Covetrus, Inc.

Good day and thank you for standing by. At this time, I would now like to welcome everyone to CoVetra's fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only mode. 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 keypad. And if you require any further assistance, please press star 0. I would now like to turn the call over to your speaker today, Mr. Nicholas Janssen, Vice President of Investor Relations. Please go ahead.

Thank you, Anne, and good afternoon. Thank you for joining us for Coventris' Q4 and full year 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'll 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 the 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, 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 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 or on the SEC's website, www.sec.gov. Forward-looking statements speak only as of the date 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 release announcing our fourth quarter 2021 and full year 2021 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 afternoon, everyone, and thank you for joining us. I hope everyone is safe, given the turbulent times that we live in. We have a lot of ground to cover, so I'll dive right into my prepared remarks, starting on slide three. Next week marks my second anniversary as the company's permanent CEO, and while there is still much to be done to deliver Covetris' full potential within the attractive and growing animal health market, I am proud of all the progress the team has made over the last two years. In 2021, we accelerated our pace of innovation. We strengthened our value proposition to our veterinary practice customers, head owners, and manufacturer partners. We continue to steadily push forward towards our end goal of becoming the leading global technology-enabled veterinary healthcare solutions company. Financially, 2021 was also a successful year where we delivered 5% year-over-year non-GAAP organic net sales growth. We increased non-GAAP adjusted EBITDA by 8% year-over-year, which was faster than net sales growth. And we continued to scale our technology solutions and proprietary brands. On the latter front, I would highlight another year of success in our North American prescription management business, where we grew net sales 24% year-over-year, or 28% when normalized for an accounting change. And we increased non-GAAP adjusted EBITDA by more than 90% year over year to $44 million, a rather impressive outcome on top of what was a phenomenal 2020 for the business during the peak of the pandemic. The financial success came despite some unanticipated headwinds in our UK and German markets and higher than planned corporate costs during the year. including the negative impact from FX on our intercompany loans and elevated costs tied to certain legal developments. Importantly, with many of these challenges now in the rearview mirror, we are in a healthy position to accelerate net sales and non-gap adjusted EBITDA growth in 2022 as we build upon our underlying financial momentum and monetize our innovation coming to market. Turning to slide four, As many of you have heard me say in the past, at Covetris, everything we do is centered on helping veterinarians drive better health and business outcomes. We exist to help our customers thrive. As we have emphasized on these calls, we have the tools needed for a veterinarian to address their primary day-to-day challenges, improve their practice workflow, and continue to grow their business. And our platform only got stronger in 2021. We invested significantly in our practice management solutions. We acquired new capabilities to further strengthen the vet-to-pet relationship. We built and opened two new pharmacies and invested in consumer marketing to better position the veterinarian for success amidst the increased competition from online retailers. We also launched new proprietary products to support better clinical care and enhance our operational infrastructure to reduce our cost to serve while delivering added value to our veterinary practice customers. Lastly, we transformed our commercial sales model to make it easier for our customers to partner with Covetris. Turning to slide five now, our enhanced value proposition in North America, where our platform is the most advanced, is clearly resonating in the market. North American net sales reached 2.7 billion in 2021 and have grown at a compound annual growth rate 14% over the last two years, which is faster than the overall market growth during this corresponding timeframe. And while the sales growth has been broad-based, we have delivered strong growth in the higher margin parts of the business, including prescription management and proprietary brands, which has led to a 21% CAGR in North America segment adjusted EBITDA. In fact, prescription management non-GAAP adjusted EBITDA has gone from a roughly break-even business two years ago to $44 million in 2021, accounting for almost 60% of the growth of North America's segment profitability during the same time period. What really excites me, however, is what we show on slide six in the presentation, which highlights how early we are in the process in driving our comprehensive all-in solution for veterinarians in North America. At the end of 2021, slightly more than 10% of our customers We're, quote, all-in customers, using our overall services for supply chain, practice management, prescription management, and compounding. This increased by approximately 100 basis points year-over-year in 2021, and we have significant momentum entering 2022 with our new commercial go-to-market model for both