairments	0	1
Plus: Other items, net	0	(1)
North America
Segment Reporting Information [Line Items]
Net sales	696	635
Europe
Segment Reporting Information [Line Items]
Net sales	340	355
APAC & Emerging Markets
Segment Reporting Information [Line Items]
Net sales	112	112
Operating Segments | North America
Segment Reporting Information [Line Items]
Net sales	696	635
Adjusted EBITDA	57	52
Operating Segments | Europe
Segment Reporting Information [Line Items]
Net sales	344	361
Adjusted EBITDA	18	21
Operating Segments | APAC & Emerging Markets
Segment Reporting Information [Line Items]
Net sales	112	112
Adjusted EBITDA	10	10
Corporate
Segment Reporting Information [Line Items]
Adjusted EBITDA	(22)	(26)
Eliminations
Segment Reporting Information [Line Items]
Net sales	(4)	(6)
Adjusted EBITDA	$ 0	$ 0

Revenue from Contracts with C_3

Revenue from Contracts with Customers - Disaggregation of Revenue (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Disaggregation of Revenue [Line Items]
Net sales	$ 1,148	$ 1,102
North America
Disaggregation of Revenue [Line Items]
Net sales	696	635
Europe
Disaggregation of Revenue [Line Items]
Net sales	340	355
APAC & Emerging Markets
Disaggregation of Revenue [Line Items]
Net sales	112	112
Operating Segments | North America
Disaggregation of Revenue [Line Items]
Net sales	696	635
Operating Segments | Europe
Disaggregation of Revenue [Line Items]
Net sales	344	361
Operating Segments | APAC & Emerging Markets
Disaggregation of Revenue [Line Items]
Net sales	112	112
Operating Segments | Supply Chain Services
Disaggregation of Revenue [Line Items]
Net sales	983	964
Operating Segments | Supply Chain Services | North America
Disaggregation of Revenue [Line Items]
Net sales	537	503
Operating Segments | Supply Chain Services | Europe
Disaggregation of Revenue [Line Items]
Net sales	337	352
Operating Segments | Supply Chain Services | APAC & Emerging Markets
Disaggregation of Revenue [Line Items]
Net sales	109	109
Operating Segments | Prescription Management
Disaggregation of Revenue [Line Items]
Net sales	140	112
Operating Segments | Prescription Management | North America
Disaggregation of Revenue [Line Items]
Net sales	140	112
Operating Segments | Prescription Management | Europe
Disaggregation of Revenue [Line Items]
Net sales	0	0
Operating Segments | Prescription Management | APAC & Emerging Markets
Disaggregation of Revenue [Line Items]
Net sales	0	0
Operating Segments | Software Services
Disaggregation of Revenue [Line Items]
Net sales	25	26
Operating Segments | Software Services | North America
Disaggregation of Revenue [Line Items]
Net sales	19	20
Operating Segments | Software Services | Europe
Disaggregation of Revenue [Line Items]
Net sales	3	3
Operating Segments | Software Services | APAC & Emerging Markets
Disaggregation of Revenue [Line Items]
Net sales	$ 3	$ 3

Earnings (Loss) Per Share - Rec

Earnings (Loss) Per Share - Reconciliation of Basic Shares to Diluted Shares (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Numerator:
Net income (loss) available to common shareholders	$ (2)	$ (16)
Basic
Basic, Weighted-average common shares outstanding (in shares)	138	136
Earnings Per Share, Diluted [Abstract]
Effect of dilutive shares (in shares)	0	0
Diluted, Weighted-average common shares outstanding (in shares)	138	136
Earnings (loss) per share:
Basic (in usd per share)	$ (0.02)	$ (0.11)
Diluted (in usd per share)	$ (0.02)	$ (0.11)
Potential dilutive securities (in shares)	5	6

Commitments and Contingencies (

Commitments and Contingencies (Details) $ in Millions	Mar. 31, 2022USD ($)
Commitments and Contingencies Disclosure [Abstract]
Loss contingency accrual	$ 0

Derivatives and Fair Value Di_3

Derivatives and Fair Value Disclosures (Details) - USD ($) $ in Millions	Mar. 31, 2022	Dec. 31, 2021
Derivative [Line Items]
Notional amount	$ 70	$ 56
Fair Value, Recurring
Derivative [Line Items]
Total assets	0	0
Fair Value, Recurring | Level 2
Derivative [Line Items]
Total liabilities	0	0
Fair Value, Nonrecurring | Level 2
Derivative [Line Items]
Total liabilities	0
Other Current Liabilities | Fair Value, Recurring
Derivative [Line Items]
Liability	1	0
Foreign Exchange Forward | Other Current Liabilities | Fair Value, Recurring
Derivative [Line Items]
Liability	1	0
Not Designated as Hedging Instrument | Foreign Exchange Forward
Derivative [Line Items]
Notional amount	$ 70	$ 56

Business Acquisitions (Details)

Business Acquisitions (Details) - USD ($) $ in Millions	Mar. 08, 2022	Jan. 04, 2022	Mar. 31, 2022	Dec. 31, 2021
Business Acquisition [Line Items]
Goodwill			$ 1,267	$ 1,247
Great Pet Care
Business Acquisition [Line Items]
Percentage of voting interests acquired	100.00%
Consideration transferred	$ 24
Cash consideration in acquisition	14
Equity interests issued in acquisition	10
Goodwill	19
Great Pet Care | Common Stock, Deferred Compensation
Business Acquisition [Line Items]
Equity interests issued in acquisition	$ 1.5
Next2Vet AB
Business Acquisition [Line Items]
Percentage of voting interests acquired		90.00%
Consideration transferred		$ 4

Accumulated Other Comprehensi_3

Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	$ 1,511	$ 1,537
Other comprehensive loss before reclassifications	(2)	(11)
Reclassified from Accumulated other comprehensive loss to earnings	0	2
Period Change	(2)	(9)
Ending balance	1,528	1,520
Derivative Gain (Loss)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	0	(3)
Other comprehensive loss before reclassifications	0	0
Reclassified from Accumulated other comprehensive loss to earnings	0	2
Period Change	0	2
Ending balance	0	(1)
Foreign Currency Translation Gain (Loss)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	(79)	(63)
Other comprehensive loss before reclassifications	(2)	(11)
Reclassified from Accumulated other comprehensive loss to earnings	0	0
Period Change	(2)	(11)
Ending balance	(81)	(74)
Accumulated Other Comprehensive Income (Loss)
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning balance	(79)	(66)
Ending balance	$ (81)	$ (75)