Cover
Cover - shares | 9 Months Ended | |
Sep. 30, 2021 | Oct. 29, 2021 | |
Entity [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2021 | |
Document Transition Report | false | |
Entity File Number | 001-38794 | |
Entity Registrant Name | COVETRUS, INC. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 83-1448706 | |
Entity Address, Address Line One | 7 Custom House Street | |
Entity Address, City or Town | Portland | |
Entity Address, State or Province | ME | |
Entity Address, Postal Zip Code | 04101 | |
City Area Code | 888 | |
Local Phone Number | 280-2221 | |
Title of 12(b) Security | Common Stock, par value $0.01 per share | |
Trading Symbol | CVET | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 137,783,356 | |
Amendment Flag | false | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2021 | |
Entity Central Index Key | 0001752836 | |
Current Fiscal Year End Date | --12-31 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Sep. 30, 2021 | Dec. 31, 2020 |
Current assets: | ||
Cash and cash equivalents | $ 187 | $ 290 |
Accounts receivable, net of allowance of $4 and $5 | 491 | 507 |
Inventories, net | 552 | 530 |
Other receivables | 77 | 67 |
Prepaid expenses and other | 44 | 26 |
Total current assets | 1,351 | 1,420 |
Non-current assets: | ||
Property and equipment, net of accumulated depreciation of $125 and $106 | 127 | 116 |
Operating lease right-of-use assets, net | 120 | 117 |
Goodwill | 1,247 | 1,187 |
Other intangibles, net of accumulated amortization of $562 and $470 | 479 | 555 |
Investments and other | 96 | 101 |
Total assets | 3,420 | 3,496 |
Current liabilities: | ||
Accounts payable | 428 | 411 |
Current maturities of long-term debt and other borrowings | 46 | 1 |
Accrued payroll and related liabilities | 62 | 67 |
Accrued taxes | 37 | 37 |
Other current liabilities | 141 | 175 |
Total current liabilities | 714 | 691 |
Non-current liabilities: | ||
Long-term debt and other borrowings, net | 1,027 | 1,068 |
Deferred income taxes | 18 | 28 |
Other liabilities | 136 | 136 |
Total liabilities | 1,895 | 1,923 |
Commitments and Contingencies | ||
Mezzanine equity: | ||
Redeemable non-controlling interest | 23 | 36 |
Shareholders' equity: | ||
Common stock, $0.01 par value per share, 675,000,000 shares authorized; 137,731,865 shares issued and outstanding as of September 30, 2021; 136,017,964 shares issued and outstanding as of December 31, 2020 | 1 | 1 |
Accumulated other comprehensive loss | (80) | (66) |
Additional paid-in capital | 2,659 | 2,629 |
Accumulated deficit | (1,078) | (1,027) |
Total shareholders’ equity | 1,502 | 1,537 |
Total liabilities, mezzanine equity, and shareholders’ equity | $ 3,420 | $ 3,496 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - Parenthetical - USD ($) $ in Millions | Sep. 30, 2021 | Dec. 31, 2020 |
Statement of Financial Position [Abstract] | ||
Accounts receivable, reserves | $ 4 | $ 5 |
Property and equipment, accumulated depreciation | 125 | 106 |
Other intangibles, accumulated amortization | $ 562 | $ 470 |
Common stock, par value (in usd per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 675,000,000 | 675,000,000 |
Common stock, shares issued (in shares) | 137,731,865 | 136,017,964 |
Common stock, shares outstanding (in shares) | 137,731,865 | 136,017,964 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) shares in Millions, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
Income Statement [Abstract] | ||||
Net sales | $ 1,162 | $ 1,126 | $ 3,453 | $ 3,217 |
Cost of sales | 946 | 929 | 2,807 | 2,625 |
Gross profit | 216 | 197 | 646 | 592 |
Operating expenses: | ||||
Selling, general and administrative | 220 | 224 | 662 | 642 |
Operating income (loss) | (4) | (27) | (16) | (50) |
Other income (expense): | ||||
Interest expense, net | (8) | (10) | (26) | (37) |
Other, net | (2) | 5 | (2) | 79 |
Income (loss) before taxes | (14) | (32) | (44) | (8) |
Income tax benefit (expense) | 10 | (3) | (7) | (6) |
Net income (loss) | (4) | (35) | (51) | (14) |
Net (income) loss attributable to redeemable non-controlling interests | 0 | 0 | 0 | (1) |
Net income (loss) attributable to Covetrus | $ (4) | $ (35) | $ (51) | $ (15) |
Earnings (loss) per share: (Note 5) | ||||
Basic (in usd per share) | $ (0.03) | $ (0.33) | $ (0.37) | $ (0.18) |
Diluted (in usd per share) | $ (0.03) | $ (0.33) | $ (0.37) | $ (0.18) |
Weighted-average common shares outstanding: | ||||
Basic (in shares) | 137 | 116 | 138 | 113 |
Diluted (in shares) | 137 | 116 | 138 | 113 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
Statement of Comprehensive Income [Abstract] | ||||
Net income (loss) | $ (4) | $ (35) | $ (51) | $ (14) |
Other comprehensive income (loss), net of tax: | ||||
Foreign currency translation gain (loss) | (13) | 14 | (17) | (2) |
Gain (loss) on derivative instruments | (1) | (1) | 3 | (8) |
Total other comprehensive income (loss) | (14) | 13 | (14) | (10) |
Comprehensive income (loss) | (18) | (22) | (65) | (24) |
Comprehensive (income) loss attributable to redeemable non-controlling interests: | ||||
Net (income) loss | 0 | 0 | 0 | (1) |
Foreign currency translation (gain) loss | 0 | 0 | 0 | (2) |
Comprehensive (income) loss attributable to redeemable non-controlling interests | 0 | 0 | 0 | (3) |
Comprehensive income (loss) attributable to Covetrus | $ (18) | $ (22) | $ (65) | $ (27) |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Millions | Total | Common Stock | Accumulated Other Comprehensive Income (Loss) | Additional Paid-in Capital | Accumulated Deficit |
Beginning balance (in shares) at Dec. 31, 2019 | 111,620,507 | ||||
Beginning balance at Dec. 31, 2019 | $ 1,253 | $ 1 | $ (86) | $ 2,339 | $ (1,001) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Net income (loss) attributable to Covetrus | (15) | (15) | |||
Redeemable non-controlling interest redemption value adjustment | (6) | (6) | |||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes (in shares) | 1,385,447 | ||||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes | 6 | 6 | |||
