PORTLAND, Maine, March 03, 2020 (GLOBE NEWSWIRE) -- Covetrus (Nasdaq: CVET), a global leader in animal-health technology and services, today announced that Benjamin Wolin will become the company's president and chief executive officer, transitioning from the acting role he has held since October 2019. The announcement, which was made in conjunction with the company releasing its fourth quarter and full year 2019 financial results, highlights the important progress the company has made under Wolin's leadership, said Philip A. Laskawy, chairman of Covetrus' board of directors.

"Ben's leadership and experience have been critical over the last several months in focusing the company on executing on its strategy and strengthening the platform and balance sheet," Laskawy said. "The board is confident that he is the right leader to build on this initial momentum and deliver additional value to our employees, customers, manufacturers, partners, and shareholders in the global animal health market."

Addressing the board's announcement and the company's fourth quarter results, Wolin said he is confident that Covetrus will continue to build on the strength of the organization as it relentlessly focuses on innovating and executing in its core markets.

"Covetrus has made real progress over the past quarter by focusing on the core strategic drivers of our business, building a culture and organization to execute successfully against those and continuing to innovate," said Wolin. "Our platform is strong and full of opportunity, our team is terrific and working extremely hard but we are still early in our progress and much hard work remains ahead."

Fourth Quarter 2019 Results

Net sales for the fourth quarter of 2019 were $1.0 billion, an increase of 12% compared to the fourth quarter of 2018. Normalizing to include Vets First Choice sales in the prior year, non-GAAP pro forma net sales increased 5% year-over-year. Foreign exchange was a 1% headwind to non-GAAP pro forma net sales growth during the fourth quarter.

Non-GAAP pro forma organic net sales increased 4% year-over-year. Non-GAAP pro forma organic net sales growth reflects a full quarter of Vets First Choice sales in both periods, excludes the impact of foreign exchange fluctuations and M&A and normalizes for net sales adjustments for manufacturer switches from direct to agency sales in the United States, which can impact year-over-year comparisons.

Net loss in the fourth quarter of 2019 was $37 million, or $0.33 per diluted share, which compared to net income of $33 million, or $0.46 per diluted share, in the fourth quarter of 2018. Loss before taxes for the fourth quarter of 2019 was $37 million versus income before taxes of $36 million in the prior period. The primary drivers of the decline in net income were the costs tied to the spin-off and merger including incremental amortization of intangibles, share-based compensation, interest expense associated with the company's debt financing completed last year, an increase in selling, general and administrative expenses, and the negative impact from changes in foreign exchange.

Non-GAAP adjusted EBITDA was $47 million for the fourth quarter of 2019 versus $52 million in the prior year on a non-GAAP pro forma basis. The 10% year-over-year decrease in the fourth quarter was driven by an increase in corporate selling, general and administrative expenses, lower North America supply chain profitability, a $3 million headwind in Europe tied to certain general and administrative benefits in the prior year that did not recur during 2019 and a $1 million overall negative impact from changes in foreign exchange. These headwinds offset the year-over-year improvement in Vets First Choice profitability, the modest contribution from 2019 acquisitions and underlying organic growth in APAC & Emerging Markets during the fourth quarter of 2019.

Non-GAAP adjusted net income was $20 million for the fourth quarter of 2019, compared to $21 million in the prior year period on a pro forma basis, impacted by the same items.

Full Year 2019 Results

Net sales for the full year 2019 were $4.0 billion, an increase of 5% compared to the full year 2018. Normalizing to include Vets First Choice sales in both full periods, non-GAAP pro forma net sales increased 1% year-over-year. Foreign exchange was a 3% headwind to non-GAAP pro forma net sales growth in 2019. Non-GAAP pro forma organic net sales increased 3% year-over-year in 2019.

Net loss for the full year 2019 was slightly more than $1.0 billion, or $9.50 per diluted share, which compared to net income of $101 million, or $1.40 per diluted share, for the full year 2018. Loss before taxes for the full year 2019 was $1.0 billion versus income before taxes of $143 million in the prior period. The primary drivers of the decline in net income were a goodwill impairment totaling $938 million, costs tied to the spin-off and merger including incremental amortization of intangibles, share-based compensation, interest expense associated with our debt financing completed in February 2019, higher corporate selling, general and administrative expenses, and the negative impact from changes in foreign exchange.

Non-GAAP pro forma adjusted EBITDA was $200 million for the full year 2019 versus $219 million for the full year 2018. The 9% year-over-year decrease was primarily driven by lower North America supply chain profitability, higher corporate selling, general and administrative expenses, and a $5 million overall negative impact from changes in foreign exchange. These headwinds offset improving profitability at Vets First Choice, the modest contribution from 2019 acquisitions and underlying organic growth in APAC & Emerging Markets.

Non-GAAP pro forma adjusted net income was $82 million for the full year 2019, compared to $94 million in the prior year, impacted by the same items.

Segment Discussion

The company’s operations are organized and reported by geography, comprised of North America, Europe and APAC & Emerging Markets.

North America

North America net sales for the three months ended December 31, 2019 of $519 million increased 13% compared to net sales from the same period of the prior year due primarily to the acquisition of Vets First Choice in February 2019. Vets First Choice net sales were $74 million during the quarter and increased 37% year-over-year. Normalizing for Vets First Choice in the prior period and net sales adjustments for manufacturer switches from direct to agency sales, non-GAAP pro forma organic net sales increased 2% year-over-year during the fourth quarter of 2019. Segment adjusted EBITDA of $36 million increased 3% year-over-year as the positive contribution from Vets First Choice, which was not in the prior year, more than offset a moderate year-over-year decline in supply chain profitability during the fourth quarter.

