CVET - Earnings call transcript Q1 2019

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Operator

Good day ladies and gentlemen and welcome to the Covetrus First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. of President Vice Jansen, Investor Relations. Nicholas may you begin. Sir

Nicholas Jansen

Vice you Thank call, for us Good Nicholas our Thank you, morning. for Jansen, am Covetrus' I as publicly-traded joining Investor a Relations. Joelle. first company. President, QX XXXX earnings

are on questions. Executive and President our and Shaw, me will remarks your and President to we Chief Officer; Joining will Ben Benjamin Christine begin and prepared Executive Christine and our then happy call today's Komola, Vice Chief Financial Officer. take with

During we current forward-looking All this of expenditures. call, future forward-looking this based statements statements business, for made expectations are facts financial statements operating and conference including operational projections making anticipate management's and statements than on during expectations. our call historical regarding conference other performance,

with as plan, such may Forward-looking negative will, or terminology identified statements upcoming, anticipate, these and be expect, of similar the estimate, believe, may, terms. words

our Factors at on at filed Forward-looking uncertainties in and beyond website include on statements subject results or statements. annual variety are most our XX-K, quarterly under promises cause website contemplated www.covetrus.com could materially a which of to are risks and of These of periodic forward-looking SEC's those Form and Commission Exchange and performance the www.sec.gov. actual Investors differ many from report guarantees Risk future are control which recent of with the heading not Form those the section other in risks these and Securities on XX-Q, which report and reports the on available to uncertainties our are

business and financial attributed Schein. accounting Health for to to the Also indicated costs our statement our law, required statements statements hereof, derived Animal date prior these of the in These our Schein. and allocations forward-looking we have been records filing, statements. Forward-looking direct of as costs as statements speak and the include which indirect revise of XX-K undertake obligation no or Henry only by year registration financial consolidated and from Henry for the were update as except

these expenses Schein to were centralized of of hear some Henry under for the that Schein corporate TSAs. for us other transitional example, you functions. continue were such of and what certain these as on a for allocations, facilities, functions will may support Some certain aspects services to basis call technology, business provide agreements within Henry service provided or Covetrus

we we been results noted the filings, have As combined prior would of a necessarily financial in operated did reflect had statements the operations public company. as not standalone what

the on forward, with will XXXX allocations. our cost and will be going results not receive Schein our associated mentioned. standalone the results Henry from starting quarter TSAs we periods first I and related under to operations all the Those services costs adjusted based For a include direct with

Xth for statements Choice. do the the financial not through and our Additionally, Vets include First financial consolidated February XXXX year prior statements of

During will in provide the quarter results XXXX certain the for the understand quarter we the this first investors underlying XXXX of and forma to trends help presentation, business. pro first

particularly in operations would the of infrastructure. the when including of closing statements of been quarter year-over-year both employees, such by and were outsourced as this comparisons, technology organizational made acknowledge combined information our in or happened necessarily during number midway We have a results certain performed and what through chosen on results first of the depend decisions in company functions structure, those However, reflect complexities areas factors as as what the we financial combined had not would the February. strategic a transaction do creates operated periods the

referenced results announcing the on release press can on slides first call You covetrus.com. XXXX our and this find this quarter morning's

determined the performance discuss press press for and these release refer our non-GAAP to such We information. financial spin-off ongoing understand The Please our may trends, consider items measures in information items with in We financial XXXX and that measures as morning's properly about to short-term will during slide non-GAAP of measures announcing directly these website time-critical quarter results and that accordance integration impact our contain important will our the the performance the distribute we continue to this non-GAAP as costs this reconciliation supplement exclude investors and These with associated non-recurring company further use order also GAAP results. and measures financial to mergers to GAAP. or a financial release financial a GAAP first financial results. non-cash believe process to of the to certain call. from long-term our wish

off handing for to their Ben, release patience our investment thank we it community first first delayed the like quarter the Before regarding results. to of would

to can consolidation tied few the transaction you And significant to imagine a days As finalize the results. in resulted Ben the the provide that, to to over needing the complexities highlights. more I will turn us call now with

Benjamin Shaw

Nick. you, Thank

recognizing fast on clinical by we well start very the build website. executing health veterinary of both significant that deliver that Schein's and practice I'll the start we of priorities short-term to veterinary of me platform for scale. a be to First as global capabilities and the Covetrus our the refer slide investor strategies expect to Health standalone to operating towards integrated off company serve ecosystem will listing an led veterinary of a outcomes the a We're support practice creativity, of long-term needs Animal dedicated Vets Let and against our system as as and medicine. and upon fully enhance NASDAQ. can is that on Choice the effort, and X via combination found on subsequent has creation presentation our positioned very to Henry the Covetrus the

really great great Our and results in levels, good and agreements, through discipline planning out among insightful managing the work transition transition and very A operating for grateful our by our of for of great the few friends integrated big our first capabilities. very for to to led March early customer thank and our first teams your XXXX proud you Henry process. and and and at deliver business. that work new support Schein creation the energy carve-out the shareholders the in smooth an our of a response, of post-closing We're attitude, set quarter demonstrate customers to a great this from commercial service and the patience, weeks teams, service transition

enhanced clinical client care ecosystem. through the our our growth mission, of opportunity differentiated to pressure. Markets globally We the professionalize partner and creates in-office respond veterinarians financial many new health outlined our delivery integrated Day to and the organizations dynamics veterinary February entire care market the to value help that and for animal meet doing for prospects a customers and manage addressable year, value to we delivering as practice drive patient with expectations Covetrus combination to platform rapidly will supporting as platform these aspects changing well and evolving Capital As backbone on gaps improved while outcomes. long-term new veterinary so at identify unlock very in earlier aspire is veterinarians and The management as this of by expectations serve the care, the in that for proposition. a single to can help by to online highly expand compelling market significant of driving to in better market By client total

seamless day-to-day software, services, and customers management supply management outcomes health communications chain Our solutions. a management, for analytics, and and services, practice together management and And to customers financial chain and client more experience integrated new insights an XXX supply for in inventory workflow, streams, brings veterinarians efficiencies, practice significant new proactive great pharmacy XXX,XXX enable on across integrated drive all a us and than have obligation, platform expectation, we approach. rely improve More end-to-end deliver to practice new create prescription and together than countries. revenue for appointment coordinated opportunity and veterinary

