CVET - Earnings call transcript Q4 2019

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Covetrus 4Q 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

pleasure Vice my Relations, of now Jansen. Nicholas is to President introduce Investor It

Nicholas Jansen

Good thank afternoon us Andrew. you, Thank and QX earnings for you XXXX call. Covetrus' joining for

President Gleichenhaus, our take be Chief today's Ben call begin Joining Stuart Ben happy your Interim Executive and with me Stuart Wolin, to prepared Financial on remarks our and Officer; and and are will Officer. questions. Chief we'll then

All including on statements, we of anticipate making and business our During and historical current to our and based made transactions. future call expectations. management's and operating than this this call, conference our plans performance strategy timing for reduce fact, other forward-looking projections and of statements statements conference statements net operational our expectations impact in expenditures, financial during are regarding forward-looking, debt

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

subject performance not Forward-looking are promises are from are cause of control, many and beyond these statements variety actual of our which differ in statements. which forward-looking or future of those to materially uncertainties, could risks and to results guarantees contemplated a

under the recent and These and XX-K, the ir.covetrus.com section include Risk at uncertainties which available those our SEC, reports at are filed most periodic website of website on heading on other Investors risks reports www.sec.gov. in on Annual and Factors Form on XX-Q our Report the quarterly SEC's Form with the

statements. date to or by we obligation law, of Forward-looking update statements required speak forward-looking these undertake only hereof and as the except as revise no

a health ended financial investors XXXX months of Choice pro underlying December Henry and combined as First closed forma in understand and historic the the on the and provide XXXX Schein During this fiscal however, for operations of results certain by chosen we structure, the statements areas animal help of presentation, of the merger as the we combined XXXX. certain including allocations the and if what and expenses those business as business information reflect a as XX, trends Vets necessarily infrastructure. made to Note, would of performed results company, what also outsourced three operated on in December year had will decisions the have not strategic such shared or employees, do number depend factors, been technology were will and functions corporate organizational results

find this can press on afternoon's announcing quarter full ir.covetrus.com. call this fourth and You release year XXXX on our results

also to the will use this continue important will non-GAAP press and further information time-critical The measures distribute site about financial that release to call. We contains our we company information. during discuss

exclude merger and These such including results infrastructure GAAP certain non-GAAP and associated items as financial special directly executive program charges. separation severance and expenses, investment non-cash costs, integration with measures goodwill impairment costs certain the or financial the ongoing from our process, spin-off

determined We a believe the financial for trends, long-term performance results financial financial fourth investors short-term measures this may in accordance to as that measures and items supplement reconciliation to consider order in afternoon's a Please to release year our to press announcing these of and these XXXX with properly full results. our GAAP. impact to of refer quarter our GAAP non-GAAP wish understand

to provide And to with the will over I turn that, call now Ben highlights. the

Ben Wolin

Covetrus. today, announced a the more CEO It four at than And Nick, little we as I role Thanks, will be now basis. on those now a acting afternoon, since permanent and everyone. of good been responsibilities assumed months, taking has on I

and to get lot do too say I time spend not a want I much through will to have on But We that. this.

look working I only stronger and and organization with solid this here We are culture getting have that team. forward to a

core a discuss the Covetrus several that the at in sense company. the opportunity the of drivers what significant opportunity I'll business, and as with deliver number our emphasized a will platform the health strengthened in provide and organization steps from culture animal this have but on the a first in taken last of has and to to learned want of on supported the we months, back We company those forward marketplace. Looking you initial I've I here. further a better minutes, period moving how take see the few focused

lot and important the revealed still The the remain we over lesson the past growing time our and have year, a to This this for pains to people. manufacturers passionate that most have and focused we delivering as highlighted a hard value on by is customers, is and this partners, attractive executing hard-working company has well challenges presented that its deliver team about market. us and talented, opportunity It as faced the shareholders. also that work business on

this team plans It is the us everyone possesses The needed change the our us helped making that and overcome forward. succeed ability execute challenges. begin business clear desire to to will a embrace willingness of me the successfully has moving has the improvements and allow that deep focus those to to to

continuing and we of continue I building our last for of the that on emphasizing platform a strengthening you by while drivers both foundation to the an initial relentlessly working To will and the core our on continuously success. and have goals, our emphasize with way we our call: business, execute, strategy and to as steps new will on of focusing shared significant achieve that organization. the culture taken innovation I focus and we believe are core the themes These execution build

