Second quarter GAAP net sales of $1.03 billion, an increase of 2% year-over-year; non-GAAP organic net sales increased 5% year-over-year
 Second quarter GAAP net income of $54 million, including a $70 million after-tax gain on sale of scil animal care, as compared to a GAAP net loss of $10 million in the prior year period; second quarter non-GAAP adjusted net income of $30 million, an increase of 25% year-over-year
 Second quarter non-GAAP adjusted EBITDA of $63 million, an increase of 19% year-over-year
 Ended the second quarter of 2020 with $414 million in cash and cash equivalents on the balance sheet and more than $700 million in available liquidity
 Full year 2020 non-GAAP adjusted EBITDA guidance in the range of $200 million to $210 million, which assumes no significant additional supply chain disruption or economic impact related to COVID-19 in the second half of the yearPORTLAND, Maine, Aug. 11, 2020 (GLOBE NEWSWIRE) — Covetrus (Nasdaq: CVET), a global leader in animal-health technology and services, today announced financial results for the second quarter of 2020, which ended June 30, 2020.“I am extremely proud of our team’s exceptional efforts and accomplishments during the second quarter to support our customers around the globe during COVID-19. Our strong second quarter financial results demonstrate our progress, and our 2020 guidance showcases the confidence we have in our business,” said Ben Wolin, Covetrus president and chief executive officer. “While uncertainties tied to the global pandemic and the pace and recovery of our end-market remain, continued investments in our organizational health, innovation and customer success puts us in a strong position to capitalize on our strategic opportunities and to deliver shareholder value in the quarters and years ahead.”Summary Operating Results (Unaudited)^(a) Non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations for non-GAAP financial items to the most directly comparable GAAP financial items are provided under Reconciliation of Non-GAAP Financial Measures at the end of this release.Second Quarter 2020 ResultsNet sales for the second quarter of 2020 were $1.03 billion, an increase of 2% compared to the second quarter of 2019. Foreign exchange was a 2% headwind to net sales growth during the period. Non-GAAP organic net sales increased 5% year-over-year, driven by strong net sales growth in the Company’s prescription management business as well as positive supply chain net sales growth in North America and APAC & Emerging Markets, supported by a recovery in end-market demand in May and June.Net income attributable to Covetrus in the second quarter of 2020 was $54 million, or $0.40 per diluted share, which compared to Net loss of $10 million, or a loss of $0.09 per diluted share, in the second quarter of 2019. The primary driver of the year-over-year increase was a $70 million after-tax gain on the sale of scil animal care.Non-GAAP adjusted EBITDA was $63 million for the second quarter of 2020 versus $53 million in the prior year. Changes in foreign exchange negatively impacted adjusted EBITDA by $1 million year-over-year. The primary driver of the 19% year-over-year increase was positive growth and contribution from the Company’s prescription management business and cost containment measures in response to COVID-19, which offset the COVID-19 net sales headwinds and the lost adjusted EBITDA contribution from scil animal care, which was divested on April 1, 2020.Non-GAAP adjusted net income was $30 million for the second quarter of 2020, compared to $24 million in the prior year period, driven by the same factors impacting non-GAAP adjusted EBITDA.First Half 2020 ResultsNet sales for the first half of 2020 were $2.09 billion, an increase of 7% compared to the first half of 2019. Foreign exchange was a 2% headwind to sales growth during the period. Non-GAAP pro forma organic net sales increased 7% year-over-year, driven by strong net sales growth in the Company’s prescription management business and positive supply chain net sales across all of the Company’s geographic segments, reflective of the growth and resiliency of the Company’s end-market and strong sales execution.Net income attributable to Covetrus in the first half of 2020 was $20 million, or $0.15 per diluted share, which compared to net loss of $23 million, or a loss of $0.22 per diluted share, in the first half of 2019. The primary driver of the year-over-year increase was a $70 million after-tax gain on the sale of scil animal care.Non-GAAP adjusted EBITDA was $111 million for the first half of 2020 versus $103 million in the prior year period on a pro forma basis. Changes in foreign exchange negatively impacted adjusted EBITDA by $2 million year-over-year. The primary driver of the 8% year-over-year increase was accelerated growth and contribution