North America net sales for the year ended December 31, 2019 of $2.1 billion increased 9% compared to net sales from the prior year due primarily to the acquisition of Vets First Choice in February 2019. For 2019, Vets First choice net sales increased 33% year-over-year to $270 million. Normalizing for a full year of Vets First Choice net sales in both 2018 and 2019 and net sales adjustments for manufacturer switches from direct to agency sales, non-GAAP pro forma organic net sales increased 2% year-over-year. Segment adjusted EBITDA of $154 million declined 2% year-over-year as the modestly positive contribution from Vets First Choice, which was not in the prior year, more than offset a moderate decline in supply chain profitability during 2019 as compared to 2018 results.

Europe

Europe net sales for the three months ended December 31, 2019 of $394 million increased by 13% compared to net sales from the same period of the prior year. Normalizing for foreign exchange fluctuations and mergers and acquisitions, non-GAAP pro forma organic net sales increased 7% compared to the same period of the prior year. Segment adjusted EBITDA of $18 million decreased 5% versus the prior year as underlying organic growth and the contribution from acquisitions were offset by a $3 million headwind tied to certain general and administrative benefits in the prior year that did not recur during 2019 and the negative impact from changes in foreign exchange year-over-year.

Europe net sales for the year ended December 31, 2019 of $1.5 billion increased by 3% compared to net sales from the prior year. Normalizing for foreign exchange fluctuations and mergers and acquisitions, non-GAAP pro forma organic net sales increased 4% compared to the prior year. Segment adjusted EBITDA of $68 million declined 9% versus the prior year as a $4 million negative impact from changes in foreign exchange year-over-year and a $3 million headwind tied to certain general and administrative benefits in the prior year that did not recur during 2019 more than offset contribution from acquisitions and organic growth.

APAC & Emerging Markets

APAC & Emerging Markets net sales for the three months ended December 31, 2019 of $98 million increased by 3% compared to net sales from the same period of the prior year. Normalizing for foreign exchange fluctuations, non-GAAP pro forma organic net sales increased 8% compared to the same period of the prior year. Segment adjusted EBITDA of $5 million increased 25% versus the prior year driven by strong operating leverage off of the positive net sales growth delivered during the quarter.

APAC & Emerging Markets net sales for the year ended December 31, 2019 of $368 million decreased by 5% compared to net sales from the prior year. Normalizing for foreign exchange fluctuations, non-GAAP pro forma organic net sales increased 2% compared to the prior year. Segment adjusted EBITDA of $19 million declined 5% versus the prior year as underlying organic growth was offset by the loss of a manufacturer relationship in late 2018 and the negative impact from changes in foreign exchange year-over-year.

Balance Sheet and Cash Flow

Covetrus generated $103 million of net cash from operating activities during the year ended December 31, 2019. Free cash flow, a non-GAAP financial measure that is defined as cash flow from operating activities less purchases of property and equipment, was $64 million during the year ended December 31, 2019 as compared to $136 million in the prior year period. The year-over-year decline in free cash flow reflects the increase in interest expense from our debt financing completed in February 2019, increased transaction and transition expenses and lower operating earnings relative to the prior year.

As of December 31, 2019, the company had $130 million in cash and cash equivalents, $1.2 billion in total debt and no outstanding borrowings on the company's $300 million revolving credit facility. Management believes the company's cash flows and access to liquidity provide flexibility to manage the business, deleverage the balance sheet over time and invest in further innovation and other corporate needs. Subsequent to quarter-end, Covetrus announced a definitive agreement to sell scil animal care for $125 million in cash, with net cash proceeds from the transaction, after taxes and deal-related fees, expected to reduce the company's net debt and to improve its leverage position as well as to be used for other general corporate purposes, including reinvestment back into the business.

2020 Financial Guidance

Covetrus’ fiscal year 2020 financial guidance range is as follows, which assumes a second quarter close for the scil animal care divestiture and the joint venture with Distrivet S.A. and no significant supply chain disruption or economic impact related to the Novel Coronavirus Disease 2019 (COVID-19):

• Net sales of $4.025 billion to $4.125 billion. Embedded in this outlook is pro forma organic net sales growth, a non-GAAP financial metric, of 3% to 5%, current foreign exchange rates, and the impact from announced M&A and divestiture activity in 2019 and 2020; and
• Adjusted EBITDA, a non-GAAP financial metric, of $190 million to $195 million. Based on the estimated timing of the transaction, the divestiture of scil animal care serves as more than a $5 million headwind to year-over-year growth in 2020 as compared to 2019 results. Normalizing for the scil animal care divestiture, adjusted EBITDA is expected to be relatively flat year-over-year.

The Company has not reconciled its non-GAAP pro forma organic net sales growth or its non-GAAP adjusted EBITDA guidance to GAAP net income because the reconciling items between such GAAP and non-GAAP financial measures, including share-based compensation expense, separation program costs, foreign exchange and other special items tied to the formation of Covetrus, cannot be reasonably predicted due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact, and the periods in which the non-GAAP adjustments may be recognized and therefore is not available without unreasonable effort. For more information regarding the non-GAAP financial measures discussed in this release, please see the section titled Reconciliation of Non-GAAP Financial Measures for the reconciliations of GAAP financial measures to non-GAAP financial measures.

About Covetrus

Covetrus is a global animal-health technology and services company dedicated to empowering veterinary practice partners to drive improved health and financial outcomes. We are bringing together products, services, and technology into a single platform that connects our customers to the solutions and insights they need to work best. Our passion for the well-being of animals and those who care for them drives us to advance the world of veterinary medicine. Covetrus is headquartered in Portland, Maine with more than 5,500 employees serving over 100,000 customers around the globe. For more information about Covetrus visit https://covetrus.com/.