cvet-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021


☐			Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number: 001-38794

COVETRUS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware						83-1448706
(State or other jurisdiction of incorporation)						(I.R.S. Employer Identification No.)

7 Custom House Street

Portland, ME 04101

Tel: (888) 280-2221

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

CVET

Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

☐

☒

The registrant had 136,589,404 shares of common stock outstanding as of April 30, 2021.

TABLE OF CONTENTS


			Page
Glossary of Defined Terms and Abbreviations			3
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Balance Sheets			5
Statements of Operations			6
Statements of Comprehensive Income (Loss)			7
Statements of Shareholders' Equity			8
Statements of Cash Flows			9
Notes to Condensed Consolidated Financial Statements
Note 1: Business Overview and Significant Accounting Policies			10

Note 2: Segment Data			11
Note 3: Revenue from Contracts with Customers			12
Note 4: Earnings (Loss) Per Share			13
Note 5: Commitments and Contingencies			13
Note 6: Income Taxes			14
Note 7: Fair Value			14
Note 8: Derivatives			16
Note 9: Accumulated Other Comprehensive Income (Loss)			17
Note 10: Redeemable Non-controlling Interests			17

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			18
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			28

PART II - OTHER INFORMATION
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 2. Unregistered Sales of Securities and Use of Proceeds			29
Item 5. Other Information			30
Item 6. Exhibits			30
Signatures			31


Covetrus, Inc. 2021 Q1 Form 10-Q			2

Glossary of Defined Terms and Abbreviations


AAFCO			Association of American Feed Control Officials
Acquisition*			Our acquisition of Vets First Choice in an all-stock transaction
Adjusted EBITDA*			Adjusted EBITDA is the segment measure of profit or loss reported to the CODM. Adjusted EBITDA excludes share-based compensation, strategic consulting, transaction costs, formation of Covetrus expenses, separation programs and executive severance, carve-out operating expenses, certain IT infrastructure expenses necessary to establish ourselves as a newly public company, goodwill impairment charges, capital structure-related fees, operating lease right-of-use asset impairments, the proportionate share of the adjustments of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100%, managed exits from businesses we are exiting or closing, and other income and expense items, net. Non-GAAP Adjusted EBITDA on a total segment basis is reconciled in Note 2 - Segment Data as required by ASC 280
AIP*			Annual Incentive Plan
Investment and Shareholders Agreement*			The Investment and Shareholders Agreement of Distrivet, S.A. executed on January 13, 2020
Animal Health Business*			Former Parent's spun-off animal-health business
Animal Owners*			Patients of our Customers
APAC			Asia Pacific
APVMA			Australian Pesticides and Veterinary Medicines Authority
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
BEAT			Base Erosion & Anti-Abuse Tax
CEO			Chief Executive Officer
CARES			Coronavirus Aid, Relief, and Economic Security Act
CCPA			California Consumer Privacy Act
CFO			Chief Financial Officer
CODM			Chief Operating Decision Maker
COVID-19			Novel Coronavirus Disease 2019
Credit Facilities*			On February 7, 2019, we entered into a $1.5 billion syndicated credit agreement with a group of lenders for a five-year term
Customers*			Veterinarians and animal-health practitioners
CVM			Center for Veterinary Medicine
DEA			U.S. Drug Enforcement Administration
DGCL			Delaware General Corporation Law
Defendants*			The Company, our Former Parent, our former Chief Executive Officer and President, and our former Chief Financial Officer, collectively
Distribution*			All the shares of our common stock that were then owned by our Former Parent were distributed to its stockholders of record as of January 17, 2019. Concurrent with the Distribution, we paid a cash dividend of $1.2 billion to our Former Parent from loan proceeds from our newly established Term Loan Facility
Distrivet*			On April 30, 2020, we combined our subsidiary, SAHS, with Distrivet, S.A. to form a leading animal-health provider on the Iberian Peninsula. We own 50.01% of the new company, called Distrivet, a Covetrus company
EBITDA			Earnings Before Interest, Taxes, Depreciation, and Amortization
EFTA			European Free Trade Area
EFSA			European Food Safety Authority
EMA			European Medicines Agency
EPA			Environmental Protection Agency
EPS			Basic earnings (loss) per common share
ESG			Environmental, social, and corporate governance
ESPP			Employee Stock Purchase Plan
Exchange Act			Securities Exchange Act of 1934, as amended
FCMA			Fellow Chartered Management Accountant


