Covetrus Previews Preliminary Financial Results for the First Quarter of 2020, Provides Business and Operational Update Regarding COVID-19 Pandemic
- Operationally, all of the company's distribution centers and pharmacies currently remain open, as veterinary medicine has been deemed an essential service in most geographies around the globe
- Preliminary first quarter net sales of approximately
$1.07 billion , an increase of 13% year-over-year; preliminary year-over-year non-GAAP pro forma organic net sales growth of 10%
- Preliminary first quarter loss before taxes and equity in earnings of affiliates in the range of
$35 million to$36 million ; preliminary first quarter non-GAAP adjusted EBITDA in the range of$47 million to$48 million
- Withdraws full-year 2020 financial guidance amidst uncertainty tied to COVID-19
“Our entire team has rallied together to help animal-health practitioners across the globe continue to operate and deliver excellent patient care in these unprecedented times of COVID-19. I am extremely proud of the team’s hard work in the face of this challenge, and our solid preliminary first quarter results, even when excluding stocking benefits that occurred in March, reflect our renewed focus on the core drivers of our business and the strength of our customer relationships,” said
Preliminary Financial Data
The preliminary financial information included in this release is subject to completion of the Company’s quarter-end close procedures and further financial review. Actual results may differ from these estimates as a result of the completion of the Company's quarter-end closing procedures, review adjustments and other developments that may arise between now and the time such financial information for the period is finalized. As a result, these estimates are preliminary, may change and constitute forward-looking information and, as a result, are subject to risks and uncertainties. These preliminary estimates should not be viewed as a substitute for full interim financial statements prepared in accordance with
Preliminary First Quarter of 2020 Financial Results and Operational Update
January and February net sales reflected the positive momentum the business had entering 2020 and March net sales benefited from accelerating prescription management growth and certain stocking activity in several geographies in connection with the COVID-19 pandemic, which helped offset a portion of the net sales impact from reduced purchases over the last two weeks of March as many of the Company’s customers began to experience declining client visits tied to certain global measures to slow the spread of COVID-19. Management believes first quarter non-GAAP pro forma organic net sales benefited by approximately 4% from customer stocking activity in connection with COVID-19 that happened in many of the Company's international markets during March. While there were certain changes in the timing of customer purchasing behavior in connection with COVID-19 by some of the Company's customers in
By segment, preliminary year-over-year net sales growth and preliminary year-over-year non-GAAP pro forma organic net sales growth is expected to be as follows:
North America : year-over-year net sales growth of approximately 11% and year-over-year non-GAAP pro forma organic net sales growth of approximately 6%. This year-over-year non-GAAP pro forma organic net sales growth includes 1% supply chain net sales growth or 4% when further normalized for the impact from the previously announced customer loss in early 2019. Prescription management year-over-year non-GAAP pro forma organic net sales growth is expected to be 47% for the first quarter of 2020 as compared to 37% year-over-year growth as reported for the fourth quarter of 2019 and 33% year-over-year growth as reported for full year 2019.Europe : year-over-year net sales growth of approximately 17% and year-over-year non-GAAP pro forma organic net sales growth of approximately 13%, of which management believes approximately 7% is due to customer stocking in connection with COVID-19.- APAC & Emerging Markets: year-over-year net sales growth of approximately 10% and year-over-year non-GAAP pro forma organic net sales growth of approximately 20%, of which management believes approximately 8% is due to customer stocking in connection with COVID-19.
Preliminary loss before taxes and equity in earnings of affiliates for the first quarter of 2020 is expected to be in the range of
Operationally, all of the Company's distribution centers and pharmacies currently remain open as veterinary medicine has been deemed an essential service in most geographies around the globe. Additionally, the Company’s supply chain operations continue to work with manufacturers and suppliers across the globe to provide access to critical supplies and quality products, with only personal protective equipment (PPE) facing significant supply constraints. However, as net sales have weakened over the last four weeks as a result of the impact of COVID-19 on many of the Company's customers, management has taken certain measures to help better align the Company's cost structure near-term, including executive, board and other senior-level employee compensation reductions, employee furloughs in certain European countries, certain shift eliminations, a hiring freeze and discretionary spending deferrals.