Share-based compensation | 30 | 30 | |||
Series A preferred stock cash dividend | (6) | (6) | |||
Conversion of Preferred Series A Stock to Common Stock (in shares) | 14,357,478 | ||||
Conversion of Series A preferred stock | 156 | 156 | |||
Other comprehensive income (loss) | (5) | (5) | |||
Ending balance (in shares) at Sep. 30, 2020 | 127,363,432 | ||||
Ending balance at Sep. 30, 2020 | 1,413 | $ 1 | (91) | 2,525 | (1,022) |
Beginning balance (in shares) at Jun. 30, 2020 | 112,674,657 | ||||
Beginning balance at Jun. 30, 2020 | 1,273 | $ 1 | (107) | 2,362 | (983) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Net income (loss) attributable to Covetrus | (35) | (35) | |||
Redeemable non-controlling interest redemption value adjustment | (6) | (6) | |||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes (in shares) | 331,297 | ||||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes | 2 | 2 | |||
Share-based compensation | 11 | 11 | |||
Series A preferred stock cash dividend | (4) | (4) | |||
Conversion of Preferred Series A Stock to Common Stock (in shares) | 14,357,478 | ||||
Conversion of Series A preferred stock | 156 | 156 | |||
Other comprehensive income (loss) | 16 | 16 | |||
Ending balance (in shares) at Sep. 30, 2020 | 127,363,432 | ||||
Ending balance at Sep. 30, 2020 | $ 1,413 | $ 1 | (91) | 2,525 | (1,022) |
Beginning balance (in shares) at Dec. 31, 2020 | 136,017,964 | 136,017,964 | |||
Beginning balance at Dec. 31, 2020 | $ 1,537 | $ 1 | (66) | 2,629 | (1,027) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Net income (loss) attributable to Covetrus | (51) | (51) | |||
Issuance of shares in connection with the Acquisition (in shares) | 146,633 | ||||
Issuance of shares in connection with acquisitions | 4 | 4 | |||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes (in shares) | 1,567,268 | ||||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes | (11) | (11) | |||
Redeemable non-controlling interest redemption value adjustment | (2) | (2) | |||
Share-based compensation | 39 | 39 | |||
Series A preferred stock cash dividend | 0 | ||||
Other comprehensive income (loss) | $ (14) | (14) | |||
Ending balance (in shares) at Sep. 30, 2021 | 137,731,865 | 137,731,865 | |||
Ending balance at Sep. 30, 2021 | $ 1,502 | $ 1 | (80) | 2,659 | (1,078) |
Beginning balance (in shares) at Jun. 30, 2021 | 137,359,704 | ||||
Beginning balance at Jun. 30, 2021 | 1,502 | $ 1 | (66) | 2,641 | (1,074) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||
Net income (loss) attributable to Covetrus | (4) | (4) | |||
Issuance of shares in connection with the Acquisition (in shares) | 146,633 | ||||
Issuance of shares in connection with acquisitions | 4 | 4 | |||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes (in shares) | 225,528 | ||||
Issuance of shares in connection with share-based compensation plans, net of shares withheld for taxes | 0 | ||||
Share-based compensation | 14 | 14 | |||
Series A preferred stock cash dividend | 0 | ||||
Other comprehensive income (loss) | $ (14) | (14) | |||
Ending balance (in shares) at Sep. 30, 2021 | 137,731,865 | 137,731,865 | |||
Ending balance at Sep. 30, 2021 | $ 1,502 | $ 1 | $ (80) | $ 2,659 | $ (1,078) |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2021 | Sep. 30, 2020 | |
Cash flows from operating activities: | ||
Net income (loss) | $ (51) | $ (14) |
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: | ||
Depreciation and amortization | 128 | 124 |
Amortization of right-of-use assets | 21 | 18 |
Operating lease right-of-use asset impairment | 0 | 8 |
Gain on divestiture of a business | 0 | (72) |
Share-based compensation expense | 39 | 30 |
Benefit for deferred income taxes | (16) | (7) |
Amortization of debt issuance costs | 4 | 4 |
Loss on managed exit of a business | 0 | 8 |
Other | 4 | 1 |
Changes in operating assets and liabilities, net of acquisitions: | ||
Accounts receivable, net | 6 | (77) |
Inventories, net | (33) | 99 |
Other assets and liabilities | (58) | (48) |
Accounts payable and accrued expenses | 14 | (63) |
Net cash provided by (used for) operating activities | 58 | 11 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (38) | (40) |
Payments related to equity investments and business acquisitions, net of cash acquired | (81) | (13) |
Proceeds from divestiture of a business, net | 0 | 104 |
Proceeds from sale of property and equipment | 0 | 4 |
Net cash provided by (used for) investing activities | (119) | 55 |
Cash flows from financing activities: | ||
Proceeds from revolving credit facility | 0 | 190 |
Repayments of Lines of Credit | 0 | (190) |
Principal payments of debt | 0 | (62) |
Debt issuance and amendment costs | 0 | (5) |
Proceeds from share-based awards | 4 | 7 |
Tax payments related to share-based awards | (15) | (1) |
Proceeds from issuance of Series A preferred stock | 0 | 250 |
Series A preferred stock issuance costs | 0 | (6) |
Series A preferred stock dividend | 0 | (6) |
Distributions to non-controlling shareholders | (2) | 0 |
Deferred payments related to equity investments and business acquisitions | (13) | (17) |
Payments related to the buy-out of non-controlling interests in subsidiaries of Covetrus | (11) | 0 |
Net cash provided by (used for) financing activities | (37) | 160 |
Effect of exchange rate changes on cash and cash equivalents | (5) | (1) |
Net change in cash and cash equivalents | (103) | 225 |
Cash and cash equivalents, beginning of period | 290 | 130 |
Cash and cash equivalents, end of period | 187 | 355 |
Supplemental disclosures of non-cash investing and financing activities: | ||
Conversion of Series A preferred stock | 0 | 156 |
Right-of-use assets obtained in exchange for new operating lease liabilities | 26 | 60 |
Deconsolidation of a subsidiary | 0 | 15 |
Issuance of shares in connection with acquisitions | $ 4 | $ 0 |
Business Overview and Significa