I'd start Now, by highlighting the on slide like turning a to important items X. few quarter, to

carve-out buyout We of Schein launch registration very new Covetrus. Choice and company. Covetrus have the integration, of this successful Henry Animal sequence with public achieving challenge focused independent delivered Health, Vets efforts the of spin-off and last on changes We of merger few alignment significant post-merger structural to one the Henry otherwise Animal the day a of Health what fundamental a a Schein minority the subsequent including portfolio First is complex shareholders over as within towards eliminate months and

Additionally, to company. multiple standalone and infrastructure began across corporate we new as establish operate necessary geographies a to

the to closing kick-off Upon align transaction, with a with tribute we're to a Importantly, to timeline a of operational held expertise, the the transition We that track mostly brand over event and center the customers, combined growth new other directly be for our early long-term independent A our hosted last happen. vet new a we teamwork great impressive disruption speaks teams events real I launched just to talented tremendous minimal effort, organization, to planning globe Significant the in exit make we've was team do. global ready across putting ensured our North to teams And account March, and high-energy to Schein. up the our service integrated on Henry on and North on created. align and effectively our profession that Board and Directors agreements agreed employees, America. America the to platform, of management to think priorities, commercial a planning preparation in Covetrus previously veterinary plans. in organization, of everything vision, a year formed and management we a We stakeholders. cross-train team our and to at will commitment

that compelling our capabilities one teams Asia We've completed Our team meetings energized. we're commercial as pan-European we're Pacific organization is a show. hosted customers. differentiated platform aligned, road for provides and a we focused with European armed and our powerful leadership launched, Similarly,

across thus our proposition, globe capabilities to solutions. productive service in manufacturers to and We've Our globalize accounts the customer teams conversations more feedback been with to very strategic regions, to technology our really and encouraging and out enthusiastic of navigate transition expand agreements, engaged value just also are the far. across to initiate has coordinate of work

channel provide a now veterinarians this critical so this changing veterinary need in Covetrus team veterinarians for pressure. that capabilities the market. is at the of kind revolving time can the expectations rapidly to lot under better of is moment in differentiated The profession client know, you meet As able

million growth teams, systems, keep improve modernize focused generating the basis. run forward, EBITDA an is help growth our team delivering $XXX upgrade increasingly global quality We on and higher pace with workflow of end against complex to and look communication commitment rate our our by expectations obligation our shareholders. to and reiterate three, to of incremental and standardize value on delivery infrastructure expectations we long-term service and to simultaneously our meet align As year and a global for

to rapid the X. our of be power Vets Choice. driver key slide of adoption onto compete veterinary customers the relationships accelerate retail to then combining globe in practices used is and Choice Vets the prescription the A compliance, First value of to First these new adoption Choice with better and is opportunities drive technology first veterinary the client Vets solution, and of First around Turning to of our organizations by goal two empower the The U.S. proactive success enrollment strengthen management and competition. long-term customers with practice will

this enrollments earnings by prescription the announcement year-over-year ended on QX than management and our practices for morning, XX% As quarter technology first increased with solution. in proactive more we on X,XXX the our

first leads our the and time meeting where more new we Importantly, than of our national trained combined managers. in and now a launched account surge North introduced high-quality U.S. experienced to enrollments platform the following March, for America XXX we

Our year-over-year of proposition, of growth value our team, I and testament of during drive a a quarter of this the differentiation activities, these the to significant with attractiveness our magnitude is capabilities. merger-related professionalism the to ability think

active is our a Importantly, drive of there's leads auto-ship builds medications, as with client refill, activity. is prescription conversion ramp-up and recommendations, these period from create And new customers new services. and this predictable a reorder management renewal, journey exceeding prescribe expectations. Adoption

of great building to these We're opportunity. organizing momentum and into this in accounts. have ourselves sight acceleration We line and the strong early revenue maximize for still ramp utilization of

with of quarter. strong the is Our meaningfully pace growth of seen sales pipeline first opportunities in the ahead April qualified

strong to won have this quarter. we pipeline, addition balance that the will enroll In during multiple new corporate also the accounts of second

will increasingly early enroll prescription enrollment organization more deliver we new early of for the The at we're combined the we sales accelerate inside targets we're X,XXX months, year. to efforts. streamline and veterinary and can for that adoption, more now accounts We commercial processes, XXXX. than the management thesis that our practice coming our so validated our just has understand expect confident the in teams on train enrollment to please stages success really Over ramping further

sharing the coming topic We those to will over this dynamics quarters. look forward details on and

practices which forward, which prescription care, views we drive need come management back capabilities which and we to as ability gaps drive active additional when and proactive leveraging patients need in generating on into patients to increased enrollments of patient office such recommendations activity, for renewals diagnostics. to what for have our focused access prescription are services medications of the enables in refills As or – the

comparable or veterinarians revenue in care. our in the for year-over-year exceeded year-over-year selling our to This which attack more generating in day enables XX% first increased delivered XXXX, our first management compliance expand by time market as key QX, in XXXX, of when first revenue sales under First quarter less prescription partner plan. the XXXX. which one Vets for for management, the First days In Therapies technology is improved and defined practices normalized store which same-store Choice XXXX. Our XXXX Choice is directly allowing normalized non-financial than KPI quarter increased opportunity. to growth XX% Vets gaps technology revenue sales, when our for selling versus in XX% medical their those Encouragingly, earlier began

therapies subscription-like of revenue future predictability medications New dispensing daily of and and our as number subsequent auto-ship successful and a revenues. our the level a refills a creates renewals on significant initiated events represents of portion into outlook model

reduce for this about practice for distribution management America, our seek performance With about deep the customer and we force workflow national to integration result by and relationships to to potential XXXX and improve are as combination strong of to to opportunities for network approximately XX greater course the sales software locations a improve our deliver us beyond. over in customers distribution enthusiastic we continue excited service better and of our the as the pharmacy also leverage kind trusted the and cost XXXX. through of of provided We're larger North