process. Some of are these in plans action already

back QX and have exceeded This was the focus of organization. we the our established sharper execution for enhanced mid-November end results, sales adjusted the our our guidance in high in net we evident Over EBITDA. which months, within last increased both accountability several and

our key call during our of third drivers. QX activities, and of on And to investments delivered began drivers business core central quarter that importantly, the we was core the initiatives conference results were approach. not benefit early approach a to projects our and reflect focused to and our integration, pace the this improved our This our eliminate and message

prescription This combining teams map drive rate our a road towards QX one included software We help to of unified also units practices. under leader our early integration leadership and begin implemented and enhance management tighter and will that certain a to product for changes business XXXX. to deliver in workflow veterinary

global plan have David our Mike our executives tenured organization. now most two Ellis and North and Hinton help also execute responsibilities of America our in animal refocused to health sourcing additional strategic

basis Additionally, talent continue has stepping shared to critical to be several a in building will change and we us help with our team an priorities. is made critical Retaining and finance as a recruiting it against of Gleichenhaus success. significant CFO on in a interim deliver to focus Stuart culture as paramount short-term

of our strategies. support brought identified opportunities we commercial QX Additionally, to the sourcing we also third-party meaningful in deliver not only and improve enhancements -- to have but the during health, to our with organizational

We are these later around optimistic that beyond these deliver and we benefits the execute initiatives possibilities on could and initiatives. this as year

strategy and reducing in significantly our made assets streamline enhancing -- Spain. million joint our of flexibility our efforts also and $XXX complexity with health Spain care non-core progress the to We divest and animal exit with for focus announced for on sale Distrivet our venture scil TSA the financial in pending animal

of will leverage have week facility successfully delaying of by his net down late the Stuart pleased amended details until we one more while last provide that in XXXX. I'm our step the our to year second prepared report credit remarks, quarter covenant And also

execute scil the our While we anticipated strategy in to amendment our agreement, credit confident supported well even have as as to in invest that are as would well for terms provides future the with proceeds to the XXXX animal business the outlook us previous growth. flexibility as our greater continue care

customers innovation. changed commitment to through is our Something has and effort that not our this

focused are relentlessly includes successes. experiences which better customer on delivering We our advancing outcomes, and

improve our with capabilities on We lower and across product are believe and to service in all strengthens to additional to And of back engagement manufacturers facets customer value our also and ability our drive sizable intently base. greater investment customers, technology focused deeper business we support our partners. deliver costs, leveraging

on steps. build think As we we these XXXX, about will

to consistent continue profitable particularly focus We to in business order and to and America. North efficiency the and our on of and core improve seek performance, effectiveness more deliver will streamline drivers in to

to our and investments And and we managing momentum look better deliver are sourcing build overhead the priorities global improvement reinvestment of serve as operational critical lay our years year. and margin half in the to the enhancement cost into for Reducing ahead. will the second foundation in

to order to will moving enable and effectively culture forward. learn together bring as and partners manufacturer team and We This operational customers make us will a deliver in our of the and more the an and collection global better on understand opportunity our of needs us in and to proposition. integrated invest also focus our capabilities value organizational foundational smarter stronger and in team,

XXXX. We our leader. need are are a we making in that compounding our investments in to market industry prioritizing This pet owner service solutions their also increasing and and pharma needs, includes solutions already and and drives proprietary which for more leveraging customer provide an is specialty customer higher-margin fast-growing where an access products

to XXXX, our We to to the experience management in leverage customers as integration our capabilities even e-commerce more all greater engage our and platform software our we marketing effectively focused also and our are even clients on stakeholders. partners, are utilization, value greater manufacturer making it driving prescription we on and provide for their easier workflow, and

expect over in initiatives feedback, QX. And the same-store business more beyond on platform these the investor time. to committed other We and efforts based XXXX providing will sales XX% the achieved are these accelerate beginning parts on in on of we disclosure

priorities sharper summary, are XXXX in In strategic plans our focus. our mission, our now and

success culture all will stakeholders. can much These priorities, months will relentlessly is that on can collaboratively to Covetrus towards positive the few we and our and will for are taking be collaboratively beyond. the we and there and the model deliver. value, fulfill -- our approach to enhance we promise still and done While results organization demonstrated yield By in work our work XXXX have growth and of executing past to continuing

I and and detailed the our XXXX to our financial will XXXX to provide now of QX year Stuart hand results full guidance. a call off review