Business Overview and Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Business Overview and Significant Accounting Policies | 1. BUSINESS OVERVIEW AND SIGNIFICANT ACCOUNTING POLICIES Business We are a global animal-health technology and services company dedicated to supporting the companion, equine, and large-animal veterinary markets. Basis of Presentation and Principles of Consolidation The accompanying balance sheet as of December 31, 2020, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021, have been prepared in accordance with applicable rules and regulations of the SEC for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Form 10-K filed with the SEC on March 1, 2021. The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. All significant intercompany transactions and balances were eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50.01% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method. Certain prior period amounts were reclassified or rounded to conform to the presentation of the current period. Accounting Pronouncements • As of January 1, 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes specific technical exceptions to general principles found in Topic 740, items that often produce information that investors have difficulty understanding, and simplifies the accounting for income taxes. The adoption of this ASU did not have a material impact on the results of our condensed consolidated financial statements. • ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference LIBOR. The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. Our debt agreements that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. The banking syndicate associated with our Credit Facilities intends to cease using the 1-week and 2-month USD LIBOR at the end of 2021, with the other USD Tenors to cease June 30, 2023. We will continue to monitor, and, to the extent our Credit Facilities require amendment to reflect a replacement rate prior to December 31, 2022, we will evaluate the benefits of adopting this ASU. |
Business Acquisitions
Business Acquisitions | 9 Months Ended |
Sep. 30, 2021 | |
Business Combination and Asset Acquisition [Abstract] | |
Business Acquisitions | 2. BUSINESS ACQUISITIONS During the three and nine months ended September 30, 2021, we completed acquisitions of VCP, a leading platform in veterinary wellness plan administration, and AppointMaster, a provider of integrated communications solutions for veterinary practices, for an aggregate purchase price of $85 million. These acquisitions are intended to provide our Customers with new tools to foster stronger relationships with their Animal Owner clients by delivering better business and healthcare outcomes. The allocation of the aggregate purchase price resulted in goodwill of $60 million and other intangible assets, including technology, of $31 million. The results of operations have been included in our North American segment since the acquisition dates. All acquisition expenses incurred were not material. The transactions are not material business combinations or material to our condensed consolidated financial statements individually or in the aggregate. |
Segment Data
Segment Data | 9 Months Ended |
Sep. 30, 2021 | |
Segment Reporting [Abstract] | |
Segment Data | 3. SEGMENT DATA The following tables reflect our segment and corporate information and reconciles non-GAAP Adjusted EBITDA for reportable segments to consolidated Net income (loss) attributable to Covetrus: Three Months Ended September 30, 2021 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 697 $ 353 $ 116 $ — $ (4) $ 1,162 Adjusted EBITDA $ 55 $ 16 $ 10 $ (23) $ — $ 58 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (4) Plus: Depreciation and amortization 42 Plus: Interest expense, net 8 Plus: Income tax (benefit) expense (10) Earnings (loss) before interest, taxes, depreciation, and amortization 36 Plus: Share-based compensation 14 Plus: Strategic consulting (a) 2 Plus: Transaction costs (b) 1 Plus: Separation programs and executive severance 3 Plus: Equity method investment and non-consolidated affiliates (c) 1 Plus: Other items, net 1 Non-GAAP Adjusted EBITDA $ 58 (a) Includes third-party consulting services (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% Three Months Ended September 30, 2020 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 618 $ 403 $ 108 $ — $ (3) $ 1,126 Adjusted EBITDA $ 45 $ 19 $ 8 $ (13) $ — $ 59 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (35) Plus: Depreciation and amortization 41 Plus: Interest expense, net 10 Plus: Income tax (benefit) expense 3 Earnings (loss) before interest, taxes, depreciation, and amortization 19 Plus: Share-based compensation 11 Plus: Strategic consulting (a) 3 Plus: Transaction costs (b) 1 Plus: Formation of Covetrus (c) 4 Plus: Separation programs and executive severance 2 Plus: IT infrastructure 1 Plus: Equity method investment and non-consolidated affiliates (d) 1 Plus: Operating lease right-of-use asset impairment 8 Plus: France managed exit (e) 8 Plus: Other items, net 1 Non-GAAP Adjusted EBITDA $ 59 (a) Includes third-party consulting services (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company (d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% (e) Includes $7 million of severance costs and $1 million of other costs Nine Months Ended September 30, 2021 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 2,045 $ 1,080 $ 342 $ — $ (14) $ 3,453 Adjusted EBITDA $ 166 $ 57 $ 29 $ (71) $ — $ 181 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (51) Plus: Depreciation and amortization 128 Plus: Interest expense, net 26 Plus: Income tax (benefit) expense 7 Earnings (loss) before interest, taxes, depreciation, and amortization 110 Plus: Share-based compensation 39 Plus: Strategic consulting (a) 16 Plus: Transaction costs (b) 3 Plus: Formation of Covetrus (c) 2 Plus: Separation programs and executive severance 5 Plus: Equity method investments