the nature also and platform. of the Given we are opportunity, innovations the adding to long-term near aggressively

launch achieved our to to We Choice is medication of between soft for persistence, and management deep differentiated practice First new Vets management better renewal. integration workflow. really are excited The about and – recent our our prescription support which service service innovative our management a management better software appointment prescription is prescription

to and two-way real-time a write read, customers drive services greater convenience. enables service in-office management for seeking appointment Our client

clients adoption prescription important and coming will become practices, to treatment. our in we're to reissuance practice intend for the management book unique service able this cloud differentiator of just offerings of this Specifically, veterinarians more team in quarter broadly second third our there engagement weeks first just also in-office innovation system for It's help XXXX. and the services veterinarian and with We to the over for platform. that, made a of in – professionals. we're few year healthy to conjunction required veterinary growth another completion of important with appointments significant fourth capabilities of continue benefit the quarters. innovate launch our will This pleased And client the available of to behalf of following drive solutions on of merger. with progress streamlining better We've workflow while portfolio service

We enhancements, expect XXXX. capabilities, to continue position new improved to new and and our on invest market expand performance in leadership in

a noting PIM our for software additional rapid has as worth recognition our pricing in year enterprise of different is PIMs value development It relationships PIM model. of less time been to which despite and traditional next-generation of five as revenue PIMs investment wins a budget revenue offerings frame, higher upfront cloud development year The solutions. result software models updated or well XX license client/server in types will sale. for a majority that of cloud enhancements this include which of these Our new versus over than recognized lifetime our for is is represent portfolio a

solutions the these momentum which the to total our points transition represents we're of basis are XXX underway than and our of PIMs excited increase X.X% more Currently, an cloud about cloud year-over-year. is witnessing. installed technology customers Our is base well

working to integration even hard QX. signature deliver AVImark, to in stated are ImproMed enhancements more previously them offerings performance on to driving enhance offer we capabilities. we're And make other and user-friendly PIMs new we these to set enhancements to As and beginning our

We one save these customers expect than more hour will our which new enhancements workflow day per improvement. veterinarian per a substantial provides

in believe in of and is We to further to investment new of step-up onetime We upgrades creates pressure look seek management have total strategic for our by in experience the a of adjusted enhance over year-over-year gross market years. as drive to rate partners our is comparisons the into a we made stepped-up more PIMs we better software leadership more solutions which PIMs to prescription a the rapid incremental share growth. investments expected XX% in than has few years. coming levels XXXX customer gains. service XXXX on deliver over to deliver that as PIMs We increase software support of incremental acknowledge much investment level EBITDA implications to and appointment inventory this position significant market next In

prescription our which proposition. to we In Choice in said practice push globalization to First strong we already Choice now focused leadership to which R&D appointment we investment delivering and profession deliver demonstrate to committed budget additional value and as compliance. as XX% the This EBITDA to over growth PIMs very important prescription commitment to standards believe total communicated as our Markets on regulatory are management. and in These for as important the we continue our double-digit Choice Vets However, term on-ramp an All view includes growth to to Longer approximate the we further functionality includes we strategic services remain Vets of position. high as of term be enabler Vets these enhancing increase seek next-generation at veterinary long on First long-term First customers investments investments Capital -- solutions management at improvements quality, and investments forward dollar end an remain and enhance our globally, security to workflow spend the our remain privacy, to our look of by technology we algorithm XXXX. total, in focus Day. operate overall the expect well

and practice secure. privacy premise channel. security the stricter this protecting online as seek in commitment with provide our our our services client solutions data compliant secure leader and standards quality customer industry information believe at the for veterinary higher, take trusted practice-focused can and And and we that the we're committed a integrated confidence veterinary very prescription to geographic our and we're including services and higher and operating seriously. champion and safe and As of regulatory to management deliver community and veterinary our market tougher, reach broad best that we obligations We Covetrus is their practices solutions to

merger while results excludes quarter QX reflect normalizes recognition on pace keeping revenue Vets XXXX February this X X%. to forma for agency-style the Moving adjustments significant headwind, prior to the Choice with pro for investments and transformation for delivered consummated The First period first exchange switches sales. manufacturer quarter growth foreign we of X% for results. the infrastructure, priorities. forma financial in on partial while platforms with We to our commercial systems began operating organic In consolidated pro consolidated

revenue prior in fourth the the during loss These previously the America X% XXXX in and relationship and the underlying occurred more and quarter. APAC. a Our able Covetrus In loss to includes the other consistent organic negatively merger: two the organic was manufacturer in quarter growth headwinds first of first deliver two announced challenges the to two of by large of organic the events the quarter. the customer a performance than impacted with of underlying in market these organic overcome growth -- North growth that words growth overall

we're integrated was month consolidated the seen the with QX. encouraged to the relative during year. stronger much company organic of month we've operations growth of first top of the with our the line trends And a of Importantly March start new start as full

specifically manufacturer a Looking a from line normalized organic revenues performance market at North X% prior direct for X% in or the and pro growth. slide was X; geographic pro versus on in prior growth the reclassification rebate period. switches on North America When sales with forma year America forma in our to agency declined period, basis

animal far important of of in As pleased an end a QX QX weather quarter. topline expected customer growth early at health and reports the in with our thus the other previously in loss been also organic in large announced America. North the execution first we've encouraged impacted Similar by the We're quarter. performance impact improved company to the played

deliver commercial key efforts platform, as as adoption We have investments. our several underway of on maximize to infrastructure integrated to well

drive an leverage to his procurement, chain in background to and expertise chain to working as service, will recent proposition costs with offer tremendous global North to a America our technology, highlight We as and I integrated a significant of development Chain complex expect asset new for Matt's appointment CVS customers. improve want partners President Supply was efforts. navigating we also capabilities. appointment to Health look is to the coordination supply EVP, Leonard This reduce manufacturer Global and our value supply enhanced Officer. Matt and at Covetrus in

of more that becoming such products and team year the North manufacturer new Mars, a and combined recent customers brand capabilities, integrated wins with unlocking Covetrus. year-over-year customer accelerating at platform channel that on the the message GREENIES more well believe along as insights Our agreements new outlook familiar a well very market resonates in in of we combined for as is in proprietary multichannel solutions, the one the the growth with expectation value under with is and America. second technology and focused provided term platform announcement support our Long half comparisons our easier strong as new

