Covetrus, Inc.

Good day, everyone, and thank you for standing by. Welcome to the Covitrus Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. And after the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. And if you require any further assistance, please press star 0. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, the Vice President of Investor Relations, Mr. Nicholas Janssen. Please, go ahead, sir.

Nicholas Janssen Thank you, Delphin. Good afternoon, and thank you for joining us for CoVetris' G3 2021 earnings conference call. With me on this afternoon's call are Ben Wolin, our President and Chief Executive Officer, and Matthew Polson, 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 other 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 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. and 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 investor section of our website at ir.coventris.com and on the FCC's website at www.fcc.gov. Forward-looking statements speak only as the data hereof and, except 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 third 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 turn it over to Ben to provide the highlights beginning on slide three.

Thanks, Nick, and welcome back from your paternity leave. Good afternoon, everyone, and thanks for joining us today. I hope everyone is staying healthy, is getting vaccinated, and is gearing up for hopefully a more normal upcoming holiday season with family and friends. On this afternoon's call, I will briefly discuss some of the highlights in the quarter and then focus the rest of my prepared remarks on Covetous' broader technology strategy, which is a key pillar of the company's overall value proposition to our customers and a long-term driver of value creation for our shareholders. Now turning to the third quarter, Coventry's delivered solid performance in Q3 with good execution by the team as well as continued healthy end market demand. North America had another great quarter where non-GAAP organic net sales grew 12% year over year and non-GAAP adjusted EBITDA increased by 22% year over year to $55 million as our broader value proposition continues to resonate in the market With the exception of Germany and the UK, all other markets, our technology offerings and our proprietary brands delivered solid results, leading to a 10% year-over-year increase in total gross profit and 110 basis points increase in gross margin. Unfortunately, we did not have our historical flow through from gross profit to adjusted EBITDA due to $5 million of intercompany loan FX headwinds year over year, and $3 million of unanticipated legal fees tied to recent developments, which created an $8 million year over year headwind in corporate expense. One of the clear highlights of Q3 was the re-acceleration in net sales growth within our prescription management business in North America, where net sales increased 24% year over year. This compares favorably to the 19% year over year growth delivered in Q2. Encouragingly, the number of proactive prescriptions continues to increase and the visibility we have through increased adoption of our auto shift service continues to grow. And as with every quarter since going public, all cohorts going back to the original cohort in 2012 continue to grow double digits. And our most recent cohorts in 2019 and 2020 have ramped faster than any cohorts before them. We also showed excellent leverage in this business during Q3, where non-GAAP adjusted EBITDA more than doubled year over year and increased 18% sequentially. This business is now on pace to deliver more than $40 million in non-GAAP adjusted EBITDA in 2021, which compares to a break-even business just two short years ago. In the quarter, we delivered a 10% non-GAAP adjusted EBITDA margin in prescription management, which highlights the long-term potential for margin expansion for consolidated co-vestors as this business grows alongside our other high-margin solutions, including TIMS, Wellness Plan Administration, Communication Solutions, Payments Solutions, SmartPak, and our proprietary brands. As highlighted in earlier announcements, we took a major step forward on this portfolio during the third quarter through the acquisitions of VCP, the market-leading platform for wellness, and a point master, a provider of integrated communication solutions for veterinary practices. We are clearly investing in these new capabilities and in our next generation technology, and we see significant opportunity to scale the total portfolio as we leverage our channel access and our integrated ecosystem of solutions. Although we often focus on prescription management on these quarterly calls, it is important to note that with our recent growth, Our combined technology offering across prescription management, global software services, and SmartPak is now at nearly $800 million in annual sales and approaching $100 million in non-gap-adjusted EBITDA. That is a substantial technology business in almost any industry. This provides a great segue to slide four and the opportunity ahead for Covetris. At the company, everything we do is centered on helping veterinarians drive better health and business outcomes. While investors have come to appreciate the steady growth and scale of our in-clinic supply chain and proprietary product businesses around the world, our unique value proposition to our customer base stems from our portfolio of technology solutions that drive efficiency, revenue growth, and better pet health as we strengthen our relationships with our customers and their pet parents. Let me explain how this actually works. Today, at a Covetris-powered practice, a pet parent begins their journey by booking an appointment via Covetris' online booking tool. This appointment is followed up with text and email reminders from our communication platform. Once at the practice, a veterinarian manages this patient using our industry-leading practice information management system, or PIMS, which provides medical record storage, treatment paths, and workload solutions. Straight out of the PIMS and right at the point of care, veterinarians can now proactively prescribe medication and have that medication delivered via our prescription management solution straight to the pet owner's home. Via the same e-commerce solution, pet parents can also sign up to use auto-shift programs and receive personalized medication from our compounding pharmacy. To drive compliance and provide financial visibility to pet parents, a co-vetches practice can now enable care plans via our wellness plan administration solution, creating a subscription relationship with a pet parent. Back at home, pet parents can shop online with their veterinarian, manage their prescription, and communicate with their veterinarian via our telehealth platform. It is this connected practice that allows the veterinarian to run an effective and profitable business. This portfolio that drives the connected practice has already seen significant upgrades over the last nine months and will continue to improve over the next year. Some of the highlights include, first, the launch of our next-generation cloud-based TEM solutions, which are now live in Australia and launching in beta in the U.S. this quarter. Second, significant enhancements to our integrations with diagnostic and imaging partners. Third, continued improvements to our leading on-premise TEM solutions, Avamark and Inframed. Fourth, tight integration of VCT's wellness plan administration software into PIMS and our e-commerce solutions, further strengthening the vet-to-pet relationship. And fifth, a complete blending of prescription management and PIMS to support data interoperability, improved workflow, and a better standard of care, a true operating system for the practice. With such a substantial technology business, it's hard to say that we are just at the beginning of our technology journey, but it's true. Over the coming quarters and years, Covetris will continue to enhance our solutions, all with the intent of helping veterinarians succeed. With strong in-market growth and the industry's leading technology platform, it's clear that our future is bright. Now, I'll turn the call over to Matthew to discuss our Q3 financial results.