Covetrus, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the 2Q 2021 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 zero on your touchtone telephone. As a reminder, this conference call is being recorded. How would you like to turn the conference over to your host? Mr. Brian McDonald, Vice President of Financial Planning and Analysis. Please go ahead, sir.

Thank you, Grace. Good afternoon, and thank you for joining us for Coventris Q2 2021 Earnings Conference Call. Joining me on this afternoon'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 will 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 facts made during this conference call it 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, believe, 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 of 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 afternoon's press release announcing our second quarter 2021 results in the accompanying slide deck for this call on ir.coventris.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'll now turn it over to Ben to provide the highlights beginning on slide three.

Thank you, Brian. Good afternoon, everyone, and thank you for joining us today. I hope everyone is safe and well. Before jumping in, I just wanted to recognize that Brian has replaced Nick Jansen for the day. Nick and his wife are delivering a baby today, and we're wishing Nick and Katie a happy and healthy day. We're thinking of you. Now on to the business. I have four items to discuss with you on the call today. One, the health of our business as reflected in our solid Q2 results. The progress we are making in executing our strategy and driving growth within our higher margin products and services. The enthusiasm and long-term opportunity we have in wellness plan administration through our recent acquisition of the market leading platform, BCT. And fourth, highlights in the company's first ever ESC report that was also released today. As you can tell, we have a packed agenda for the call this afternoon, so I will dive right into some of our recent highlights starting on slide three. Overall, Q2 marked another strong quarter for Covetris, where we delivered 12% year-over-year non-GAAP organic net sales growth and $66 million in non-GAAP adjusted EBITDA. both of which were a bit ahead of the expectations we outlined on our Q1 earnings conference call in early May. Our team executed very well, and we, once again, improved our market position and advanced our value proposition to our veterinary practice customers and their clients in what remains a healthy but dynamic end market. And all of this was done in the face of the unknowns tied to the reopening of the global economy and the impact on consumer behavior and the supply chain and what is also an increasingly tight labor market, which remains a real challenge. Importantly, we continue to make good progress during Q2, executing against our product roadmap and advancing our strategic objectives. For example, we launched an SMS or text-based reminder notification service for pet parents who receive a prescription from their veterinary practice. And we also streamlined the prescribing experience for our market-leading practice management software solutions. We also added another net 300 practices to our prescription management platform and delivered a 17% sequential increase in net sales and $5 million sequential increase in non-GAAP adjusted EBITDA versus Q1 in prescription management. While prescription management year-over-year growth rates were modestly below our aggressive aspirations that were set back in January, which was before significant supply chain difficulties in the diet space, which I'll touch on later, I think it is important to recognize that these sales have nearly doubled over the last two years and actually accelerated on a two-year stack basis to 85% during the second quarter, highlighting our execution and our leadership position. I remain extremely enthusiastic on the opportunity we have in front of us in the context of what is still a vibrant and growing pet prescription end market and and the role we can play in helping veterinarians improve clinical and business outcomes for their practice. We also announced in Q2 and subsequently closed in Q3 our acquisition of VCP, the market-leading veterinary software platform for wellness and care plan administration. We see tremendous opportunities to accelerate and scale this solution inside of Covetris. Finally, we continue to bring new talent into the organization, which we believe will further accelerate our transformation efforts, including several senior roles over the last several months, such as Becky Kidd as Head of North American Operations and Global Operational Excellence, Andrzej Wolszczak as President International, and Drew Coxett as Vice President, Corporate Controller, and Chief Accounting Officer. Overall, I'm very energized by the talent we are attracting as we build upon our leadership position in veterinary health care solutions. And this opportunity can be best summarized in how we are still in the early innings of driving growth and a positive shift in our business towards our higher margin products and services as seen on slide four. During Q2, we delivered double-digit year-over-year growth in net sales and gross profit in these categories. and I was particularly pleased with the results achieved in our co-vetches branded and proprietary brands during the second quarter. The collective growth rate of these products and services continues at a pace faster than our overall portfolio, and these products and services now represent 43% of the company's gross profit, or a 200 basis point increase versus the prior year, and a 600 basis point improvement versus 2019 pro forma levels. We expect this positive shift to continue as our strategic accounts across our segments build momentum and we see a pathway to more than 50% of the company's gross profit tied to the entire margin products and services over the next 18 to 24 months. This team is doing a great job. Turning to slide five. Given the significant opportunity in our Covetous branded and proprietary brand product portfolio and the anticipated benefit that this growing contribution will make to the company's