Europe. Now turning to

as in trend only forma veterinary following organic a with secured had teams success across We XXXX. relationships all new growth across defined local Our leverage Czech we geographies. new Republic, as an our was and QX, strong slowing X or Spain strategic in of Poland operate. witnessed with had have in which quarter as pro In performance manufacturer practice with several who relationships which customer a strong all partners of saw actively as types expanded penetrate player XX good acceleration markets slide We've acquiring EU in pan-European particularly are combining those we we corporate market. seen and the the our performance customers the X% to nearly also on local in position markets

We and about also as continue to for see we're momentum capabilities enthusiastic new look in European for market. focus growth represent assets. First core and the in Kruuse European of software the our the tied to to Europe prospect our a us Vets for Choice specialty higher-margin particularly the which Long-term, we Instrumentation businesses Veterinary market commercialization in drive

on in XXXX Emerging went direct Markets Lastly major important X% that growth it's decline X, impacted and by market is as in XX% APAC manufacturer nearly experiencing slide a XQ business topline pro to remember seen a year-over-year. early business' which sales our while this to quarter, growth the negatively organic in forma our

XXXX. this than Markets to We've market and in partnership key APAC of headwind, marketplace. chain with drive cross-selling in is a also manufacturer supply the help our growing and this which exclusive additional our faster should Excluding success during particular March practice management accounts overall company the business new remainder growth in solutions for secured Emerging A&V our

Again Emerging performing term favorable Choice these compelling look presence on long a long term. we'll to of also the out well APAC really Markets to opportunity to capitalize is business geographies launch is Markets trends in build in and high in continue First Vets and a our priority and the Emerging Our market.

XQ, more the XXXX. call guidance XXXX and to to provide So on now over detail to additional financial in I'll review for turn results Christine color

Christine Komola

generally adjustments Thanks, Slide my Ben. XXXX. results adjusted our the at provide of the results, XX Slide GAAP trends the the X to XX quarter arrive our a the while describes of will the XX of I XXXX considered XX, financials. comments to first made in insights focus adjusted provide our quarter to presentation into adjusted GAAP for summarizes on summary and underlying business. measures and the first items our Slide of

earnings to for detailed press description the a So release please refer results. first GAAP changes in year-over-year today's quarter our of

pro Looking you'll QX exchange was Covetrus of measures slide see X% The XXXX. the effect headwind XX, non-GAAP revenue of forma a X% at total on in declined foreign overall.

pro organic the forma manufacturer revenue relationships FX earlier America. mentioned Ben normalizing increased for recognition in X% revenue in and changes non-GAAP As agency-based North

the prepared a the As have offset the recognition slightly North by on growth Revenue customer two in revenue the sheet reminder and of was in statement Europe gross been these overall GAAP the flow aided an and as prior First revenue in Henry in not the corporate positive of amount If business. closing, quarter on allocation by merger moving in of my we First changes incremental $X this expenses X% America, includes prescription which million in strength in income context spoke the as in trends margin in included in in gross management own infrastructure do faced detail Vets by and items both QX. of profitability. management driven rest year-over-year prescription lower balance Schein forma Choice adjusted XX.X% organic other in percentage versus impact the merger Growth our two pharmaceutical during later prior APAC a on normalized our year. the the remarks, higher outcome quarter, GAAP focus segment overhead tied the XX.X% in stand-alone business, versus of closing, This North pressure was organizations for his achieved inclusion in during first margin trends Ben deal year, America which February. Since transformation prior from first as have October excluded growth comments the in Fully to operating manufacturer cash million from including quarter bringing American would XX.X% the our a together items, statements. -- well Choice had set gross as overall a quarter. been were higher and of -- announced specialty of the periods, known to our QX. veterinarian and margin growth previously pro great out prior was loss corporate building will I businesses the XX.X% a $XXX that in difficult to headwind direct results offset Vets comparison were the revenue XXXX. impact North margin were in underlying these was in

in This including reflective spin-off but those the expenses is and as expense One-time adviser in items meaningfully year-over-year, merger well and management of non-recurring compensation a financial stock-based growth below managed business. the were our transaction higher Additionally million transaction dynamics. results. related rebranding QX Underlying related efforts expectations. prescription increased in non-GAAP modestly to and of was result also reflected during the our fees $X were including legal, our costs other quarter

We in are million $XX $X below our initial million of XXXX view. now expecting one-time or costs

transaction services part which As of one-time Ben are costs, and reflected these technology, which are to adjustments costs mentioned activities, this additional over not investments in integration related to diminish EBITDA. making our three-year and addition period, operation in will are transformation we a ongoing a in

$XX adjusted million First Vets XXst prior versus and Adjusted million XX. a in year, a pro Vets North $XX year. the including EBITDA Choice year-over-year. prior First both March to quarter in in February ownership headwind Normalizing periods, to $X decline for the full slide versus America primarily was the million was EBITDA million foreign exchange of forma $XX from of the in Turning due impact $XX to million Choice Xth

the a the pro been year, America. foreign of would difficult North from prior EBITDA adjusted Excluding impact have year-over-year particularly relatively forma off flat exchange, comparison

the described internal first the in geography, expectations factors quarter, In due our modestly margin. APAC subsequent on and terms during America underperformed gross whereas, previously to top-line impact the and Europe moderately exceeded North of

our As discussed start as at revenue recent increases year the recent witnessed delivered. contribution in prescription our see starting level capture value to further expected profitability a trends scale. the in of growth half second improve is with as the to the EBITDA the by of QX at and end QX we QX, these off step-up sales improved drops of revenue as management we've is in The established margin and innovation investments

billion million interest of months we've $XX quarter, deposits. interest our of income expense, two our QX interest which had primarily net is three from issuance on net for the During in approximately in loan the cash term $X.X

was XXXX, XX% for and income for Our any we tax to one-time calculation items rate net periods adjusted normalized both XX% forecast excluding for all XX.X% what of quarter our in adjusted a presented. tax rate used we is the which