Stuart Gleichenhaus

trends Thanks when will non-GAAP of quarter for underlying today's joining year the most XXXX to financial to you on applicable, the impacting the release description detailed year results, and our all full into XXXX our everyone. insight and as us GAAP items more Ben our press QX and good for the fourth refer forma I Please Thank these for results. my pro of businesses. focus afternoon a today. comments full provide

in net X% in year-over-year Covetrus and XXXX. increased just $X XXXX. over for the X% net $X.X Non-GAAP QX organic full pro approximately were and year sales QX forma billion in sales billion year-over-year

foreign exchange pro Choice As and normalizes in our First the to comparisons. includes periods manufacturer forma to from the U.S., M&A reminder, which of and Vets fluctuations adjustments growth sales can a switches in non-GAAP organic impact net impact both sales excludes for direct year-over-year agency sales

loss of quarter These X% these fourth forma North model manufacturer underlying organic that the previously growth from the in QX for approached is in and the XXXX. the moving direct for Pacific to XXXX. would results impact APAC, the sales announced have a full Asia include impact during and sales customer to Normalizing a events, in net tied X% two pro of year America

QX year our negatively increased by full chain previously operating the of America America North organic supply loss X% customer, announced in in full sales and growth The segment both impacted organic performance, year-over-year net QX year. X% North to for X% pro the Moving net a forma and sales XXXX.

softer Our QX growth modestly visit growing. excluded. when market decreased is veterinary organic versus increased the year-over-year in growth announced remains QX net practice and in stable general QX X% in chain Overall in pro patient or loss North modestly But America. customer supply sales was forma previously the

America For forma X% the chain specific organic increased from impact North sales this our net of growth customer XXXX, loss. when supply excluding all have in pro would

of in than ended Total practices Vets with practices. management more $XXX XX,XXX goal platform We the $XX First and year-over-year XXXX QX our prescription in XX% Choice increased XX,XXX least our achieving XX% on at sales million ending to XXXX. net year with to million year-over-year

growth have continue driving our sales we delivered as in to XXXX. base. customer approximately in we success from enrollments same-store existing XX% And Ben new mentioned, Beyond growth year-over-year

our during of date which to year-over-year XXXX all to grow digits back Importantly cohorts XXXX. double continued

sales full year-over-year forma the for Pro organic in and increased Europe. net X% QX X% year-over-year year XXXX. to Turning

in forma market pro QX. U.K. our which largest is net European X% organic year-over-year Our sales increased

Our U.K. a as the the group call from of business relationship continues on our execution to team. expansion we corporate which with benefit continued large solid QX, announced as by our XXXX well

our of healthy growth in net experienced forma also pro in sales Ireland, European and markets businesses Czech performances most Republic. Poland other strong the our We from organic including operating

in and the X% direct full QX APAC the to Normalizing year-over-year organic year of markets on the X% in an sales a pro Brazil. impact strong and team and our continued went XXXX. model that and delivered in manufacturer Moving net the increase New in forma market and markets sales number APAC emerging for to for of the XX% XXXX full X% driven for segment this the Zealand QX in grew growth in emerging year-over-year performance November by and in year served customers a XXXX,

financial continues execute results. Overall to robust this and team well deliver

Before will net provide the remain we business. P&L, that delivering on I investment We committed wanted hope by for drivers be filed software lines of which will geography the useful. including on supply will to which our annual sales prescription Form management to the transparency our find soon the core increased rest our share moving of business XX-K to also details community chain, and

Turning in selling Choice business our was to cost from we Vets shipping goods In administrative sold the to and be GAAP consolidated gross changed classification rest general the versus First in of our QX consistent prior of expense gross at year of to XX.X% expense business. legacy QX the the margin with the margin, XX.X% period.

expense EBITDA. $X and classification the shift sold selling $XX administrative impact no classification of QX And million an the represented first was of to XXXX, on adjusted a for million nine general In the There months approximately represented shift. cost goods expense. from

would the QX as includes First and to Vets excludes classification margin XX.X% XXXX the been period prior prior the forma change a On year to gross Choice basis have which XX.X% our year. in pro in compared

offset forma margin compared pro For been proprietary the prescription margin year XX.X% in higher-margin our and platform growth supply products XX.X% the pressure our in the have as management moderate including full chain. XXXX, by services were gross as would year in prior to

and were of special Our GAAP million XXXX. being investments during ramping million during tied separation of selling operating of the general the quarter $XXX certain of public to the merger, fourth and year company. a the impact $XXX infrastructure expenses the and and cost full and expenses includes stand-alone administrative This the XXXX items