Guidance Update
In light of the uncertain demand outlook caused by COVID-19,
Financial Position and Liquidity Update
Subsequent to quarter-end,
With additional cash outflows expected near-term tied to investing activities and intra-quarter working capital dynamics as well as the unknown impact from COVID-19, the Company is taking additional proactive actions to improve cash flow, including reducing capital expenditures and discretionary spending.
About
Forward-Looking Statements
This press release contains certain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and that involve risks and uncertainties, including statements about preliminary financial information as of and for the first quarter ended 2020, the impact of COVID-19 on our business and the actions we may take in response thereto, including our ability to continue operations at our distribution centers and pharmacies, our ability to comply with the covenants under our debt arrangements, and other matters. We may, in some cases use terms such as "predicts," "believes," "potential," "continue," "anticipates," "estimates," "expects," "plans," "intends," "may," "could," "might," "likely," "will," "should" or other words that convey uncertainty of the future events or outcomes to identify these forward-looking statements. Such statements are subject to numerous risks and uncertainties, including but not limited to, the completion of the quarterly close process in respect of the preliminary financial information included in this press release; the effect of the COVID-19 pandemic on our business and the success of any measures we have taken or may take in the future in response thereto; risks associated with our management transition; the ability to successfully integrate operations and employees; the ability to realize anticipated benefits and synergies of the transactions that created
Reconciliation of Non-GAAP Financial Measures
To aid investors and analysts with year-over-year comparability for the combined businesses of
In addition to the financial information presented in accordance with
The following tables reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
These non-GAAP financial measures have limitations as an analytic tool and should not be considered in isolation or as a substitute for income from operations, net income or any other measure of financial performance reported in accordance with GAAP. Covetrus’ non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing Covetrus’ performance, it is important to evaluate each adjustment in the reconciliation tables and use adjusted measures in addition to, and not as an alternative to, GAAP measures.
Non-GAAP Pro
Pro forma organic net sales growth is a non-GAAP measure that
The following tables summarize non-GAAP pro forma net sales and non-GAAP pro forma organic net sales growth for
Non-GAAP Pro
Preliminary Three Months Ended |
Three Months Ended |
|||||||||||||
(In millions) | Historical Vets First Choice (b) | Non-GAAP Pro Forma Combined | ||||||||||||
Net sales: | $ | 1,065 | $ | 941 | $ | 24 | $ | 965 | ||||||
550 | 497 | 24 | 521 | |||||||||||
422 | 361 | — | 361 | |||||||||||
APAC & Emerging Markets | 95 | 86 | — | 86 | ||||||||||
Eliminations | (2 | ) | (3 | ) | — | (3 | ) |
(a) Numbers in tables may not foot or cross-foot due to rounding
(b) Historical Vets First Choice - 2019 - from
Non-GAAP Pro Forma Organic Net Sales Growth (Unaudited)(a)
Three Months Ended |
|||||||||||||||
2020 | 2019 | ||||||||||||||
(In millions) | Preliminary |
Non-GAAP Pro Forma Combined | Non-GAAP Pro Forma Y/Y Growth |
% Change from FX | % Change from Mergers and Acquisitions | Non-GAAP Pro Forma Organic Net Sales Growth | |||||||||