non-GAAP reconciliation loss per loss a Looking of $XX net bottom a net were share. million. positive $XX And seen at adjusted on $X.XX line, forma was the pro as income million our diluted of GAAP

on billion relatively equivalents of operations when and of cash performance and cash negative was to non-GAAP in debt $X.X purchases flow first flow cash free to quarter $XX cash million. the million $XXX non-GAAP cash normal outflow million flow sheet year. $XX in ended an in was cash subtracting trends million negative the assets used start cash flow million of Covetrus free generated million in cash from untapped fixed the with in revolver $XX Turning prior the facility. balance when We the long-term consistent and flow. with Free reflective flow quarter $XX and $X year

ratio for X.X leverage stood times approximately by October months agreement at XXXX. as ended our the XX, Our credit XX trailing defined

as we Our next one-time credit as over items expect adjustments does permit capture XX the realize to for agreement that months. our certain items well value

the a long-term at reminder, during months remain post-transaction deleveraging close. $XX over in flow As the first expect free non-GAAP committed we and continue million to least XX to cash

XX% Regarding reiterate, forward the target we of adjusted our of one goals. value we our of run adjusted communicated is expect million year in end push the our to non-GAAP EBITDA total. and non-GAAP delivery revenue the we capture critical company's value steps in EBITDA deliver quarter opportunities are transaction that by three-year took $XX transaction and for planned year the million close To in capture believe of adjusted run part $XXX we with year one by previously EBITDA to end on with of representing track approximately three close of transformation and the rate first the the integration, rate

services earlier targets first proceeding supply mentioned Choice and now and example, above cost remarks, chain to with anticipated quarter value enrollments, we for initiatives As our in capture our are in benefits. deliver First Vets the tracked

XXXX Choice First we be X,XXX forecasted lifetime Vets a to to management due this high. modest only the these three on -- than of a customers quite activation, timing of while a revenue expect years Additionally prescription impact value three for have more enrollments will we of year expect years these lifetime in

capture, uncover prioritized continue an longer future. to opportunities significant We term as identify and will opportunity for for we be value in new capture which have the value

approximately chain. functions in standardizing the tied supply we over legal, our years integration acceleration term intended growth, million compliance operations future position Lastly, look anticipate finance, of and operational efficiencies; to core improve as development; IT, next $XXX to and levels expect help the projects HR, to are business platform expand success. service achieve three regulatory longer including integration These we support functions revenue and and for the expenditures

as team go-to-market XXXX. the sales the alignment to of force aspects expect enablement and foundational strategy our our We serve entering commercial global of

performance XX. X% Turning project in prior with commentary at XXXX the organic Markets or our for financial with growth in year on to pro Capital market forma of our X% Day. consistent full our revenue growth to and non-GAAP slide line We

that Health non-GAAP forma organic Henry both for First was and growth the and that a Choice assumes Schein As business as Animal XXXX. operating of companies pro XXXX of were part one all Vets reminder,

for agency exchange, Day, non-GAAP in America. in during the organic on North recognition growth revenue Additionally, changes manufacturer relationships our and adjusts forma foreign as based outlined pro activity Market M&A Capital the

that We with non-GAAP growth one EBITDA. zero disclosed North loss customer Note expect to approximately revenue million in America a direct approximate these in forma recognition pro to agency impact adjusted manufacturer XXXX and major from impact -- non-GAAP is the the our foreign move perspective, forma in changes of should in the fluctuations will the revenue $XX impacting end as From same headwind remain October result exchange X.X% XXXX XXXX rates of in X% global APAC for in a in could XXXX. pro organic an to by growth a growth report additional of QX. previously

a the of February. made Capital a incorporates one-time which across growth to adjusted of in Markets the We our million corporate First prior step-up to early of adjusted it management fluctuations. in $XXX the when range opportunity. normalizing PIMS including week of in this in morning investments adjusted to Vets to million to in XXXX pro provides and prescription and innovation exchange release at are XXXX. with XX EBITDA compares our in $X the double-digits building, EBITDA consistent overhead Choice last investments in we pro XXXX our details. QX, which and solutions forma end baseline forma and growth $XXX recent our million, anticipated be Slide our comment the for our on growth strong is momentum foreign high year our support project $XXX expenditures forma The many out of in adoption investments prudent the certain carve adjustments range reflects X-K accelerate R&D XX% businesses funding in press EBITDA software including X% cloud-based With initiatives, is filed non-GAAP and communicated believe and also as pro million within the during long-term Day to The non-GAAP increase the year-over-year long-term new of investments, XXXX our range capital

towards headwind business I recently growth, of point -- full initial investments year and the from increased half customer increased second pace additive pro well Choice, that add initiatives, returns profitability anticipate expect as to internal be I certain what of technology gone live forecast also adjusted the earlier will new to have second mentioned during QX tied Vets also normal comparisons, run of As timing the XXXX an will half call and XXXX. the would non-GAAP our revenue out which on and the collectively in for capture profitability of wins at items. would the to non-GAAP value year-over-year year, expected rate. I EBITDA EBITDA First FX seasonality forma our initiative the as and should growth our be the easier adjusted an easing of weighted

go-to-market We foundation and particularly establish revenue in plans as and our further drive blocks, are to target with value EBITDA realized, acceleration. incremental to and growth the using to capture long-term, are our are over XXXX the as we underlying confident building our we completed, investments are double-digit one-time continue

first I quick our to Lastly, on provide update filing. quarter XX-Q XXXX a want planned

as at Trust resulted transaction one today, While the certain consolidated Morris hard matters are result we day to there's possibility a in can of to the business for of not delay, amount impact the and have the is of significant the accounting relates finalize imagine with a the acknowledge by the matters issue a still complexities of pushing we that merger. Health to and the Reverse Henry end of technical-related initial slight Animal entirely income statement cash The flow. spin-off spin-off associated the hand or expected Schein

been working of has team resolved XX-Q. have make a can technical resolution timely that to we these our shortly and we matters to Our relentlessly get will filing very hope

Now call brief Ben to remarks. over the turn for I will back some closing

Benjamin Shaw

touched and thank it to discussion. remarks. with pleased very them Q&A we and we're to do continue manufacturers. moderate Nick the their We customers There strategic Christine. our of how look and the progressed our toward to environment can of over integration delivering am themes team I have competitive plan. lot years maximize deliver across XX in a I'd our the to for how launch. like strategic ahead, summarizes of on tracking acceleration key proposition turn We'll has a All slide to concludes that to communicate objectives. Thanks, are forward earlier we It's prepared effort personally these X,XXX year-to-date all we Covetrus said, to in clear This confident our than a in all work execution enhance geographies. employees in successful more value We'll our that to that remains comments. what

Nicholas Jansen

ask so we two want We limit queue them that to many questions possible you have you should the Ben. ones. Thanks reenter as additional to take as then and

are ready. So we Joelle,

to If you Q&A and first take could for are then instructions we provide ready the the session question.

