Covetrus, Inc.

Good morning, ladies and gentlemen, and welcome to the COVID Charge 4 Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touchstone telephone. As a reminder, this conference call is being recorded. I would then like to turn the conference over to your host, Mr. Nick Jansen, Vice President Strategy and Corporate Development. Please go ahead.

Thank you, Jerome. Good morning, and thank you for joining us for Covetris' Q4 and full year 2020 earnings conference call. Joining me on today's call are Ben Wolin, our President and Chief Executive Officer, and Matthew Folson, our Executive Vice President and Chief Financial Officer. Ben and Matthew will begin with prepared remarks, and then we'll be happy to take your questions. During today's conference call, we anticipate making projections and forward-looking statements based on our current expectations. All statements other than statements of historical fact made during this conference call are forward-looking, including statements regarding management's expectations for future financial business, operational performance, and operating expenditures. Forward-looking statements may be identified with words such as will, expect, believes, should, or similar terminology in the negative of these terms. Forward-looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those contemplated in these forward-looking statements. These risks and uncertainties include those under the heading Risk Factors in our most recent annual report on Form 10-K and other periodic reports filed with the Securities and Exchange Commission, which are available on the Investors section of our website at ir.covetris.com. and on the SEC's website at www.sec.gov. Forward-looking statements speak only as of the date hereof and accept as required by law. We undertake no obligation to update or revise these forward-looking statements. You can find this morning's press release announcing our fourth quarter and full year 2020 results in the accompanying slide deck for this call on ir.covetrous.com. The release and presentation also contain further information about the non-GAAP financial measures that we will discuss today. Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results. With that, I will now turn it over to Ben to provide the highlights beginning on slide three.