and non-consolidated affiliates (d) 2 Plus: Other items, net 4 Non-GAAP Adjusted EBITDA $ 181 (a) Related to third-party consulting services. Included within this line item are variable performance fees earned for services rendered under a third-party consulting agreement. This agreement was amended in April 2021 and, in connection with such amendment, the services were completed and fees were fully accrued for as of June 30, 2021 (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes professional and consulting fees, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company (d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% Nine Months Ended September 30, 2020 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 1,771 $ 1,166 $ 288 $ — $ (8) $ 3,217 Adjusted EBITDA $ 141 $ 53 $ 20 $ (44) $ — $ 170 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (15) Plus: Depreciation and amortization 124 Plus: Interest expense, net 37 Plus: Income tax (benefit) expense 6 Earnings (loss) before interest, taxes, depreciation, and amortization 152 Plus: Share-based compensation 30 Plus: Strategic consulting (a) 13 Plus: Transaction costs (b) 8 Plus: Formation of Covetrus (c) 17 Plus: Separation programs and executive severance 4 Plus: IT infrastructure 3 Plus: Equity method investment and non-consolidated affiliates (d) 1 Plus: Operating lease right-of-use asset impairment 8 Plus: France managed exit (e) 8 Plus: Capital structure 2 Less: Other items, net (f) (76) Non-GAAP Adjusted EBITDA $ 170 (a) Includes third-party consulting services (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company (d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% (e) Includes $7 million of severance costs and $1 million of other costs (f) Includes a $72 million gain on the divestiture of scil and a $1 million gain on the deconsolidation of SAHS See Note 4 - Revenue from Contracts with Customers for our revenue disaggregated by major product category and reportable segment. |
Revenue from Contracts with Cus
Revenue from Contracts with Customers | 9 Months Ended |
Sep. 30, 2021 | |
Revenue from Contract with Customer [Abstract] | |
Revenue from Contracts with Customers | 4. REVENUE FROM CONTRACTS WITH CUSTOMERS Disaggregation of Revenue The tables below present our revenue disaggregated by major product category and reportable segment. Three Months Ended September 30, 2021 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 570 $ 20 $ 129 $ (22) $ 697 Europe 354 3 — (4) 353 APAC & Emerging Markets 114 2 — — 116 Eliminations (4) — — — (4) Total Net sales $ 1,034 $ 25 $ 129 $ (26) $ 1,162 Three Months Ended September 30, 2020 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 512 $ 20 $ 104 $ (18) $ 618 Europe 404 2 — (3) 403 APAC & Emerging Markets 106 2 — — 108 Eliminations (3) — — — (3) Total Net sales $ 1,019 $ 24 $ 104 $ (21) $ 1,126 Nine Months Ended September 30, 2021 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 1,682 $ 60 $ 372 $ (69) $ 2,045 Europe 1,086 8 — (14) 1,080 APAC & Emerging Markets 335 7 — — 342 Eliminations (14) — — — (14) Total Net sales $ 3,089 $ 75 $ 372 $ (83) $ 3,453 Nine Months Ended September 30, 2020 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 1,469 $ 60 $ 298 $ (56) $ 1,771 Europe 1,169 6 — (9) 1,166 APAC & Emerging Markets 282 6 — — 288 Eliminations (8) — — — (8) Total Net sales $ 2,912 $ 72 $ 298 $ (65) $ 3,217 Contract Assets and Contract Liabilities Contract asset balances as of September 30, 2021 and December 31, 2020 were not material. There have been no material changes in our current portion of contract liabilities since the end of fiscal year 2020, and the amounts related to non-current contract liabilities were not material as of September 30, 2021 and December 31, 2020. See Note 1 - Business Overview and Significant Accounting Policies and Note 5 - Revenue from Contracts with Customers of our Form 10-K. Performance Obligations Estimated future revenues expected to be generated from our long-term contracts with unsatisfied performance obligations as of September 30, 2021 were not material. |
Earnings (Loss) Per Share
Earnings (Loss) Per Share | 9 Months Ended |
Sep. 30, 2021 | |
Earnings Per Share [Abstract] | |
Earnings (Loss) Per Share | 5. EARNINGS (LOSS) PER SHARE The following is a reconciliation of the numerator and denominator of the basic and diluted EPS computation for earnings (loss) per share: Three Months Ended September 30, Nine Months Ended September 30, (In millions, except per share amounts) 2021 2020 2021 2020 Numerator: Net income (loss) attributable to Covetrus $ (4) $ (35) $ (51) $ (15) Adjustment for: Dividends declared on Series A preferred stock — (4) — (6) Net income (loss) available to common shareholders $ (4) $ (39) $ (51) $ (21) Denominator: Basic Weighted-average common shares outstanding 137 116 138 113 Diluted Effect of dilutive shares — — — — Weighted-average common shares outstanding 137 116 138 113 Earnings (loss) per share: Basic $ (0.03) $ (0.33) $ (0.37) $ (0.18) Diluted $ (0.03) $ (0.33) $ (0.37) $ (0.18) Potentially dilutive securities (a) 5 26 5 27 (a) Potentially dilutive securities include stock options, RSUs, RSAs, PSUs, ESPP, and the Series A Preferred Stock (until converted) which are excluded from the computation of diluted earnings per share because the securities would have had an antidilutive effect |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2021 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 6. COMMITMENTS AND CONTINGENCIES We are involved in various legal proceedings that arise in the ordinary course of business. Substantial judgment is required in predicting the outcome of these legal proceedings, many of which may take years to adjudicate. We accrue estimated costs for a contingency when we believe that a loss is probable and can be reasonably estimated. Legal fees are expensed as incurred. No material loss contingencies were accrued as of September 30, 