Operator

you. Thank question Erin Suisse. with comes from Our [Operator Instructions] first Credit Wright

Your now is line open.

Erin Wright

Great. Thanks.

mentioned? quarter. first terms in in a million the progression? your on next capture synergy the relative the you considerable that this? to that experience And or, that synergy the And quarters about of profit and thinking the Is So quarterly guess, ramp in of what's with the few years? you your the over capture remind corporate driving us capture next year-over-year in accounts $XXX guidance addition what's growth new be it here can I should then synergy you're we guidance how over three embedded in And track if implies

Nicholas Jansen

start let and can on then Ben Christine I'll ramp ask Thanks, Erin. profitability. you the

Benjamin Shaw

Yes.

business. the in is course seasonality First, I'll QX year. our there is a that our of emphasize low just typically in kind point of

continue capture value We -- Day underway, Markets at half those said we as will work heavy, be significant be Capital back have initiate to activities. the as to we capture will that initiatives

seasonality but So again, value confident capture we're our have is remains and the add. early on in it we're ramp second track, the start Christine -- encouraged by we in normal back in heavy But really business. let QX. and I'll half

Christine Komola

Sure. Thank you.

revenue growth will year the a Vets the our of run is by Remember XX% rate capture to So the First pretty continue That we is other operational as Choice, embedded that improvement. do point we've in $XX of have as FX we And million got look actually also planned. First add about would be Vets significant. dollar driving the I got here. the we've end value that that EBITDA growth platform our at headwinds

Erin Wright

the is shift sales But visibility, sales. I'll -- changes agency question on lap agency the another kind of And in sort the guess, of of your to, when question those recent a quarter? of in that's agency the most this sales. going agency transferring points agency on component the of based on year are of targeted to America Thanks. implemented in you I January three have is synergies that XXX on But was the business new dynamics. much also a This two-part shift, from of you little next the agency And bit a headwind I Okay. guess, you speak original I that impacting at will lot where into guess, you can what a this in X? over the $XXX are how dynamic relationships usually And North your here. And question years? sales terms in the million ask basis sales then a is VFC this in you've platform? then

Benjamin Shaw

Yes. were good that often of Good The brands the questions. can were to manufacturers. these question the they year those QX. Thank visibility have which is that change first implemented you. We not changes course the individual throughout changes is or yes in to on do answer and depending the

so and period. changes subsequent were in were the over -- effect would XXXX QX, change that that we these there's no to So in took expect if lap further

and think I So there's changes or those go make will don't manufacturers back. there's that great can't brands that they necessarily visibility nothing to says how

Your platform. second question transparent to, related

previously around important it's an those and think that the prescription categories opportunity three important specialty to for proactive preventatives, which really food product capabilities to not is really chronic North and I were deliver understand the largest of America medications. that, to with organization has management in business, agency now dynamics combined our

sales compliance improvement to so, and it's field a North it value engagement three to engagement. for proposition provides and to drive our drive upside categories. that America around sales our dramatically that a big to strategies opportunity And ability major and actually organization compensation and great will improve presents team And combined real compliance manufacturers those the

strong we believe, an and year expect that, manufacturer we we that forward. programs. will going So be important throughout for those support And, opportunity this really have

Erin Wright

Thank great. you. Okay,

Operator

comes Thank with from Blair. Kreger you. next question William our And John

line open. is now Your

John Kreger

kind like distraction sounds America the Can merger-related Thanks. issues? it little as of, maybe is guys you you organization just bit the that, softer what Ben, or just little dealt market a was dynamic of than North within a you Thanks. a clarify with all expected. Hi.

Benjamin Shaw

Yes.

of I But expect we of channel agency with a think the that some intact the I'd was there were to do those were that the I overall America loss, think that, customer we're our of we dynamics. category this line North weather navigate bullish the as growth. emphasize are overall events. we performance to that be think explained. in fundamentals, some performance sense macroeconomic dynamics; and tough there overall, But quarter-to-quarter, QX had in dynamics around variability about the want a looking there difficult had forward. some we category as that changes We

data some visits. patient showed traffic Our and total and saw that, weakness in-office revenues overall, we soft

that, to market. And tracking so in our as we small well we're side normalize view the feel dynamics like category the for animal overall we pretty of

John Kreger

make? seeing are -- market, Great. some more the channels? of a guys? the your pricing you Thanks. and the through of that pricing ripple volume Are in relating shift the sort And to given e-commerce impact of that And underlying What VFC that seeing Thanks. you does impact then choosing to sort a and legacy customers business. follow-up are how to other trends you

Benjamin Shaw

to to able puts our the to and that where value. expectations, are Vets I'd an manufacturer in pharmacy long-term channels. offer and And remain of some that these market that ability that Vets and programs on be Choice remains strong. that's to a online great and -- authorized and We good support both adoption First very available ensure be bricks competitive. increasingly and us Choice diversionary driving and I expectation client the First direct successful think driving respond access driver Pressures they're We an the very have platform supplier our changed platform need Yes. guess, to not -- veterinarians manufacturer dynamics. meeting mortar advantaged manufacturer service to allows actually of rebates enrollment very position to of urgent to think veterinarians dynamics and is veterinarians an

that So we acknowledge get veterinarians expectation. successful drivers one more in service will for -- be of we to position market that very to is very think our competitive But to long-term and we help believe competitive, adoption just platforms. be to changed is to and very continue the we're a of continue meet the

John Kreger

Great. Thank you.