fourth non-GAAP an by Non-GAAP the in not year-over-year was supply quarter adjusted chain profitability, and period versus was $X EBITDA foreign $XX that Europe the a general forma prior year administrative certain in changes American pro million in basis year a headwind The XX% a decrease selling general million of on expenses, on did million in basis. negative exchange. lower from XXXX to million prior the North for non-GAAP corporate XXXX a tied pro in in $XX the driven and impact forma recur $X and administrative results benefits overall increase

the growth markets the in XXXX These of headwinds Vets profitability, modest emerging acquisitions XXXX. underlying offset during improvement First fourth organic contribution and year-over-year Choice APAC and quarter the from in

year-over-year the year-over-year as described. emerging just result while exchange foreign America growth, and of adjusted North G&A and Europe On dynamics and a witnessed markets a EBITDA APAC segment basis declined

pro For $XXX forma million non-GAAP the in million versus $XXX EBITDA full the was year adjusted full year for XXXX. XXXX

the we rest Looking had approximately in million income interest the $XX of in statement, expense net QX. at

XXXX. of full Non-GAAP QX versus was Our net share $XX on loss a and loss of or loss income forma $X GAAP period. in $XX the adjusted a million, prior share or year per the QX million year diluted billion, for $X.XX per million pro diluted per $X.XX during basis net a was $XX share

was forma For in $XX non-GAAP the decline the impacted adjusted year XXXX. by million in million forma in non-GAAP net $XX aforementioned pro adjusted the full EBITDA pro XXXX, versus income prior year

XXXX property facility. revolving metrics. $XX and cash million with operations and XXXX sheet flow no flow cash from debt cash $XX $XXX equivalents and billion cash to in million $XXX of equipment Turning credit balance and of non-GAAP million. against Covetrus free QX purchases in $X.X million ended We in and borrowings in million net generated flow, during subtracting the $XXX cash our when

XX, times inside of X.X well Our credit week, agreement XXXX ratio the as net XX mentioned last stood X.X by defined our earlier, the our covenant was we ended the at to Ben June XX, scheduled with months amended ratio step into times EBITDA December as an late into trailing XXXX. debt the leverage go syndicate that down entered ended agreement our And covenant. regarding for lenders approximately adjusted quarter net effect of to for

Under ended XXXX. leverage the the fourth to net full have the one now for XX, amended we out – with June beginning year step our quarter down of the adjusted terms, to times X.X net with drop the with pushed bank-defined EBITDA debt covenant

Additional in that to Form we this included be today. XX-K plan annual details file of amendment will our

Also of to the The XX, sell of the transaction to year our purposes, And is amortization The we health announced required through credit our quarter reinvesting mandatory Heska payments. business to used the into million. for the business. close quarters to cash be including remaining scil about agreement proceeds the of debt general for under to a of including use expected on net QX payment on X. March end, down will subsequent to pay $XXX for quarterly or debt, plan animal million prepayment of principal balance the including corporate $XX the definitive back care agreement April the we QX

net XXXX $X.XXX billion XXXX novel sales so again forecast health for significant $X.XXX economic the our and or coronavirus to sales. our and $X.XXX that repeating Turning chain of a assumes joint second billion divestiture to both disruption S.A. billion, disease guidance, the venture We which related XXXX to net no quarter animal Distrivet impact $X.XXX the scil COVID-XX. care close with to forecast that XXXX billion supply or

X% outlook growth current forma from and X%, the and foreign XXXX Embedded impact our non-GAAP transactions. M&A net exchange organic previously XXXX of is pro rates in activity this sales to announced the in

performance chain prescription modest incorporates management trends outside outlook our business strong supply American our platform expectations for in the and continued Our organic U.S. underlying North healthy

our Turning range non-GAAP so care year-over-year $XXX EBITDA million are results to $XXX relatively the million the of was guidance animal over EBITDA approximately growth forma XXXX pro adjusted to excluding million. million, animal adjusted the forma XXXX of non-GAAP excluding XXXX when business. The scil EBITDA In EBITDA, $XXX in to $XXX adjusted million. pro scil flattish forecasting our $XXX we reflects midpoint the business care XXXX, adjusted