Net sales: | $ | 1,065 | $ | 965 | 10 | % | (2 | )% | 3 | % | 10 | % | |||
550 | 521 | 6 | % | — | % | — | % | 6 | % | ||||||
422 | 361 | 17 | % | (3 | )% | 7 | % | 13 | % | ||||||
APAC & Emerging Markets | 95 | 86 | 10 | % | (9 | )% | 1 | % | 20 | % | |||||
Eliminations | (2 | ) | (3 | ) |
(a) Numbers in tables may not foot or cross-foot due to rounding
Non-GAAP EBITDA, Pro Forma EBITDA, Adjusted EBITDA, Pro Forma Adjusted EBITDA (Unaudited)
EBITDA, adjusted EBITDA, pro forma EBITDA, and pro forma adjusted EBITDA are non-GAAP financial measures used to (i) aid management and investors with year-over-year comparability, (ii) determine management performance under our compensation plans, (iii) plan and forecast, (iv) communicate our financial performance to our board of directors, shareholders, and investment analysts, and (v) understand our operating performance without regard to items we do not consider a component of our core ongoing operating performance. Such measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Our non-GAAP adjusted EBITDA adjustments include share-based compensation, transaction costs, formation of
A quantitative reconciliation of non-GAAP adjusted EBITDA to net income (loss) attributable to
A reconciliation of EBITDA, adjusted EBITDA and income (loss) before taxes and equity in earnings of affiliate, the most directly comparable GAAP financial measure, is as follows:
Non-GAAP Adjusted EBITDA Reconciliation(a) | ||||||||
Three Months Ended | ||||||||
(In millions) | ||||||||
Net loss before taxes and equity in earnings of affiliate | $ | (36 | ) | $ | (35 | ) | ||
Plus: Depreciation and amortization | 40 | 40 | ||||||
Plus: Interest expense, net | 14 | 14 | ||||||
Earnings before interest, taxes, depreciation and amortization | 18 | 19 | ||||||
Plus: Share-based compensation | 9 | 9 | ||||||
Plus: Strategic consulting | 4 | 4 | ||||||
Plus: Transaction costs | 7 | 7 | ||||||
Plus: Formation of |
6 | 6 | ||||||
Plus: Separation programs and executive severance | 1 | 1 | ||||||
Plus: IT infrastructure | 1 | 1 | ||||||
Plus: Capital structure | 1 | 1 | ||||||
Adjusted EBITDA | $ | 47 | $ | 48 |
(a) Numbers in table may not foot or cross-foot due to rounding
A reconciliation of EBITDA, adjusted EBITDA, pro forma adjusted EBITDA and net income (loss) attributable to
Non-GAAP Pro Forma Adjusted EBITDA Reconciliation(a) | ||||||||||||||||||||
Three Months Ended |
||||||||||||||||||||
(In millions) | Vets First Choice ( |
Spin-Off and Other Pro Forma Adjustments | Purchase Price and Related Pro Forma Adjustments | Pro Forma Covetrus | ||||||||||||||||
Net (loss) income attributable to |
$ | (13 | ) | $ | (9 | ) | $ | (2 | ) | $ | 1 | $ | (23 | ) | ||||||
Plus: Depreciation and amortization | 30 | 2 | — | 9 | 41 | |||||||||||||||
Plus: Interest expense, net | 10 | 1 | 3 | — | 14 | |||||||||||||||
Less: Income tax benefit | (4 | ) | — | (1 | ) | — | (5 | ) | ||||||||||||
Earnings (loss) before interest, taxes, depreciation and amortization | 23 | (6 | ) | — | 10 | 27 | ||||||||||||||
Plus: Share-based compensation | 15 | — | — | (5 | ) | 10 | ||||||||||||||
Plus: Transaction costs | — | 6 | — | (6 | ) | — | ||||||||||||||
Plus: Formation of |
9 | — | — | — | 9 | |||||||||||||||
Plus: Carve-out operating expenses | 5 | — | — | — | 5 | |||||||||||||||
Less: Other (income) expense items, net | — | (2 | ) | — | 1 | (1 | ) | |||||||||||||
Pro Forma Adjusted EBITDA | $ | 52 | $ | (2 | ) | $ | — | $ | — | $ | 50 |
(a) Numbers in table may not foot or cross-foot due to rounding
CONTACT
nicholas.jansen@covetrus.com | (207) 550-8106
Kiní Schoop | Public Relations
kini.schoop@covetrus.com | (207) 550-8018
Source: Covetrus