Covetrus reports Q3 results, takes $939M write-down

Covetrus Inc. (Nasdaq: CVET), the Portland-based provider of animal-health products and services, on Tuesday reported financial results for the year’s third quarter that include a write-down of the company’s goodwill value by nearly $1 billion.

The company said it had revenue of $1.02 billion during the three-month period that ended Sept. 30, an amount 10% more than net sales of its two predecessor businesses during the same period last year. Covetrus was launched in February by the merger of Vets First Choice, a Portland veterinary pharmacy company, and the animal health supplies business of Henry Schein Inc. (Nasdaq: HSIC).

Covetrus reported adjusted net income of $19 million, a decline of 10% year-over-year but still above most analysts' predictions. However, the company recorded a goodwill impairment charge of $939 million and wound up with a $906 million loss, or $8.09 per share, for the quarter.

Vets First Choice and the Schein business together recorded net income of $16 million, or 22 cents per share, in the third quarter of 2018.

An impairment charge reflects a change in estimated goodwill — the intangible value of a company based on its future business potential. Public companies must evaluate their goodwill on a regular basis, and sometimes make downward adjustments in it by recording a non-cash charge on their books.

Covetrus adjusted its goodwill after a tumultuous first year as a public company.

The company debuted Feb. 8 on Nasdaq, with shares initially trading at over $40. But on Aug. 13, after its first full quarter of operations, it reported a $10 million loss and reduced its annual earnings forecast from $250 million to $200 million. Overnight, the stock price nose-dived 40%.

In September, Covetrus Chairman David Shaw resigned from that role, and the company was sued by investors who claimed it made false and misleading statements before going public. The class-action suit by the City of Hollywood (Fla.) Police Officers’ Retirement System alleged Covetrus overstated its ability to manage inventory and supply chain services, while understating a variety of costs and business threats.

Then came the Oct. 22 resignation of Covetrus President and CEO Benjamin Shaw, who co-founded Vets First Choice in 2010 with his father, David Shaw. Benjamin Shaw has been replaced by Benjamin Wolin, now acting president and CEO.

In a conference call Tuesday with investors and analysts, Wolin said, “All of us here need to acknowledge and take responsibility for the very difficult and challenging entry and early life we have had as a public company ... Clearly, some of these difficulties were self-inflicted missteps.”

In its report, Covetrus also scaled back projected earnings for the year slightly, to a range of $190 million to $196 million.

Investors seemed to react positively to the news. After opening Tuesday at $10.36, the share price of Covetrus was up by over 20% during the day and closed at $12.26. In late morning trading Wednesday, shares were at $13.24.

Covetrus provides technology, services and supplies to over 100,000 veterinary practices around the world, and has 5,500 employees. The company is building a new headquarters in Portland's East End, designed to accommodate about 1,500 employees.