wanted against the our the our community associated into Underlying all set at a the we investment to from with delivering confidence until the expectations I to ramp seek more business, XXXX in overhead XXXX. not gate. stand-alone commitment going begin did we growth Before build the details, continue to XXXX a to as investor out for investments by reiterate level after of just challenging which start forth the to is in timing offset impact late geographies segment corporate QX running to

quarter comparisons XXXX of you year. guidance, we should would overhead the our provide adjusted result, keep not our investments timing outlook. of given as quarterly specific QX And most represents While that out EBITDA year difficult we point approximately last a do QX year-over-year the XX% first full to

creates period. comparable headwind year-over-year compared the mind million QX $XX operating balance year when our compared the average of year. expenses $XX continuing This were in and million to $X as quarter an in XXXX this per overhead with QX to XXXX over million that results this approximate dynamic into approximately a of Keep adjusted the corporate

drive to as operating our better leverage from progress the expect expenses through corporate the year. adjusted We of operating balance we

provision as analyze plans are shortly review the associated to company's weakness expanded XXXX. issues and will remediation our further tax and balances, more for XX-K deferred general the taxes These implementation establishing controls impacted the disclosed a material has annual by the to as to income report information well in this transition controls issue, filed technology for quarter tax with in disclosed income new and that and the Lastly, related tax in-house of last management our capabilities. issues be identified Form identified underway caused as

remarks. over Now, turn some I'll closing Ben for this brief back to

Ben Wolin

Stuart. you, Thank

and the are as in QX making the market. seek in for company. stages I company we large growing opportunity this of QX months promise be and on opening and end are call process hard in beyond. and have we looking am we to the path to remains have a excitement still company path the on this to my team forward. we commitments and forth also in questions, energized demonstrated early and that much progress XXXX we the charting we only last reiterate these we that stakeholders We've delivering work that a the that by to we the a want of forward that set done showed I'm the in are I formidable for for fulfill and thinking right that that as ahead have have Before solidified my can four all of place our path build

This concludes call moderate the session. our prepared Q&A remarks. And back now I the to Nick will to over turn

Nicholas Jansen

to So we Instructions] the instructions then [Operator are question. the take session please Ben. Q&A ready Thanks Andrew provide for first and

Operator

Certainly. Our John the with from comes Kreger [Operator William first question of Blair. line Instructions]

John Kreger

much. you particularly as U.S. Can seen in you Stuart, reflect I actually said thanks the roll guys you're you QX Asia, any but coronavirus Hi, Ben watched guidance on and does you've Have impact, out? Thanks. very and Europe? what expand that in seeing impact. not also just any think

Ben Wolin

Good John. thanks, Sure afternoon.

that's current has day impact day closely. does situation guidance any date, the impact To are very coronavirus. not by been it's So changing from you and or But minimal. fluid yes, monitoring we a reflect managing the know, as situation

think we're our our safety foremost focused on suppliers. and and our employees and customers that the first I of

no impact. far the forward. And to so date we material in being going we are prudent how manage But business so

John Kreger

That's sort back you us like distribution to of where you. sense have you that full to you give on a Thanks. can seems is, there second need my It in issues get stand key with was the operationally? about where do then that business And question footing? you more U.S. do What you Great. its Thank helpful. think XXXX.

Ben Wolin

Yes.

challenges business in is one North key we the with the yes, had of that American areas XXXX. distribution So

made changes on the I front. I a overall market think I decent to value driving in in as prepared we leadership back quarter against with we've QX that the the competitors need delivering our out remarks, prepared. market of line had and we pointed core would in how our cost for order some to and say and And was on proposition In to share our business, to customers. focus and to accelerate continue that providing excellent reduce serve executing that suppliers

early modest a of as we're So expecting that our XXXX. for and guidance business, have also stability expectations days reflects, I business to have more that in would say we but out

John Kreger

you. Okay. Thank

Operator

Thank you. with And our the of Rich next Sachs. from question line comes Nathan Goldman

Nathan Rich

maybe for starting question. the Vets Thanks Great. platform. First with the Ben

of kind platform. mentioned you on It add seems like to that accelerate to see think to same-store practices new -- you've platform. continued also the growth to I potential

you for I'd has more on disclosure of that be And in curious key So into comment think business but as business. opportunities we we it you profitability in just the if that what about help beyond about the as could XXXX? where think profitability, see any -- kind QX, kind XXXX get how of have sounds starting and us like trended might you of