2021. Securities Litigation Matter On September 30, 2019, the City of Hollywood (Florida) Police Officers' Retirement System filed a putative securities class action lawsuit in the United States District Court for the Eastern District of New York, purportedly on behalf of purchasers of Covetrus common stock from February 8, 2019 through August 12, 2019, against the Defendants. The complaint alleges that the Defendants violated Sections 10(b) and 20(a) of the Exchange Act, by making allegedly false and misleading statements and omissions, primarily regarding the Company’s financial prospects and the integration costs relating to the business combination involving the Animal Health Business and Vets First Choice. The suit seeks unspecified damages, fees, interest, and costs. On August 3, 2021, the Court issued an order granting in part and denying in part Defendants’ motions to dismiss. In particular, the Court dismissed, with prejudice, all claims asserted against our Former Chief Financial Officer, a director, and our Former Parent, as well as certain claims based on alleged misrepresentations attributed to the Company and our Former Chief Executive Officer. We intend to continue to defend the remaining claims vigorously. Given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, we cannot estimate the reasonably possible loss or range of loss that may result from this action. Purchase Obligations We are party to an exclusive supply agreement with an aggregate remaining unconditional commitment to purchase $30 million for certain products within the U.S. market from October 1, 2021 to September 30, 2025. Our unconditional purchase obligation for 2021 is $8 million. For the three and nine months ended September 30, 2021, we purchased products totaling $2 million and $6 million, respectively under this agreement. Our forecasted sales of these products exceed our purchase obligations under this agreement. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2021 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | 7. INCOME TAXES Income tax benefit for the three months ended September 30, 2021 was $10 million on a loss before taxes of $14 million. The difference between our tax expense and the tax expense using the statutory tax rates for the jurisdictions in which we operate , for this period, primarily relates to valuation allowances due to uncertainty regarding the realization of future tax benefits from certain U.S. and non-U.S. deferred tax assets. Income tax expense for the nine months ended September 30, 2021 was $7 million on a loss before taxes of $44 million. The difference between our tax expense and the tax expense using the statutory tax rates for the jurisdictions in which we operate , for this period, primarily relates to valuation allowances due to uncertainty regarding the realization of future tax benefits from certain U.S. and non-U.S. deferred tax assets. Income tax expense for the three months ended September 30, 2020 was $3 million on a loss before taxes of $32 million. The difference between our tax expense and the tax expense using the statutory tax rates for the jurisdictions in which we operate, for this period, primarily relates to the sale of our scil business and change in valuation allowance due to uncertainty regarding the realization of future tax benefits from certain U.S. deferred taxes. Income tax expense for the nine months ended September 30, 2020 was $6 million on a loss before taxes of $8 million. The difference between our effective tax rate and the federal statutory tax rates for the jurisdictions in which we operate, for this period, primarily relates to the sale of our scil business and non-deductible stock compensation expense. |
Fair Value
Fair Value | 9 Months Ended |
Sep. 30, 2021 | |
Fair Value Disclosures [Abstract] | |
Fair Value | 8. FAIR VALUE GAAP defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a non-recurring basis, and certain financial assets and liabilities that are not measured at fair value in our condensed consolidated balance sheets, but the fair value is disclosed. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows: • Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability • Level 3 - Unobservable inputs for the asset or liability There were no changes in valuation approaches or techniques during the three and nine months ended September 30, 2021. See Note 11 - Fair Value in our Form 10-K for a description of our valuation techniques. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents our financial instruments measured at fair value on a recurring basis and indicates the level within the fair value hierarchy: Assets Level September 30, 2021 December 31, 2020 Distrivet call option 3 $ 1 $ 2 Total assets $ 1 $ 2 Liabilities Level September 30, 2021 December 31, 2020 Interest rate swap contracts (a) 2 $ — $ 5 Distrivet put option 3 2 1 Total liabilities $ 2 $ 6 (a) These interest rate swaps matured on July 31, 2021. See Note 9 - Derivatives Distrivet Options The significant unobservable inputs utilized in this Level 3 fair value measurement includes the enterprise value of Distrivet ($130 million), volatility (35%), and cost of capital, which considered market participant inputs regarding capital structure and risk premiums, (15%). We regularly evaluate each of the assumptions used in establishing the asset and liability. Significant changes in assumptions could result in significantly lower or higher fair value measurements. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets that are measured at fair value on a nonrecurring basis primarily relate to Property and equipment, Operating lease right-of-use assets, Goodwill, and Other intangibles. We do not periodically adjust carrying value to fair value for these assets; rather, the carrying value of the asset is reduced to its fair value when we determine that impairment has occurred. We did not have any assets or liabilities measured at fair value on a nonrecurring basis during the nine months ended September 30, 2021. Assets and Liabilities Not Measured at Fair Value Financial Assets and Liabilities The carrying amounts reported on the condensed consolidated balance sheets for Cash and cash equivalents, Accounts receivable, net, Other receivables, Accounts payable, and accrued expenses approximate their fair value due to the short maturity of those instruments. Long-term Debt Our long-term debt is classified as a level 2 instrument. The carrying amount of the term loan approximates fair value given the underlying interest rate applied to such amounts outstanding is currently reset to the prevailing monthly market rate. |