from the Company’s prescription management business and cost containment measures in response to COVID-19 uncertainties, which offset the year-over-year impact from increased corporate overhead tied to establishing an independent, global public company.Non-GAAP adjusted net income was $50 million for the first half of 2020, compared to $42 million in the prior year on a pro forma basis, driven by the same factors impacting non-GAAP adjusted EBITDA.Second Quarter 2020 Segment Financial HighlightsThe Company’s operations are organized and reported by geography — North America, Europe, and APAC & Emerging Markets.North AmericaNorth America segment net sales for the second quarter, ended June 30, 2020, of $602 million increased 9% compared to the same period of the prior year. Non-GAAP organic net sales increased 10% year-over-year. During the second quarter of 2020, supply chain non-GAAP organic net sales increased 2% year-over-year and prescription management net sales increased 66% year-over-year. COVID-19 had a negative impact on supply chain net sales during the month of April, with sales trends recovering during the months of May and June. COVID-19 had a positive impact on the Company’s prescription management business as e-commerce for prescription pet medications spiked amidst the pandemic.North America segment adjusted EBITDA for the second quarter, ended June 30, 2020, of $55 million increased 28% compared to the same period of the prior year, reflecting the strong net sales growth and the significant improvement in profitability in the Company’s prescription management business as well as a modest increase in the overall contribution from the rest of the Company’s North American businesses during the second quarter as compared to prior year.EuropeEurope segment net sales for second quarter, ended June 30, 2020, of $342 million decreased 8% compared to the same period of the prior year. Non-GAAP pro forma organic net sales declined 2% compared to the same period of the prior year. The inventory stocking pull forward of net sales into the first quarter of 2020 as well as COVID-19-related headwinds during April and May drove the decline in net sales as compared to the prior year.Europe segment adjusted EBITDA for the second quarter, ended June 30, 2020, of $16 million decreased 16% compared to the same period of the prior year, as the lost contribution from the scil animal care business, which was divested on April 1, changes in foreign exchange, and the decline in net sales, including the impact from the inventory stocking dynamic discussed above, more than offset the benefit from cost containment actions implemented during the quarter to mitigate the COVID-19 impact.APAC & Emerging MarketsAPAC & Emerging Markets segment net sales for the second quarter, ended June 30, 2020, of $85 million decreased by 6% compared to the same period of the prior year. Non-GAAP pro forma organic net sales increased 4% compared to the same period of the prior year, with strong sales execution more than offsetting the COVID-19 headwind.APAC & Emerging Markets segment adjusted EBITDA for the second quarter, ended June 30, 2020, of $5 million increased 25% compared to the same period of the prior year, driven by strong operating leverage from the positive net sales growth delivered during the quarter, including the benefit from cost containment actions implemented during the quarter to mitigate the COVID-19 impact.Financial Position and LiquidityCovetrus generated $54 million of net cash from operating activities during the six months ended June 30, 2020, as compared to $3 million during the prior year period. Free cash flow, a non-GAAP financial measure that is defined as cash flow from operating activities less purchases of property and equipment, was $30 million during the six months ended June 30, 2020 as compared to negative $18 million in the prior year period. The year-over-year increase in free cash flow reflects improved operating earnings and strong working capital management in response to the uncertainty created by COVID-19.At quarter-end, the Company had $414 million in cash and cash equivalents, $1.14 billion in term loan debt, and no borrowings outstanding on its $300 million revolving credit facility. The Company ended the quarter with more than $700 million in available liquidity and was in compliance with the covenants in its credit agreement as of June 30, 2020.2020 Financial GuidanceCovetrus’ fiscal year 2020 financial guidance range is as follows, which assumes no significant additional supply chain disruption or economic impact related to COVID-19 in the second half of the year:Adjusted EBITDA, a non-GAAP financial metric, of $200 million to $210 millionThe Company has not reconciled its non-GAAP adjusted EBITDA guidance to GAAP net income attributable to Covetrus because the