Ben Wolin

thanks. Sure

to in customers getting areas engagement, of the we our very in internally active use or focus, which continue Nathan to the platform. on terms we're expand So is of much what of XXXX focused utilize called

existing But and that believe utilization expect our can attention on only have of on engaging of more that better of doesn't really shift our organization's total we not the increase That that majority to believe is more platform. we customers enrollments easier net majority going we've And XX% new that course forward. mean the customers when achieve we we we're nice will would While customers. platform customers cost-efficient same-store than certainly the enrolled new existing of made to to focus progress going a the year-over-year growth, we utilization and enrollment sales of basis. the on of frankly year-over-year make at

profitable, XXXX, of but there of flow our de the of was I'd in we revenue in improving XXXX. in question clearly say it a overall proving terms is business. incremental the of scheme profitability, EBITDA EBITDA that But minimis In can business or focus the were things out around second given to through big of your

Nathan Rich

Great. like It XXXX. ask of where Thanks. I to guidance on roughly a XXXX the flat just follow-up could margins seems they are ended quick assumes if And margins. for kind

streamline kind didn't to So mind I of as synergies you of the maybe to And could in cost about side? maybe on and cost you the on kind should you curious opportunities about specifically, I'd talk investments operations. noticed the for any balance see to talked through just factors we any mention you be keep but think with opportunities you need outlook business swing XXXX? make you. we margin Thank just

Ben Wolin

Sure.

about the couple blended Yes, margins. right. components you So of from when overall a on thoughts a There's to of margin. expecting think couple We're you're margins remain consistent largely XXXX. different XXXX to

or is management or driven the potential is the which improvement margin largely of manufacturer So former by business, Choice business, compression for a First prescription in other increasing the areas Vets customer consolidation. platform margin offset by

from either what operational or how from on I those more ourselves organize think, we are getting headwinds suppliers we source product offset margin from efficient is how that could occur our of in some we however, an standpoint XXXX. focused to

Nathan Rich

Thank you.

Operator

Thank you. Suisse. line And from our of question with Credit next comes Wright Erin the

Erin Wright

their benefit the Great. Thanks. well? maybe rationalization And their in other distributor changes how speak relationships? can buy/sell recent quantify transaction that any in with you Any, expectations or relationships are associated Or you agency your opportunity Elanco's also could built the you any can changed? to? vendor of, as of vendor that relationship that dynamics then for And also Thanks. have that Have XXXX? there relationships been sort

Ben Wolin

to Nice changes Erin. we Hi, of Yes. in significant terms with how do you. business them. our with hear from No suppliers

of do In distributors, we we specifically their are to Elanco's business how terms of continue with to obviously, expand consolidation them. pleased

distributors number huge of nor a a it's piece the business. However, not of huge

but So said I marginal key always pickup, good to of business one suppliers. like with our expand our

Erin Wright

over And relates your American does Thanks. how course the trends? of terms guidance competitive anticipate and at particularly And thinking the this Do stabilization juncture North growth what as assume in the it the about also landscape at demand alternative channel? you this are XXXX? market you of point, to

Ben Wolin

Yes.

in in what So are growth much looking pretty in XXXX with the we line of and for stability back XXXX. we half experienced

alternative report have In or Obviously, believe market, get we success a differentiate come. distribution on asset that up well-positioned business competition of the benefit to within and execution But show even which in and assets. to channels we we're really in need to future terms to of unique time. in we the quarters year, set our of looking to forward starts just the out combined we the execute and can over a feel numbers

Erin Wright

great. Thank Okay, you.

Operator

you. Thank with the line next Block Jon question comes our And of from Stifel.

Jon Block

A the timing XXXX? international about Hey that see in VFC engagement Maybe guy, might might is wait something in more Or first. and late Ben good of markets, that the we rollout one all that XXXX until afternoon. simple are just you

Ben Wolin

on our platform. launch of Jon, And Vets we operating First in business, areas I of Choice rollout on would on are one engagement excellence well of any across very so the not as anticipate with we making was focused that down that platform the XXXX. sure we're as slowed the all

against would for I expect spend see that future. Although, the foundation laying to in would opportunity I capital the call

Jon Block

targets is helpful. did great, with the you you talked great. capture also about increased and the Street. details and in past there a but simplifying think transparency then Wall value Okay, Very organization I the about And but lot the give

So are you anymore forward? to I'm break out going going those just curious,

I'm maybe with same And some to expand flattish part for imply margins, is but you business. just that synergy the upon two And the that? doesn't Thanks underlying question compression can capture guessing then guys. XXXX