independently operated and corporately owned veterinarian practices. All-in customers in North America generate more than six times in sales than our distribution-only customers with transactional growth margins more than 250 basis points higher. As we continue to invest in innovation, we see our penetration rate with all-in customers moving higher and providing a strong foundation for above-average market growth in the years ahead. Importantly, in our Europe and APAC and emerging market segments, We have a growing portfolio of proprietary brands, a burgeoning software business, and a newly aligned global commercial strategy that bodes well for us replicating our U.S. success overseas in the future. Our recent financial success in our APAC and emerging market segment provides a glimpse of the opportunity as our Australian market is the furthest along outside the U.S. on their comprehensive all-in journey. Another way to look at the progress we are making in driving our higher-margin solutions can be seen on slide 7, where 44% of our 2021 gross profit is now coming from the company's technology, e-commerce, and proprietary products and services across our segments. This is an improvement of 300 basis points year-over-year, as gross profit of these solutions increased 16% year-over-year, which is five times faster than the growth in our third-party product distribution. As more and more of our supply chain customers expand their buying to these higher margin solutions and adopt other new innovative offerings we are bringing to market in 2022 and beyond, which I will detail shortly, we should continue to see consolidated gross margin expansion consistent with the 50 basis point improvement delivered in 2021. Moving to slide eight, I'm very excited about our upcoming launch of Covetous Pulse in North America. a new innovative cloud-based veterinary operating system, or VOS as we call it, that has united a comprehensive suite of CoVetris applications relied on daily by veterinary practices in the US into one secure, easy-to-use cloud platform, driving improved efficiencies in business operations, animal health, and client experiences. With CoVetris Pulse, veterinarians will be able to create, renew, and approve prescriptions communicate with clients and coworkers, personalize business dashboards, manage pet care plans, and customize with preferred third-party apps, all from one central operating system to fit their practice's needs. This product launches a culmination of almost two years of significant investment, along with great partnerships with the veterinary community to bring a best-in-class platform to market, which drives increased efficiencies and delivers a new standard of care for practice management. Best of all, we now have more than 1,000 beta customers using the new platform and expect more than 2,000 customers by the end of Q2 of this year, assuming no significant disruption to the productivity of our software teams based in the Ukraine. While the financial impact from the launch of Pulse is modest in the very short term, we estimate Pulse customers that leverage the full suite of applications could deliver a 3x increase in sales to Covectus versus a legacy software customer. While we are enthusiastic about the pending launch of the Pulse VOS in the US, I would be remiss not to highlight a number of the other new innovations planned for 2022. These include our first international cloud-based practice management solution, Ascend, offered in the UK, Australia, and New Zealand. Second, new features added to, along with deeper integration of VCT and Rapport into our leading on-prem software solutions, Avamark and InfraMed. And third, our next generation e-commerce storefront for prescription management customers that will be rolling out in late Q4 of this year. This next generation storefront will significantly improve the consumer experience while enhancing our ability to drive increased revenue for our veterinary practice customers through consumer engagement optimization. More to come on this significant opportunity as we approach launch later this year. This provides a good segue to our other strategic priorities for 2022 as outlined on slide nine. These priorities include, one, continuing to optimize our integrated go-to-market strategy to secure new business and grow our net sales faster than the overall market. Second, driving significant adoption of our tech platform in 22, which will translate into accelerated software net sales growth and another year of 20 plus percent net sales growth in prescription management in North America. Third, increasing our investment in consumer marketing and technology capabilities to further strengthen the vet to pet relationship. Fourth, restoring profitable growth in Europe with the recent cost actions taken in the UK and in Germany. Fifth, enhancing our proprietary brand strategy through the additions of new and proven talent, including our recent hire of Cesar Franca and new product development launches. And sixth and lastly, leveraging our corporate infrastructure for growth as we have reached the necessary base without further investment to support the business moving forward. By bringing these six strategic priorities together, not only do we expect to help our veterinarians drive better outcomes, but we believe their success will accelerate our business and market opportunities. Thriving increased adoption and usage of our platform, owning more margin, and delivering innovation to our customers and their clients positions Covetous for another great year in 2022. I will now turn the call over to Matthew to discuss our financials in more detail.