Derivatives
Derivatives | 9 Months Ended |
Sep. 30, 2021 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivatives | 9. DERIVATIVES We used interest rate swap contracts designated as cash flow hedges to manage interest rate risk on our floating rate debt. The notional amounts of our interest rate swap contracts totaled $500 million and the contracts matured on July 31, 2021. The gain or loss on the interest rate swaps was initially reported as a component of Other comprehensive income (loss) and subsequently recognized as Interest (income) expense on the condensed consolidated statements of operations. Interest expense related to the swap contracts for the three and nine months ended September 30, 2021 was $1 million and $5 million, respectively. For both the three and nine months ended September 30, 2020, interest expense related to the swap contracts was $3 million. |
Accumulated Other Comprehensive
Accumulated Other Comprehensive Income (Loss) | 9 Months Ended |
Sep. 30, 2021 | |
Equity [Abstract] | |
Accumulated Other Comprehensive Income (Loss) | 10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table presents the changes in Accumulated other comprehensive loss, net of applicable taxes, by component: Three Months Ended September 30, 2021 Derivative Gain (Loss) Foreign Currency Translation Gain (Loss) Total Balance at June 30, 2021 $ 1 $ (67) $ (66) Other comprehensive loss before reclassifications (2) (13) (15) Reclassified from Accumulated other comprehensive loss to earnings 1 — 1 Period Change (1) (13) (14) Balance at September 30, 2021 $ — $ (80) $ (80) Three Months Ended September 30, 2020 Balance at June 30, 2020 $ (7) $ (100) $ (107) Other comprehensive loss before reclassifications (1) 14 13 Reclassified from Accumulated other comprehensive loss to earnings 3 — 3 Period Change 2 14 16 Balance at September 30, 2020 $ (5) $ (86) $ (91) Nine Months Ended September 30, 2021 Derivative Gain (Loss) Foreign Currency Translation Gain (Loss) Total Balance at December 31, 2020 $ (3) $ (63) $ (66) Other comprehensive loss before reclassifications (2) (17) (19) Reclassified from Accumulated other comprehensive loss to earnings 5 — 5 Period Change 3 (17) (14) Balance at September 30, 2021 $ — $ (80) $ (80) Nine Months Ended September 30, 2020 Balance at December 31, 2019 $ — $ (86) $ (86) Other comprehensive loss before reclassifications (8) (2) (10) Reclassified from Accumulated other comprehensive loss to earnings 3 2 5 Period Change (5) — (5) Balance at September 30, 2020 $ (5) $ (86) $ (91) Comprehensive income (loss) includes certain gains and losses that are excluded from Net income (loss) under GAAP as these amounts are recorded directly as an adjustment to total equity. We recognize foreign currency translation losses as a component of comprehensive income (loss) due to changes in foreign exchange rates from the beginning of the period to the end of the period. Fluctuations in the value of foreign currencies as compared to USD may have a significant impact on Comprehensive income (loss). The tax effect on accumulated unrealized losses on our interest rate swaps, prior to maturity on July 31, 2021, was not material for the periods presented. See Note 9 - Derivatives . |
Redeemable Non-controlling Inte
Redeemable Non-controlling Interests | 9 Months Ended |
Sep. 30, 2021 | |
Noncontrolling Interest [Abstract] | |
Redeemable Non-controlling Interests | 11. REDEEMABLE NON-CONTROLLING INTERESTS Some minority equity owners in certain of our subsidiaries have the right, at certain times, to require us to acquire their ownership interest in those entities. We initially record our Redeemable non-controlling interests at fair value on the date of acquisition and subsequently adjust to redemption value. During the nine months ended September 30, 2021, we acquired the remaining minority interest held by our former partners in certain of our Brazilian entities. The following table presents the components of change and balances of Redeemable non-controlling interests within the condensed consolidated balance sheets: Nine Months Ended September 30, 2021 Year Ended Balance at beginning of period $ 36 $ 10 Decrease due to redemptions (13) (4) Increase due to business acquisitions — 24 Net income (loss) attributable to redeemable non-controlling interests — 2 Dividends declared (2) — Effect of foreign currency translation (gain) loss attributable to redeemable non-controlling interests — (2) Change in redemption value 2 6 Balance at end of period $ 23 $ 36 |
Business Overview and Signifi_2
Business Overview and Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2021 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | Basis of Presentation and Principles of Consolidation The accompanying balance sheet as of December 31, 2020, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2021, have been prepared in accordance with applicable rules and regulations of the SEC for interim financial reporting. Pursuant to those rules and regulations, we omitted certain information and disclosures normally included in annual financial statements prepared in accordance with GAAP. In our opinion, the accompanying unaudited condensed consolidated financial statements reflect all recurring adjustments and transactions necessary for a fair statement of our financial position, results of operations, and cash flows for the interim periods presented. Such operating results are not necessarily indicative of annual or future results. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the Form 10-K filed with the SEC on March 1, 2021. |