profitability, I thought it would be useful to investors to share some additional color on these products, highlight our recent financial progress during the second quarter, and key areas of focus for the company as we think about the second half of 2021 and beyond. Our increased focus on Coventry's branded products during the second half of last year is starting to drive tangible financial progress in 2021 with non-GAAP organic net sales for these products increasing 21% year-over-year during the second quarter. This includes an even more impressive 25% year-over-year non-GAAP organic net sales growth rate in North America, partly driven by the organizational changes we made last year. We are optimistic that we can deliver continued strong growth during the second half of the year in our Covetous branded products, driven by the ramp up and launch of 75 new products globally this year, including several that are now available through our prescription management platform in North America, emphasizing the synergies between all aspects of our business. We are also entering a couple of new high growth geographies in 2021, which we believe can further enhance our opportunity in the years ahead. The company's portfolio of proprietary brands, which includes Cruza, VI, and Calibra, also saw strong adoption during the second quarter, with non-GAAP organic net sales growth of 13% year-over-year, a continuation of recent positive trends. This growth is being supported by strong commercial execution, and we anticipate new product introductions and geographic expansion to drive further growth. We also continue to actively explore M&A and partnership opportunities in this area as we seek to leverage our unique channel access and scale to accelerate growth. And turning to compounding, we delivered double-digit year-over-year net sales growth in the second quarter of 2021, and with the recent opening of our new state-of-the-art compounding and 503b outsourcing facility in Phoenix, Arizona this May, and the launch of our new e-commerce platform and integrations with third-party ordering sites, We are well-positioned to build upon our opportunity as we drive innovation and leverage our customer relationships and membership organizations. Moving now to slide six, I'm extremely excited about our recently completed acquisition of VCP, the market leader in veterinary wellness and care plan administration software. As many of you are aware, now more than ever, pet owners need health licensing for pet care and treatment, and veterinarians are looking for ways to drive compliance, strengthen their relationship with their clients, and offer innovative plan solutions for all types of treatment needs based on best practices. And that is where VCP comes in. VCP is built a proprietary wellness plan management solution providing a comprehensive end-to-end technology platform that simplifies, and enables the process of creating, launching, and managing a wellness program at the practice. VCP's innovative wellness technology and proprietary business of wellness process enables veterinary practice customers in launching successful wellness solutions, care plans, and lifestyle programs to their pet parent clientele. The practices adopting the VCP platform report up to a 10% revenue growth in the first year, with significant increases in spending per pet over time. And the pet parents adopting these plans value the convenience and customization of the programs, which has led to strengthened relationships with their veterinarian. VCP is currently experiencing strong demand and has a growing customer base of more than 1,000 veterinary clinics with more than 350,000 pets on plan. Importantly, we currently have a large backlog of signed but not yet onboarded clinics and a significant pipeline of new opportunities providing visibility into double digit growth in high margin recurring revenue in 2022 and beyond. What's even more exciting to us is that this is all before the uplift we anticipate from VPC joining forces with Covetris as we leverage our customer relationships and membership organizations and build a unique platform that can integrate practice management software, prescription management, and wellness into one offering for the practice. By accelerating the adoption of and enhancing the impact from wellness and care plans, we believe we will drive enhanced clinical outcomes, empower veterinarians to run better businesses, and deliver an unparalleled experience for the pet parent. We will speak more to this opportunity in the quarters ahead as we work to execute our strategy and deliver the anticipated synergies. Finally, on slide seven, I wanted to turn investor attention to Covetris' first ever ESG report, which was also released this afternoon. Just over two years ago, Covetris was established as a new company. The company was the result of a merger of a collection of animal health businesses from around the world, many with their own sustainability initiatives and corporate social responsibility commitments. Now, as one unified company, we are bringing a more cooking-to-focus to our ESG efforts. Our initial progress is demonstrated in today's report, through stories of our team's actions around the globe, including our COVID-19 response for our employees, customers, pets, and pet owners, a commitment to sustainability and continuous improvement and reduction in plastic consumption, the launch of a diversity and inclusion program, and support for animals around the world. we aspire to lead in everything that we do. This report is both a celebration of where we are today, as well as a commitment to where we are going, and we are just getting started. In summary, I'm so pleased with the progress the company has made during the first half of 2021, and I'm energized by the opportunity that still lies ahead as we continue to execute against our strategy. While there still is plenty of work to do as we drive forward, our transformation in what remains a dynamic end market I am confident in our value proposition and market position and anticipate that we will continue to build upon our momentum in the second half of 2021 and beyond. I will now turn the call over to Matthew to provide details on the financials. Thanks, Ben.