reconciling items between such GAAP and non-GAAP financial measures, including share-based compensation expense, separation program costs, strategic consulting costs and other special items tied to the formation of Covetrus, cannot be reasonably predicted due to the uncertainty and inherent difficulty predicting the occurrence, the financial impact, and the periods in which the non-GAAP adjustments may be recognized and therefore is not available without unreasonable effort. The impact of these adjusting items could be significant to the Company’s GAAP results. For more information regarding the non-GAAP financial measures discussed in this release, please see the section titled Reconciliation of Non-GAAP Financial Measures for the reconciliations of GAAP financial measures to non-GAAP financial measures.Conference CallThe Company will host a conference call to discuss these results and recent business trends at 4:30 p.m. ET on August 11, 2020. Participating in the conference call will be:Benjamin Wolin, president and chief executive officerMatthew Foulston, executive vice president and chief financial officerTo access the live webcast and the accompanying slide presentation, individuals can visit the Investor Relations page of the Covetrus website: https://ir.covetrus.com/investors/events-and-presentations. An archived edition of the earnings conference call will also be posted on the Covetrus website later that day and will remain available to interested parties via the same link for one year.The conference call can also be accessed by dialing 866-789-2492 for U.S./Canada participants, or 409-937-8901 for international participants, and referencing confirmation code 8279366. A replay of the conference call will be available for two weeks through August 25, 2020 by dialing 855-859-2056 or 404-537-3406. The replay confirmation code is 8279366.About Covetrus
Covetrus is a global animal-health technology and services company dedicated to empowering veterinary practice partners to drive improved health and financial outcomes. We are bringing together products, services, and technology into a single platform that connects our customers to the solutions and insights they need to work best. Our passion for the well-being of animals and those who care for them drives us to advance the world of veterinary medicine. Covetrus is headquartered in Portland, Maine with more than 5,500 employees serving over 100,000 customers around the globe. For more information about Covetrus visit https://covetrus.com/. Forward-Looking Statements
This press release contains certain statements that are forward-looking within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We may, in some cases use terms such as “predicts,” “believes,” “potential,” “continue,” “anticipates,” “estimates,” “expects,” “plans,” “intends,” “may,” “could,” “might,” “likely,” “will,” “should” or other words that convey uncertainty of the future events or outcomes to identify these forward-looking statements. Such statements are subject to numerous risks and uncertainties, and actual results could differ materially from those anticipated due to a number of factors including, but not limited to, the effect of the COVID-19 pandemic on our business and the success of any measures we have taken or may take in the future in response thereto; risks associated with our management transition; the ability to successfully integrate operations and employees; the ability to realize anticipated benefits and synergies of the transactions that created Covetrus; the potential impact of the consummation of the transactions on relationships, including with employees, customers and competitors; the ability to retain key personnel; the ability to achieve performance targets; changes in financial markets, interest rates and foreign currency exchange rates; changes in our market; the impact of litigation; the impact of Brexit; the impact of accounting pronouncements, seasonality of our business, leases, expenses, interest expense and debt; risks associated with sufficiency of cash and access to liquidity; cybersecurity risks; and those additional risks discussed under the heading “Risk Factors” in our Annual Report on Form 10-K filed on March 3, 2020, our Quarterly Report on Form 10-Q to be filed with the SEC on August 11, 2020, and in our other SEC filings. Our forward-looking statements are based on current beliefs and expectations of our management team and, except as required by law, we undertake no obligations to make any revisions to the forward-looking statements contained in this release or to update them to reflect events or circumstances occurring after the date of this release, whether as a result of new information, future developments or otherwise. Investors are cautioned not to place undue reliance on these forward-looking statements.