Operator

next from comes Thank And David SVB Larsen our with Leerink. question you.

line Your is now open.

David Larsen

Hey, Ben.

of normal okay, $XXX million through you've $XX and to in million capture the end And means synergy I million is growth by I remaining. of can given does of incremental that? midpoint your Any million XXXX. addition And think helpful. $XX $XXX math you going would that of Like the right at you EBITDA I it? growth. got for the you're million reaffirm be XXXX puts Thanks. synergy sort that that sort that of see guess, of That then, $XXX by year there like capture. guess, mentioned in way you use business, is that three the -- EBITDA correct? to guide as the the You just short thoughts if would just mean to we say, about for we in underlying synergies,

Benjamin Shaw

go the $XX and the end reiterated Christine the year of we that run by as of that's of definition year, to some rate Well, because that million to I'd value the on Yes. the parts deliver framed track $XXX absolutely there are moving just the capture we first, terms. incremental we by But reaffirm we those into in are expect end clear we -- about end XXXX that, this, And million the be acknowledge of of EBITDA here. three. way

each investment. important expense making that significant we've of more making those expectation. that much infrastructure ensure the one-time, operating necessary in acknowledge really and that is will of that relative compelling modernizing return acknowledge of of Others investments costs. We organization. are And just creation strategic a most as a cases business come also we're to we're stand-alone have We to created support we're staying competitive, those major investments investments think or supporting while them and on growth one-time to of that we ongoing that that through some we're

this we're $XXX the is more correct. that infrastructure that a at So global significant EBITDA ask just we're about investments I is think way modernize the -- than our run second rate and We'll you're that, is capabilities. to thinking you one-time time making acknowledge of million same to and

David Larsen

Okay.

Nicholas Jansen

EBITDA of when line. any the to And operating just and of million is it to OpEx. activity is There's all the sort that component the we'll these be significant of are all CapEx. finalized impact can details Christine David, with associated clear, $XXX plans talk integration more, -- not about a relay that's

David Larsen

lift to great. then, steps talk lot. the What more you still mind you've That's sort Vets coming can done? is platform? to in like in integrate what May? with Henry about April First new maybe a future? have and the needs that's or Schein What been the what to seen revenue And market? product And the in that? already Choice PIMS then, has done been system your in that driving And taken of little a what's Thanks Okay. be innovation And

Benjamin Shaw

Yes.

in of transaction, So we say, the first closing stood following -- organization. question commercial And really North would of -- American the we're and immediately we a aligned kind one Europe. this strong I has of up similarly process And in customer the organization. the account achieving strong have a same really have where to allowed alignment we face the us to management

have can we expertise pull So aligned of integrated management on management practice software. specialists prescription in have now in expertise or and to teams

believe the adoption, to gain and in but integrated is to share face be so, market. critical platform for an our and important one approach overall really that customer not continue only go-to-market going And be to the we to just that driver,

is to now representatives credit compensation of very changes. both and them, scope in-office they much categories, their also have which would continue boost there's So, guess, participate is to product but able territory and opportunity. -- XXX% I get who our This transition a bigger commission-based, online great revenues for overall a smooth a to in for I that sales add no be

David Larsen

Okay.

Benjamin Shaw

terms Did perspective? your these and think, a -- we question I for we I how technology opportunities look is, understand from correctly? software question, integrate question in capabilities what the of new Second as should

David Larsen

Yes.

care and the close Just integration First and Vets to aggressively PIMS and in clinics. volume increase ability gaps the Choice the of into

Benjamin Shaw

Yes.

things. a couple I offer guess, of would I So,

insights I integration management, we and some and as management. of a practice of inventory think proactive platform move opportunities these for analytics, and can there're single prescription some fantastic native towards really management workflow, management that appointment support applications proactive

launched management service. in acknowledge our the appointment So quarter I first that, we

to is one very our additional of it's this innovative services. sense at office hurdles to and And is I major a diagnostics example. in integrated think, this to workflow. capability treatment reissuance a for it's prescription of capability a because end real-time a is read/write important, the is management in period, that or see terrific This that the the driving patient need we prescription highly

management for I heartworm to see to test. so end and need you see rhythm to and natural in-office you there's a at of At the TX see course I Or a of of preventative, end therapeutic a need you And I year methimazole, need or proactive prescription diagnostics. between test. for the of levothyroxine, heartworm a

those to diagnostic And that ability in-office the reissuance is prescription into management and direct link is service So on management having renewal. prescription increasing appointment timely events impact important. really a

of would I that in category put so marketing And persistence the opportunities.

example. just particularly I think So that's good a

that our signature We also we're cloud -- legacy acknowledge -- in our delivering new systems. legacy in server client enhancements

hour user deeper better, management. prescription per integration of improving integration the management that, expect I of inventory day per to workflow. improvement. But and we veterinarian, stronger, so mentioned the experience. directly those It's these a enhancements around some with very veterinarians And will is this relate big some save an signature of enhancements

interesting create to never just really So has be been to it's able now previously pretty and fun possible. that workflow

David Larsen

much. very Thanks Great.

Operator

you. Raymond comes James. Thank Cooper next with question And Andrew from our

Your line is now open.