Covetrus, Inc. 2021 Q1 Form 10-Q			3


FDA			U.S. Food and Drug Administration
FDII			Foreign-derived Intangible Income
Form 10-K			Audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020
Form 10-Q or Report			Quarterly Report on Form 10-Q
Former Parent*			Henry Schein, Inc.
FTC			Federal Trade Commission
GAAP			Generally Accepted Accounting Principles in the United States of America
GDPR			EU General Data Protection Regulation
GFI			Guidance for Industry
GILTI			Global Intangible Low-Taxed Income
Global Technology Solutions*			The aggregation of our software services with our prescription management platform and related pharmacy services
IRS			Internal Revenue Service
ITGC			Information Technology General Controls
LIBOR			London Interbank Offered Rate
NYSE			New York Stock Exchange
NZ EPA			New Zealand Environmental Protection Authority
Revolving Credit Facility*			$300 million revolving line of credit for working capital and general corporate purposes
RSA			Restricted Stock Award
RSU			Restricted Stock Unit
SAHS*			Spain Animal Health Solutions S.L.U.
SEC			Securities and Exchange Commission
Separation*			In anticipation of the spin-off, affiliates of Covetrus purchased from certain minority holders their ownership interests in the applicable operating companies of the Animal Health Business. On February 7, 2019, our Former Parent completed the spin-off of its Animal Health Business and transferred the applicable assets, liabilities, and ownership interests to us
SG&A			Selling, general and administrative expenses
Share Sale*			On February 7, 2019 and prior to the Distribution, we sold $361 million in shares to accredited institutional investors. The proceeds from the Share Sale were paid to us and distributed to our Former Parent
SMB			Small or Medium-Sized Business
Term Loan Facility*			$1.2 billion term loan facility
Transactions			Collectively the following events, effective February 7, 2019, Vets First Choice became a wholly-owned subsidiary of Covetrus, Inc. (f/k/a HS Spinco, Inc.), a company formed by our Former Parent in connection with the spin-off of the Animal Health Business and combination with Vets First Choice
TSA			Transition Service Agreements
U.K.			United Kingdom
USDA			U.S. Department of Agriculture
Vets First Choice*			Direct Vet Marketing, Inc. (d/b/a Vets First Choice)
VMD			Veterinary Medicines Directorate
VSG*			Veterinary Study Groups, Inc.
Covetrus, Company, we, us, our, or ourselves			Covetrus, Inc. and its consolidated subsidiaries, collectively
XBRL			eXtensible Business Reporting Language

*Defined term or abbreviation is specific to CVET


Covetrus, Inc. 2021 Q1 Form 10-Q			4

Table of Contents

PART I

Item 1. Condensed Consolidated Financial Statements

COVETRUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)


	March 31, 2021		December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	211	$	290
Accounts receivable, net of allowance of $5 and $5	518		507
Inventories, net	555		530
Other receivables	87		67
Prepaid expenses and other	51		37
Total current assets	1,422		1,431
Non-current assets:
Property and equipment, net of accumulated depreciation of $112 and $106	118		116
Operating lease right-of-use assets, net	111		117
Goodwill	1,187		1,187
Other intangibles, net of accumulated amortization of $497 and $470	516		555
Investments and other	86		90
Total assets	$	3,440	$	3,496
LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	416	$	405
Current maturities of long-term debt and other borrowings	17		1
Accrued payroll and related liabilities	57		67
Accrued taxes	29		37
Other current liabilities	163		181
Total current liabilities	682		691
Non-current liabilities:
Long-term debt and other borrowings, net	1,054		1,068
Deferred income taxes	23		28
Other liabilities	125		136
Total liabilities	1,884		1,923
Commitments and contingencies (Note 5)
Mezzanine equity:
Redeemable non-controlling interests (Note 10)	36		36
Shareholders' equity:
Common stock, $0.01 par value per share, 675,000,000 shares authorized; 136,342,036 shares issued and outstanding as of March 31, 2021; 136,017,964 shares issued and outstanding as of December 31, 2020	1		1
Accumulated other comprehensive loss (Note 9)	(75)		(66)
Additional paid-in capital	2,637		2,629
Accumulated deficit	(1,043)		(1,027)
Total shareholders’ equity	1,520		1,537
Total liabilities, mezzanine equity, and shareholders’ equity	$	3,440	$	3,496

See notes to unaudited condensed consolidated financial statements.


Covetrus, Inc. 2021 Q1 Form 10-Q			5

Table of Contents

COVETRUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts) (Unaudited)


	Three Months Ended March 31,
		2021		2020
Net sales (Note 3)		$	1,102	$	1,065
Cost of sales		892		863
Gross profit		210		202
Operating expenses:
Selling, general and administrative		213		222


Operating income (loss)		(3)		(20)
Other income (expense):
Interest income		—		—
Interest expense		(9)		(14)
Other, net		—		(1)
Income (loss) before taxes and equity in earnings of affiliates		(12)		(35)
Income tax benefit (expense) (Note 6)		(4)		2

Net income (loss)		(16)		(33)
Net (income) loss attributable to redeemable non-controlling interests		—		—
Net income (loss) attributable to Covetrus		$	(16)	$	(33)

Earnings (loss) per share attributable to Covetrus: (Note 4)
Basic		$	(0.11)	$	(0.30)
Diluted		$	(0.11)

SEC Form 10-Q filed by Covetrus, Inc.