Ben Wolin

thing. Sure

in we find value a arbitrary to remarks savings allocate bit I've try forces up with the you time as because activity some of business to underlying spend in prepared to it versus meeting, you it or new capture one said metric either individual or other So activity. is trying a the your lot what and come to

on and against aren't not but going that aren't so focus is as on to business focus. take finding lot And that Choice against power EBITDA expand overall we advantage side areas certainly the North continues those our just we target. of I a of should number, opportunities mean America a opportunities whether there to progress decided progress of company say give where the and see what focused we That instead other the doesn't First the very we're and and it Vets sourcing on buying delivering EBITDA that synergy capture value of especially be

basis In The QX-to-QX. EBITDA terms expect we to be an would the overhang the margins a compression, year-over-year from to margin of outlook consistent the when big remain and corporate from especially looking relatively you're XXXX delta from overhead XXXX. gross at implied

consistent Stuart spend half his XXXX. is really the QX that increase XXXX in in it almost XXXX in of back XXXX million expenses that's from corporate remarks So $XX overhead versus reflective the -- in trend. mentioned with prepared greater to that not And QX of of

go-forward But reduced a for of a required variety of greatly was -- was under pro the basis. on forma number representative on corporate basis, and a reasons QX overhead actually the what

Jon Block

Great. Thanks guys.

Operator

comes question Guggenheim. Westenberg next from the our with you. line of Thank And David

David Westenberg

thanks taking question. Hi, for my

guidance, year, of the at versus first on just looking of the like I'm last negative I'm But don't growth year. the was looks back as appreciate that So, there quarterly half kind half the QX revenue you looking It QX. give guidance. at I there

the revenue are. terms go where of is with modeling to in So, the temptation comps easiest

little color looking cadence. about in XXXX. about the think should just So, maybe of should Thank anything on for we give cadence how can -- be modeling I'm you bit I'm kind of here. thinking way how if we quarterly us not the you. a

Ben Wolin

Yes.

at the So, business think which you I the Certainly, an period, U.S., individual thinking any about on is some -- take looking different on a much see and when could basis. at annualized very more parts of growth the of maybe in a stability our a if I base. useful component we're way look back stable you think but revenue step we're volatility, expecting

feel think growth I good that will saw in year and early the growth APAC, in and Europe businesses we we progress those to continue from XXXX. see about In with last coming the line

we XX% annual Vets higher mentioned as of in with to to QX growth see which And continuing the growth than of we're experienced the First last rate was expecting then a what Stuart year. especially was was see And line in what rate in prepared Choice, XX%. growth nice remarks

hit base larger which can't we revenue saw companies on they a an of a acceleration scale. especially So, when lot do

thinking for revenue you think how about rates different the that's should businesses. be the So, we growth various

David Westenberg

of Henry corporate of just then Is strategy, no a of about in groups with leverage And appreciate refer are just specific I things terms if in talk First you legacy a -- Erin's mean this continuation little for of corporate. talk there's helping going Choice and around doesn't to call out necessarily but And Thank can how you. Schein? maybe general? change strategy? legacy Vets been corporate you question accounts that with there's integration to corporate customers corporate or in new but XXXX, terms can about

Ben Wolin

Yes.

So -- yes.

So, up with your the question, to seen supplier stability side side, on the especially question customer we've following Erin's on corporate. stability and and

well. as major no So, changes there

the a a aligning our I deeply that our as well with that in really be to way integrating our combined potential. to have is as with think to go on getting unlocking of value customers or ways we it customers honest relates a both as new -- asset customers

will when are expectation So, our the both starting of businesses And out we on have still we continue of exact my But where XXXX entities. still how we partner right customers remain as driving commercial synchronize for being we individual together. we kind gotten lot a we of those into that I the value unlock would benefit largely to and to with of focus that were way accelerating figure and that transacting characterize of our to businesses the did XXXX same they us. strategy now separate is the value really along some that for as the right

David Westenberg

the you taking rest questions. offline. the I'll ask Thank for

Operator

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

Andrew Cooper

And A of Choice we the of already, towards about we be what farmers? a sort asked incentives? would you've successful but those change going I'll be benefits accounts quick, the has I more turn how changing reaping kind incentive help group into shifting sales Any what great. so guess the perspective? think think been from there Vets how do First Thanks hunters and of you're And take really when was you of focus of them lot and about guys. a already added, you how

