Covetrus announces $1 billion loss for its troubled first year

Veterinary technology company Covetrus lost slightly more than $1 billion in its troubled first year as a publicly traded company, according to an earnings report issued Tuesday.

The bulk of that loss came from a $938 million goodwill impairment charge recorded last fall in an attempt to square the company’s value on paper with its present reality. Goodwill is an intangible asset whose dollar value is based on the perceived potential of a company to make money in the future.

Covetrus was created from a merger between Portland’s Vets First Choice and a spinoff of the animal health division of New York company Henry Schein Inc. in February 2019.

Since Covetrus released disappointing results from its first full quarter as a publicly traded company last August, its stock price has plunged, investors have sued, and its father-and-son team of board chairman and chief executive, both co-founders of the company, have been demoted to lesser roles.

In a conference call Tuesday about the company’s 2019 results, company President and CEO Benjamin Wolin said Covetrus faced early growing pains and challenges, but he believes it has the right team to focus the company and successfully execute its plans. Wolin’s promotion from interim to permanent status as the company’s top executive also was announced Tuesday.

“In summary, our mission, our strategic priorities and our 2020 plans are now sharper in focus,” Wolin said. Covetrus intends to hone in on its core business, including increasing existing customer use of its prescription management platform, he said.

Proceeds from the sale of one of its animal health diagnostics businesses and the successful negotiation of more favorable debt-repayment terms should give Covetrus more flexibility to execute its strategy and invest in the business, Wolin said.

“These last few months have demonstrated the approach we are taking can yield positive results for all our stakeholders,” he said.

Investors appeared to welcome the earnings report. Covetrus’ stock price rose by almost 15 percent to $12.75 per share in the first two hours of after-hours trading Tuesday, according to the website Yahoo! Finance.

In an interview, Wolin said fluctuations in the market – including the Super Tuesday primaries and the novel coronavirus outbreak – make it hard to read into any day’s move as it relates to just the business.

“If we build a good business, the stock is going to go up over time,” he said.

The company has about 300 employees at its Portland headquarters and 5,500 worldwide.

PROJECTED GROWTH

Covetrus expects to continue growing in Maine, Wolin said. He did not provide a hiring target, but said the company intends to invest in pharmacy, engineering and other positions.

The company received approval in 2018 to build a five-story world headquarters in Portland with space for 1,500 employees. Construction is behind schedule but ongoing, Wolin said.

“I think nothing has really changed on that front, we continue to build out the new facility in Portland and are committed to doing that and continuing to expand our employee footprint in the local Portland market,” he said.

Covetrus’ sales were $4 billion in 2019, a 5 percent increase compared with the combined revenue of Vets First Choice and Henry Schein Animal Health in 2018. Excluding one-time adjustments such as the goodwill impairment charge, it recorded net income of $82 million, down 13 percent from $94 million the previous year.

For its fourth quarter, the company reported a net loss of $37 million, which it attributed to costs from the merger, interest expenses from its debt financing, general expenses and a negative impact from fluctuations in foreign currency, according to a Covetrus news release.

The company expects sales to be stable but fairly flat this year at about $4.1 billion, an increase of 3 percent to 5 percent.

In conjunction with the earnings release, the Covetrus board of directors announced it has promoted Wolin to a permanent role as president and CEO, a position he has held in an acting capacity since October.

“Ben’s leadership and experience have been critical over the last several months in focusing the company on executing on its strategy and strengthening the platform and balance sheet,” company Chairman Philip Laskawy said in a statement. “The board is confident that he is the right leader to build on this initial momentum and deliver additional value to our employees, customers, manufacturers, partners and shareholders in the global animal health market.”

Vets First Choice was founded in 2010 by Benjamin and David Shaw to provide online pharmacy services to veterinarians. It grew quickly and merged with Henry Schein to form Covetrus last year.

But the company stumbled in its first full quarter and shares slid 40 percent after it released earnings that were far below analyst expectations. Investors sued Covetrus for securities fraud following its first earnings report in August.

Benjamin and David Shaw both stepped down from leadership roles in the company in the aftermath and a series of top-level executives also were replaced.