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May 15, 2020

Covetrus sees 'moderately improving' trends after net loss widens in Q1

By Renee Cordes

Covetrus Inc. (Nasdaq: CVET), the Portland-based provider of animal-health technology and services, reported that its net loss widened in the first quarter, although the company CEO spoke of "moderately improving" trends ahead. Covetrus also announced a new CFO and two other new leadership team members.

The company on Thursday said that its net loss in the first quarter was $33 million, or 30 cents per diluted share. That's up from a net loss of $13 million, or 14 cents per diluted share, a year ago.

Covetrus attributed the trend to general and administrative costs associated with increased selling, including transaction-related and strategic consulting costs, and higher interest expense, which offset the increase in gross profit driven by a stronger net sales performance in the first quarter.

First-quarter net sales were $1.07 billion, up 13% over the previous year. The company posted double-digit sales increases in three regions, led by a 17% increase in Europe.

"Out strong first-quarter results are evidence of the early progress we have achieved by focusing on the core drivers of our business" said President and CEO Ben Wolin in a statement.

Portrait of Ben Wolin, Covetrus president and CEO.
Courtesy / Covetrus
Ben Wolin, president and CEO of Covetrus, said, "As the recovery in our end-market continues, I believe the combination of our strengthened financial profile and organizational health position us well to accelerate growth and create long-term shareholder value."

"Veterinary care remains an essential service, and while practices experienced significantly lower client visits during late March and early April, we are encouraged by the moderately improving trends we are beginning to see across many of our customers.

"As the recovery in our end-market continues, I believe the combination of our strengthened financial profile and organizational health position us well to accelerate growth and create long-term shareholder value."

The earnings report comes about six weeks after Covetrus completed the sale of its scil animal care co. subsidiary to Heska Corp. (Nasdaq: HSKA), a Loveland, Colo.-based maker of veterinary specialty products, for $110 million, after tweaking the terms from an originally agreed price of $125 million.

Covetrus said Thursday that it used $45 million of the proceeds from that sale to prepay its remaining quarterly term loan principal authorization payments due in 2020.

Adjusting for those actions, Covetrus said it would have had $260 million in pro forma cash and cash equivalents, $1.14 billion in term loan debt and $190 million outstanding on its revolving credit facility.

Proceeds from $250M investment

Covetrus also said it expects to receive the net proceeds from a $250 million investment from existing shareholder Clayton, Dubilier & Rice on or around May 19, subject to customary closings.

The New York-based private equity firm added to its pet health portfolio this week through the acquisition of Knoxville,Tenn.-based  Radio Systems Corp. for an undisclosed amount. It has been a significant shareholder of Covetrus in its is formation in 2019, and since 2015 of one of its predecessor companies, Vets First Choice. 

Covetrus said Thursday that it expects to use the funds from Clayton, Dubilier & Rice's recent $250 million infusion to repay a portion of its revolving borrowings, provide additional short-term liquidity and support general corporate purposes.

By mid-morning on Friday, shares of Covetrus were trading at more than $12.20, after closing Thursday at $11.21.

New leadership team members

The company also announced three new members of its leadership team.

Matthew Foulston will become CFO on June 1. He succeeds Stuart Gleichenhaus, who has been serving on an interim basis since December.

Matthew Malenfant was named as incoming president of the company's North American distribution business, effective May 18.

Steve Palmucci joined Covetrus on May 4 as global chief information officer. He replaced Larry Rowland, who had been serving as a consultant and interim CEO since 2018.

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