Thanks, Nick. Good morning, everyone, and thanks for joining us today. I hope everyone is staying safe, and I'm looking forward to the day, hopefully sometime later this year, when we all can spend time again together in person. On the call this morning, we will provide an update on the state of the companion animal and market, highlight our stronger-than-expected Q4 and full-year 2020 financial results, detail our investment, growth, and margin priorities for the upcoming year, and outline why we think 2021 will be another period of growth and operational progress as we capitalize on the opportunity in front of us. Now, starting on slide three with our perspectives on the current state of the companion animal and market. As many of you may already know, The companion animal industry is a growing market and has proven to be quite resilient despite the disruption that COVID-19 has caused around the world. Increased pet adoptions, the ongoing humanization of pets, innovation around enhanced standards of care, and the expansion of new service channels have raised global demand for our products and services. Our U.S. internal data confirms veterinarians were as busy as ever in the second half of 2020 with double-digit practice revenue growth, fueled by a moderate increase in new clients and higher spending per visit. COVID-19, in many ways, accelerated the already favorable end market backdrop and helped our market positioning, which we believe will continue through 2021. Certainly, there will be months and or quarters where we might face challenging comparisons versus 2020 activity, but the underlying factors driving our market endure, and we are well positioned to capitalize on this opportunity in the years ahead. This strong end market backdrop coupled with our improved sales execution and enhanced focus and operating discipline was clearly evident in driving our full year numbers in 2020 as seen on slide four. We delivered 10% year-over-year pro forma organic net sales growth and 13% year-over-year adjusted EBITDA growth in 2020 with our business trajectory accelerating in the back half of the year. Our robust performance was spread across all three of our business segments, where we not only grew adjusted EBITDA, but also expanded our segment adjusted EBITDA margins. Our prescription management business increased pro forma net sales by 50% year over year and meaningfully improved its profitability. We also made solid progress increasing sales of our Covetous branded and proprietary brand portfolio. which combined are now in excess of $325 million, with gross margins that are approximately double our consolidated average. I'll speak more on this opportunity later in my prepared remarks. Finally, the financial progress we made this year also enabled us to meaningfully improve our balance sheet with net leverage now at approximately 3.5 times, which affords us flexibility as we think about funding organic growth and external investment opportunities entering 2021. Obviously, 2020 was a year like none other with the COVID-19 pandemic, yet I am so proud of how our team responded and exceeded expectations across nearly all elements of our strategic plan as seen on slide five. First and foremost, we invested in our people, which led to significant improvements in our organizational health scores. An engaged and motivated workforce translates into better operational performance. That, in turn, helped us attract talent to help drive our transformation forward. We increased our distribution market share in the U.S. and in certain international markets as we focused the company on the core drivers of our business. We sold non-core assets and exited our French distribution business to streamline our company and focus on markets where we have greater opportunities. We also successfully exited all of our TSAs, providing us direct operational control in many of our international markets. We delivered robust prescription management net sales growth as we successfully executed our customer and client engagement strategies launched at the start of 2020. And lastly, we established global sourcing capabilities to drive our Covetris branded and proprietary brand product strategy entering 2021. Clearly, there were a significant number of accomplishments to be proud of, and this was evident in our better-than-expected fourth quarter results. As we look forward and turning to slide six, we are focused on accelerating the contribution from our higher-margin businesses and investing in innovation to sustain our leadership position. To date, we have repositioned our portfolio of businesses. improved our execution and distribution, and delivered against some of our initial strategies for our higher margin products and solutions. While we certainly made good progress in 2020, increasing our overall sales mix and generating more gross profit from our higher margin businesses, which now collectively represent more than 40% of our total company gross profit, there is still significant room to increase both elements in 2021 and beyond as we execute against our priorities. For example, We recently combined our US sales and marketing organizations that we believe will significantly improve our North American commercial effectiveness in 2021. This has created greater strategic and financial alignment with our customers, which we believe will help us secure new business, grow our share of wallet, and reduce our cost to serve. We have also doubled down on our prescription management engagement strategies in 2021, and have also increased our focus on new enrollments to sustain the strong growth delivered in 2020. We are also investing heavily in technology and e-commerce and have added focus to our Covetous branded and proprietary products and solutions to enhance our value proposition. Through these actions, we anticipate making good progress in 2021 as we march towards our longer-term aspirations of delivering adjusted EBITDA margins that approach 10% as compared to the 5.2% adjusted EBITDA margin achieved in 2020. Drilling deeper and looking at the path to future margin expansion and shareholder value creation, you can see on slide 7 the North American gross margin and net sales trajectory of our proprietary products and solutions compared to traditional distribution of third-party products. Clearly, The profile dynamics of our proprietary products and solutions are significantly higher than traditional distribution, and we have now aligned our resources, including our sales compensation metrics, with value creation. As we drive engagement with all IncoVetris customers and increase the penetration of these higher margin products and solutions inside our existing base, we expect to see steady improvement in our consolidated margins. Importantly, approximately two-thirds of our 2021 CapEx budget is growth-oriented and focused on these higher-margin businesses as we are aggressively seeking to expand our market position in North America. And as we think about future M&A and capital deployment moving forward, we believe such activity will be heavily skewed towards advancing these growth and margin objectives. Clearly, the opportunity for consolidation in our market is high, and our global reach and customer access puts us in a position to create value through focused capital deployment. With our increased focus on our Covetous branded products, proprietary brands, and compounding solutions, I thought it would also be useful for investors if we were to talk more about some of the levers we are pulling in 2021 to work to accelerate our growth trajectory in these categories. as seen on slide eight. First, for Covetris branded products, we have launched several new commercial initiatives that have made it easier for veterinary practices during the ordering process to see the value they derive from these products versus alternatives. We have also launched several of these Covetris branded products on our prescription management platform, providing new savings, opportunities for pet owners seeking lower cost alternatives. Second, we have developed new sales and marketing programs that For our family of own brands, this includes VI, Cruza, Calibra, and SmartPak to accelerate our penetration in existing geographies and new markets. We've had significant success, for example, in driving adoption of VI and Cruza throughout Europe by leveraging our broad supply chain footprint in those markets, and we look to replicate this strategy in the U.S. in 2021 and beyond. We plan on making available later this year our market-leading brand of SmartPak supplements to horse owners, barn managers, and trainers in Canada with its strong equine sports tradition. Third, we have a funnel of new products and compounding solutions launching into the market over the next 6 to 12 months that can deliver Covetris-branded value and meet the needs of both customers and pet owners. And finally, we are opening the newest and most technologically advanced compounding pharmacy, and 503B outsourcing facility later this year, which is designed to significantly enhance our operating capacity and increase our commercialization capability for office use and patient-specific medications. In total, these investments offer us the opportunity to advance our customers' objectives and meaningfully accelerate the growth of our proprietary products and compounding solutions in 2021 and the years ahead. As we think through the roadmap of our technology investments on slide 9, 2021 will be an active year for us with a number of major milestones that will not only enhance our value proposition to our customers and their clients, but will also unlock significant sales growth for margin potential for Covetris. For example, while I already mentioned our new state-of-the-art compounding and outsourcing facility scheduled to open in Arizona in Q2, We also have a major pharmacy project underway in Maine that is expected to open in the second half of 2021, which will allow us the ability to deliver products more quickly to our veterinary practice customers and pet owners in the large northeast U.S. market. One of the bigger investments in technology solutions we are making in 2021 is the build-out of our unified cloud-based offering that will bring together our practice management software and our prescription management platform into one module. This new product offering will streamline technology solutions for the veterinary practice, support greater prescription compliance, simplify pet owner engagement, and improve how a practice manages its inventory while creating added visibility into practice management. This build-out will take 12-plus months to complete, but in the meantime, we'll continue to provide upgrades and improvements to our existing practice management software capabilities which are designed to make it easier for these practices to leverage our prescription management and client engagement services. For example, in Q4, we launched the initial functionality that allows veterinarians to create a prescription inside our Avamark and eVet practice management software solutions, and the general release will be available in Q1. We expect additional product features to be introduced to the market throughout 2021. Lastly, I would highlight a number of planned investments and technology enhancements in the consumer experience for pet owners buying products through our prescription management platform, including optimizing the user's journey and mobile experience to increase conversion rates, improving auto-ship management, and delivering better personalization and dynamic content. We are also investing in appointment management and other consumer initiatives that strengthen the connectivity between the veterinarian and the pet owner. We are also launching upgrades in 2021 to our B2B e-commerce platform experience for both distribution and compounding, and pursuing new software integrations and partnerships, which are designed to make it easier for our customers to seamlessly order products from Covetris, including our proprietary products and compounding solutions. Clearly, we had planned for a lot of operational capacity and innovation to bring to market in 2021, which puts Covetris ahead in a fantastic position to help our customers grow their businesses and aid our manufacturer partners to achieve their strategic objectives. Our team is energized by the momentum we have going for us in the market, and we look forward to another year of great success in 2021. I will now turn the call over to Matthew to provide more details on the financials. Thanks, Ben.