Andrew Cooper

sort metrics. Appreciate it’s showed with guess little to I and about saw me. on a animal So peers Ben, XQ, that guys. in. me in just XQ an your couple that a Can weakness any slowdown in one of uptick be in helpful. definitely of some XX’o after from but the But clock. would XQ XQ? general your bit talk in color hospitals the in-office first, of for you relative you squeezing some data answers some visit referenced that traffic back think about it I a know Thanks for I of in your of and

Benjamin Shaw

Yes.

that visits to first saw and around in around from quarter continued saw revenue office patient to practice. quarter we overall fourth the the transition headwinds So

And from so it continue first saw some we fourth quarter. decline said quarter strong can there We actually pretty that was in markets. that to

lion's market North I so we're the think of the of American that And which is the those continued companion trends speaking side share animal yes to and our business. had really

We're see headwinds to acknowledged in quarter we first as a that continued also optimistic our was really from momentum were into did in we're strong Having said seeing month QX. we we head that, so there quarter. market. very yes, fourth and So that remarks March overall really strong the

saw trend of into March. that So we that heading out bucked coming that we and January into

Andrew Cooper

domestically? do start you'll And at little point how the of term the then you of talking that about thinking think a that XX,XXX first? what helpful. how of That's of internationally? of layer low-hanging before XXXX as you think platform forces least after you the Okay. probably of benefit thought forward the at in think then closer do number, more had about the do market, would terms I But that in little think sales together. some looping the in So kind at you gone big longer two a exit about chunk there you've you And that us year to clinic point north at that of from bit fruit the probably of once at details about least add a roll think that's more we terms we you than -- most

Benjamin Shaw

following greater quarter. following we guidance Well as think we in what growth of experienced launch team first the pipeline I and sales a what our April Right. -- about year-over-year and described America robust integration really that in much our than providing the launch that was North the updated good we feel really

to we wanting good So feel business probably and step about is cry the we really to Frankly, really feel the ambulatory, States that and those the pressures. for all equine whether with market engaging of corporate benefit practitioners expect practitioners types in dynamics. those And groups set-up to them or would the relationships veterinarians from client-patient really outlook. up all food the Vets Choice from good First to we pharmacy online and respond overall or about rally United that veterinarians and practices, in veterinarians noise that to away enrollment that channel help wanting disintermediate one-doctor steal retailers a from in respond

from adoption very we're capability long we'll that engagement and to continue term see set. So of this veterinarians bullish high

acknowledge the our believe We think long-term Emerging ways, be we strategy. key management prescription a Choice than may in First very internationally. some opportunities remain really market. into are head those as can that U.S. be important to well of for and in We attractive Markets pursuing part the also markets we even more just as Vets Europe it markets In committed that XXXX, opportunity. APAC growth We attractive

Andrew Cooper

follow-up to Thanks. I'll Great. and offline. stick queue

Operator

Thank G. with Kevin comes our Research. you. And next Kedra from question

Your line is open. now

Kevin Kedra

the taking thanks Hi, question. for

just First, of Choice sales want Vets First clarification a around on the XX%.

$XX So be million quarter. so by that'd math in or the about my

think same-store the right thinking balance wanted that a make should gave doing Thanks. on through of metric metric then math XX% be I you And about sure you Just secondly, we the us go as there. growth How we I said. around was to year? the

Nicholas Jansen

to So Choice question XX% quoted in presentation. Vets First prescription management the your revenue that understand that Kevin see the with you is revenue platform-related we the as

pass to the to that And platform you it kind specialty as looking the of we of actively and just know, you with Ben regard business acquired over to are think a the time. same-store to As sustainability that same-store growth. in number well then I that can about convert that these on customers we what on journey have you platform XXXX do we're the

Benjamin Shaw

term I journey. appreciate the

platform first clearly As veterinary patient been members due to for see opportunities without have are creates they care today we and have the our for in walked including team patients onboard medications care who health where gaps practices, really time and refill. out or to purchasing in

ability is and a our with refill ramp recommendation and have so happens time. help journey predictable become really important. and And really auto-ship or patients create to and to over on renewal. It's subsequent lapsed follow-up active untreated that medication who And

data still And prior those what expected just the term in been available long important cohort expectations market notes platform very well-understood same-store for I mentioned mature sales. I rapid with experienced expressing answer to been has ramp has us. quarter And we're practice who've my about which that's Comp setting really so pleased sales we a the and in that as the total that Did first new oldest same-store consistent very those is that of we your XX% how year-over-year to our that growth over question? a some on about we time. are or groups. growth and expect XXXX of cohorts really builds mature think nature and toward most reflect customers

Kevin Kedra

Yes. Thank you.

Operator

Thank Wright [Operator Instructions] from next with question Credit Our comes Suisse. you. Erin

is line open. now Your

Erin Wright

Great, here. thanks. A of couple follow-ups

should today is the be has the same-store a And will much we mentioned and year? evolving thinking of in thinking about potentially of you trending just manufacturers potential with a parasiticide associated market? of historical how cohort context that You question this with how revenue sequential can are speaking next the last potential market? launch total -- how given then on in of here, your should How particularly XX% been in new prescription a separate next-generation some your parasiticide provide And heartworm course instance, growth. participation in How you the tick year, legacy into products be this basis? the heading And there revenue flea, out about products, combination play for Thanks. cannibalization over next already parasiticides? we question

Benjamin Shaw

Yes.

sales same-store XX% almost answer is seen. same-store growth growth. or high-teens, an that first we've expected from sales I'll acceleration sales XX% comp We've growth your question. always almost So

hence that sales and So for customers of continued those is XX% acceleration an outperformance. same-store for our enthusiasm

far patient legacy a I as very how categories. more practice. cohort well vaccine. They it's data. preventatives, market. versus to answers a out Covetrus of need I care I and engage of of the question -- large situation that we are product type. happy product they be dogs it services to longer patients in around liver a actually What have sensitive in-office positioned the preventatives think could think can a kidney chronic sick. given your we a is purchases kinds fairly ultimately It and multi-channel of And mechanisms better coordinate tend don't patient in delivery heartworm just have and we would where variety customers that patients experience could capabilities against by well for break these percentage medications flea sales uniquely it's And represents And remind different deliver sophisticated as very and the you total that on percentage you as small that care. imagine just different as the is -- disproportionately be On tick disease

in the patients. sick majority as competitive geriatric that compelling chronic think think well think compete in we spend for We in the in suited to remain for we'll to situations channel diets. categories the veterinarians So care would vast which medication care helping help we very we is really of we're or uniquely those But preventatives. I remind preventative have coordinate for strategies for effectively as or just

Erin Wright

Okay. Thank you.

Operator

in conclude you today's Thank all you Ladies Everyone gentlemen, participating day. you. session. today's thank wonderful and concludes may This today's a does That conference. program disconnect. and have question-and-answer for

Covetrus (CVET) 15 May 192019 Q1 Earnings call transcript