Ben Wolin

light shed on to that happy some Andrew. Yes,

I think structure focus it's shifting enrollments. to pretty incentive the We're on simple. engagement new versus just

free As the both enrollment for someone but of a platform you the know, great, revenue engages is customer really really your any sense drive funnel you just on as in as don't until new trial the top for it's a yourself. or and a it's well

of and our team engagement, taking years sales of with terms through in making of really So, a is the business. that lot activity driving in way that the focus marketing business to the a deep primary it drive learned partnering force the the and they've customers volume but for

nice one And perform our the if I customers, the XX,XXX-plus of obviously, you they don't at think all things same. look

the driving We we're lot customers we're of businesses on. of successes revenue have engagement like lot -- activity group a outsized of that it's that those modeling a of that are focused and proportion a

but customers the can our we a a for the to the going ramp get pretty drive look help profitability top that not if the significant really the more only in So, revenue business of we're of half half business also XXXXX like lot bottom way.

Andrew Cooper

helpful. I good we the that's close. -- what expecting will see as base step see asset and that doesn't. now about we scil mind? be Is about of then divestiture good think to right timing should perspective there there a back anything? anything and think it is lastly when Okay, was sort to to and think what about be the And -- But be else taking of if that kind what And there we jumps from and out thinking needs that to

debt of think that how And to use terms perspective? about of from paydown sort of then pacing in proceeds

Ben Wolin

Yes.

we I'll the announce. proceeds. to the terms But base Over we right to that going on We're shape over obviously answer the that of So, question to really first in balance of imminent use the opportunities as at the I'll have in the the address we then Stuart use answer decrease But the for as nothing of and time, we so hand the asset we to in -- we like second the feel want ratio. about operate and forward. room part and are amendment, that our question to definitely where focused the continue improve at proceeds of look we shareholders. driving very covenant But the the and feel feel to with about and how sale we'll XXXX, to like comfortable well business way always sheet. opportunistically for let XXXX good net leverage Stuart we're want. think return

Stuart Gleichenhaus

September, towards prepaid the the December principal the XX, each pay June we the reduction that. early rest effect, It's debt. an banks that transaction the or proceeds after scil We example. payments the March good of was And gross had to have -- less XX, chosen we've remaining transaction $XXX against And we'll for than With year apply that. so fees, in million of million term of Sure. of the on to taxes $XX that agreement a with million and on. $XX

term, well in So, that. effect proceeds deleveraging us for immediate shareholders it see as for as the was a of also good the the lenders to short use an gave

a in we was good transaction. that particular to this so And of choose example what

As particular Ben any right behind not mentioned, other there's that. transaction

So, to from discuss we of today. there's think all some really to constituencies, But nothing the sat or that. about made did for proceeds where sense we to talk about it use deleverage scil

Andrew Cooper

appreciate I Okay. Thanks guys. it.

Operator

you. question line with Thank next And Erin Suisse. Credit comes our of the from Wright

Erin Wright

Schein that's Great. something now? traction differences given opportunity. some that was more component in that's economics considerable legacy agency seeing to versus presumably synergy longer-term Thanks. of is I'm Thanks. converting of a sales That VFC? the Is in curious been how original opportunity, just platform. the something an that any the across of VFC sale there Or a agency successful you've VFC for

Ben Wolin

No. would hasn't nor there traction opportunity there, huge going tremendous been I forward. say that I would expect there

Erin Wright

much I Thanks. guess of Thanks. influencing that then sort -- channels you about a we implemented through should benefit instance? this dynamic some we how guess alternative that also, see be quarter pricing these was map in your as head Okay. implementation from profitability meaningful across lap And thinking from as map midway And for I year? is do pricing of the indirect competitors? that that we into latest How

Ben Covetrus

map those product-by-product basis. in more quantify there. parity impact to it's smaller price it the platform to is of is priced out price the between still an much But is believe channels In say, but cases. the would higher and business have beneficial individual the pricing on even I Yes. other we cases, on certainly us differential the some hard that

And actually drive so, to channel we don't large the enough delta believe that there other. from the consumer one a to is price

certainly in specifically on couldn't map would the also the I say so any that, term. But forward. platform be drove profitability business I a in continue pricing it's say near increase to going net to So, for we the that and expect it positive

Erin Wright

Okay. Great. Thank you.

Operator

call. Ladies today's you. now conference your and concludes you gentlemen, and may participation disconnect. Thank Thank you this for

Covetrus (CVET) 3 Mar 202019 Q4 Earnings call transcript