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Segment Adjusted EBITDAThe Company provides adjusted EBITDA by segment as a supplemental measure to GAAP. Adjusted EBITDA by segment is not a pro forma metric and in 2019 reflects the operations of Vets First Choice only for the period from February 8, 2019 to June 30, 2019. Adjusted EBITDA by segment is among the primary metrics by which management evaluates the performance of the business. Adjusted EBITDA by segment has certain limitations in that it does not take into account the impact of certain expenses to our consolidated statements of operations, including the impact of share-based compensation, formation of Covetrus expenses, IT infrastructure, goodwill impairment charges, and other costs tied to integration efforts of the combined businesses, along with other items such legal, accounting and regulatory, re-branding and severance. The Company does not allocate to its segments’ expenses managed at the corporate level, such as corporate wages and related benefits, corporate occupancy costs, professional services utilized at the corporate level, and non-recurring expenses. Other companies may not define or calculate adjusted EBITDA by segment in the same way.The following tables summarize adjusted EBITDA by segment:
Reconciliation of Non-GAAP Financial Measures
In addition to the financial information presented in accordance with U.S. generally accepted accounting principles, or GAAP, the Company is providing certain non-GAAP financial measures (discussed below). Management uses these measures in the management of our business and believes that they are useful to investors in evaluating our ongoing operating results and trends.The following tables reconcile non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Covetrus management believes that these non-GAAP financial measures, including pro forma adjustments to reflect the timing of the acquisition of Vets First Choice in the first quarter of 2019, provide useful additional information to investors regarding Covetrus’ results of operations as they provide another measure of Covetrus’ profitability and ability to service its debt, and are considered important to financial analysts covering Covetrus’ industry.These non-GAAP financial measures have limitations as an analytic tool and should not be considered in isolation or as a substitute for net income or any other measure of financial performance reported in accordance with GAAP. Covetrus’ non-GAAP measures may be calculated differently than similarly named measures reported by other companies. In addition, using non-GAAP measures may have limited value as they exclude certain items that may have a material impact on reported financial results and cash flows. When analyzing Covetrus’ performance, it is important to evaluate each adjustment in the reconciliation tables and use adjusted measures in addition to, and not as an alternative to, GAAP measures.Non-GAAP Net Sales and Segment Net Sales (Unaudited)Covetrus delivers products, software and technology-enabled services across the globe through three reportable segments: North America, Europe, and APAC & Emerging Markets. Organic net sales growth is a non-GAAP measure that Covetrus uses to evaluate period-over-period financial performance. The Company believes this non-GAAP financial metric provides useful information about its operating results, enhances the overall understanding of past financial performance and future prospects and is a useful measure for period-to-period comparisons. Organic net sales growth excludes the impact of foreign exchange fluctuations, M&A and divestitures, which can impact year-over-year comparisons. Additionally, the Company has provided certain pro forma information to reflect the timing of the Vets First Choice acquisition in the first quarter of 2019.
The following tables summarize non-GAAP net sales and non-GAAP organic net sales growth for Covetrus and each reportable segment:Net Sales and Non-GAAP Pro Forma Net Sales (Unaudited)(a) Historical Vets First Choice – 2019 – from January 1, 2019 to February 7, 2019Non-GAAP Organic Net Sales and Organic Pro Forma Net Sales Growth (Unaudited)Non-GAAP EBITDA, Pro Forma EBITDA, Adjusted EBITDA, Pro Forma Adjusted EBITDA, Adjusted Net Income (Loss) and Pro Forma Adjusted Net Income (Unaudited)
EBITDA, adjusted EBITDA, pro forma EBITDA, pro forma adjusted EBITDA, adjusted net income and pro forma adjusted net income are non-GAAP financial measures used to (i) aid management and investors with year-over-year comparability, (ii) determine management performance under the Company’s compensation plans, (iii) plan and forecast, (iv) communicate the Company’s financial performance to its board of directors, shareholders, and investment analysts, and (v) understand the Company’s operating performance without regard to items we do not consider a component of the Company’s core ongoing operating performance. Such measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Non-GAAP adjusted EBITDA adjustments include share-based compensation, transaction costs, formation of Covetrus expenses, separation programs and executive severance, carve-out operating expenses, IT infrastructure, capital structure and goodwill impairment charges, strategic consulting, and other (income) expense items, net.A reconciliation of EBITDA, adjusted EBITDA and adjusted net income to net income (loss) attributable to Covetrus, the most directly comparable GAAP financial measure, is as follows:

Non-GAAP Free Cash Flow (Unaudited)Free cash flow is a non-GAAP financial measure and should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Free cash flow is the cash the Company produces through its operations, less the cost of expenditures on property and equipment. The Company believes that it is an important measurement since it shows how efficient a company is at generating cash.Contacts
Nicholas Jansen | Investor Relations
207-550-8106 | [email protected]Kiní Schoop | Public Relations
207-550-8018 | [email protected]

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