Principles of Consolidation | The accompanying unaudited condensed consolidated financial statements include the operations of the Company, as well as those of our wholly-owned and majority-owned subsidiaries from their respective dates of inception or acquisition. All significant intercompany transactions and balances were eliminated in consolidation. Investments in unconsolidated affiliates, which are 20% to 50.01% owned, or investments of less than 20% in which we could influence the operating or financial decisions, are accounted for under the equity method. Certain prior period amounts were reclassified or rounded to conform to the presentation of the current period. |
Accounting Pronouncements | Accounting Pronouncements • As of January 1, 2021, we adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes specific technical exceptions to general principles found in Topic 740, items that often produce information that investors have difficulty understanding, and simplifies the accounting for income taxes. The adoption of this ASU did not have a material impact on the results of our condensed consolidated financial statements. • ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting for contracts, hedging relationships, and other transactions that reference LIBOR. The standard is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022. Our debt agreements that utilize LIBOR have not yet discontinued the use of LIBOR and, therefore, this ASU is not yet effective for us. The banking syndicate associated with our Credit Facilities intends to cease using the 1-week and 2-month USD LIBOR at the end of 2021, with the other USD Tenors to cease June 30, 2023. We will continue to monitor, and, to the extent our Credit Facilities require amendment to reflect a replacement rate prior to December 31, 2022, we will evaluate the benefits of adopting this ASU. |
Fair Value | GAAP defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a non-recurring basis, and certain financial assets and liabilities that are not measured at fair value in our condensed consolidated balance sheets, but the fair value is disclosed. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows: • Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities • Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability • Level 3 - Unobservable inputs for the asset or liability |
Segment Data (Tables)
Segment Data (Tables) | 9 Months Ended |
Sep. 30, 2021 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting Information, by Segment | The following tables reflect our segment and corporate information and reconciles non-GAAP Adjusted EBITDA for reportable segments to consolidated Net income (loss) attributable to Covetrus: Three Months Ended September 30, 2021 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 697 $ 353 $ 116 $ — $ (4) $ 1,162 Adjusted EBITDA $ 55 $ 16 $ 10 $ (23) $ — $ 58 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (4) Plus: Depreciation and amortization 42 Plus: Interest expense, net 8 Plus: Income tax (benefit) expense (10) Earnings (loss) before interest, taxes, depreciation, and amortization 36 Plus: Share-based compensation 14 Plus: Strategic consulting (a) 2 Plus: Transaction costs (b) 1 Plus: Separation programs and executive severance 3 Plus: Equity method investment and non-consolidated affiliates (c) 1 Plus: Other items, net 1 Non-GAAP Adjusted EBITDA $ 58 (a) Includes third-party consulting services (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% Three Months Ended September 30, 2020 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 618 $ 403 $ 108 $ — $ (3) $ 1,126 Adjusted EBITDA $ 45 $ 19 $ 8 $ (13) $ — $ 59 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (35) Plus: Depreciation and amortization 41 Plus: Interest expense, net 10 Plus: Income tax (benefit) expense 3 Earnings (loss) before interest, taxes, depreciation, and amortization 19 Plus: Share-based compensation 11 Plus: Strategic consulting (a) 3 Plus: Transaction costs (b) 1 Plus: Formation of Covetrus (c) 4 Plus: Separation programs and executive severance 2 Plus: IT infrastructure 1 Plus: Equity method investment and non-consolidated affiliates (d) 1 Plus: Operating lease right-of-use asset impairment 8 Plus: France managed exit (e) 8 Plus: Other items, net 1 Non-GAAP Adjusted EBITDA $ 59 (a) Includes third-party consulting services (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company (d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% (e) Includes $7 million of severance costs and $1 million of other costs Nine Months Ended September 30, 2021 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 2,045 $ 1,080 $ 342 $ — $ (14) $ 3,453 Adjusted EBITDA $ 166 $ 57 $ 29 $ (71) $ — $ 181 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (51) Plus: Depreciation and amortization 128 Plus: Interest expense, net 26 Plus: Income tax (benefit) expense 7 Earnings (loss) before interest, taxes, depreciation, and amortization 110 Plus: Share-based compensation 39 Plus: Strategic consulting (a) 16 Plus: Transaction costs (b) 3 Plus: Formation of Covetrus (c) 2 Plus: Separation programs and executive severance 5 Plus: Equity method investments and non-consolidated affiliates (d) 2 Plus: Other items, net 4 Non-GAAP Adjusted EBITDA $ 181 (a) Related to third-party consulting services. Included within this line item are variable performance fees earned for services rendered under a third-party consulting agreement. This agreement was amended in April 2021 and, in connection with such amendment, the services were completed and fees were fully accrued for as of June 30, 2021 (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes professional and consulting fees, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company (d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% Nine Months Ended September 30, 2020 North America Europe APAC & Emerging Markets Corporate Eliminations Total Net sales $ 1,771 $ 1,166 $ 288 $ — $ (8) $ 3,217 Adjusted EBITDA $ 141 $ 53 $ 20 $ (44) $ — $ 170 Reconciliation of Net income (loss) attributable to Covetrus to Non-GAAP Adjusted EBITDA: Net income (loss) attributable to Covetrus $ (15) Plus: Depreciation and amortization 124 Plus: Interest expense, net 37 Plus: Income tax (benefit) expense 6 Earnings (loss) before interest, taxes, depreciation, and amortization 152 Plus: Share-based compensation 30 Plus: Strategic consulting (a) 13 Plus: Transaction costs (b) 8 Plus: Formation of Covetrus (c) 17 Plus: Separation programs and executive severance 4 Plus: IT infrastructure 3 Plus: Equity method investment and non-consolidated affiliates (d) 1 Plus: Operating lease right-of-use asset impairment 8 Plus: France managed exit (e) 8 Plus: Capital structure 2 Less: Other items, net (f) (76) Non-GAAP Adjusted EBITDA $ 170 (a) Includes third-party consulting services (b) Includes legal, accounting, tax, and other professional fees incurred in connection with acquisitions and divestitures (c) Includes professional and consulting fees, duplicative costs associated with transition service agreements, and other costs incurred in connection with the separation from Former Parent and establishing Covetrus as an independent public company (d) Includes the proportionate share of the adjustments to EBITDA of consolidated and non-consolidated affiliates where Covetrus ownership is less than 100% (e) Includes $7 million of severance costs and $1 million of other costs (f) Includes a $72 million gain on the divestiture of scil and a $1 million gain on the deconsolidation of SAHS |
Revenue from Contracts with C_2
Revenue from Contracts with Customers (Tables) | 9 Months Ended |
Sep. 30, 2021 | |
Revenue from Contract with Customer [Abstract] | |
Disaggregation of Revenue | The tables below present our revenue disaggregated by major product category and reportable segment. Three Months Ended September 30, 2021 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 570 $ 20 $ 129 $ (22) $ 697 Europe 354 3 — (4) 353 APAC & Emerging Markets 114 2 — — 116 Eliminations (4) — — — (4) Total Net sales $ 1,034 $ 25 $ 129 $ (26) $ 1,162 Three Months Ended September 30, 2020 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 512 $ 20 $ 104 $ (18) $ 618 Europe 404 2 — (3) 403 APAC & Emerging Markets 106 2 — — 108 Eliminations (3) — — — (3) Total Net sales $ 1,019 $ 24 $ 104 $ (21) $ 1,126 Nine Months Ended September 30, 2021 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 1,682 $ 60 $ 372 $ (69) $ 2,045 Europe 1,086 8 — (14) 1,080 APAC & Emerging Markets 335 7 — — 342 Eliminations (14) — — — (14) Total Net sales $ 3,089 $ 75 $ 372 $ (83) $ 3,453 Nine Months Ended September 30, 2020 Supply Chain Services Software Services Prescription Management Eliminations Total North America $ 1,469 $ 60 $ 298 $ (56) $ 1,771 Europe 1,169 6 — (9) 1,166 APAC & Emerging Markets 282 6 — — 288 Eliminations (8) — — — (8) Total Net sales $ 2,912 $ 72 $ 298 $ (65) $ 3,217 |
Earnings (Loss) Per Share (Tabl
Earnings (Loss) Per Share (Tables) | 9 Months Ended |
Sep. 30, 2021 | |
Earnings Per Share [Abstract] | |
Reconciliation of Basic Shares to Diluted Shares | The following is a reconciliation of the numerator and denominator of the basic and diluted EPS computation for earnings (loss) per share: Three Months Ended September 30, Nine Months Ended September 30, (In millions, except per share amounts) 2021 2020 2021 2020 Numerator: Net income (loss) attributable to Covetrus $ (4) $ (35) $ (51) $ (15) Adjustment for: Dividends declared on Series A preferred stock — (4) — (6) Net income (loss) available to common shareholders $ (4) $ (39) $ (51) $ (21) Denominator: Basic Weighted-average common shares outstanding 137 116 138 113 Diluted Effect of dilutive shares — — — — Weighted-average common shares outstanding 137 116 138 113 Earnings (loss) per share: Basic $ (0.03) $ (0.33) $ (0.37) $ (0.18) Diluted $ (0.03) $ (0.33) $ (0.37) $ (0.18) Potentially dilutive securities (a) 5 26 5 27 (a) Potentially dilutive securities include stock options, RSUs, RSAs, PSUs, ESPP, and the Series A Preferred Stock (until converted) which are excluded from the computation of diluted earnings per share because the securities would have had an antidilutive effect |
Fair Value (Tables)
Fair Value (Tables) | 9 Months Ended |
Sep. 30, 2021 | |
Fair Value Disclosures [Abstract] | |
Schedule Financial Instruments Measured at Fair Value on a Recurring Basis | The following table presents our financial instruments measured at fair value on a recurring basis and indicates the level within the fair value hierarchy: Assets Level September 30, 2021 December 31, 2020 Distrivet call option 3 $ 1 $ 2 Total assets $ 1 $ 2 Liabilities Level September 30, 2021 December 31, 2020 Interest rate swap contracts (a) 2 $ — $ 5 Distrivet put option 3 2 1 Total liabilities $ 2 $ 6 (a) These interest rate swaps matured on July 31, 2021. See Note 9 - Derivatives |
Accumulated Other Comprehensi_2
Accumulated Other Comprehensive Income (Loss) (Tables) | 9 Months Ended |
Sep. 30, 2021 | |
Equity [Abstract] | |
Schedule of Accumulated Other Comprehensive Loss | The following table presents the changes in Accumulated other comprehensive loss, net of applicable taxes, by component: Three Months Ended September 30, 2021 Derivative Gain (Loss) Foreign Currency Translation Gain (Loss) Total Balance at June 30, 2021 $ 1 $ (67) $ (66) Other comprehensive loss before reclassifications (2) (13) (15) Reclassified from Accumulated other comprehensive loss to earnings 1 — 1 Period Change (1) (13) (14) Balance at September 30, 2021 $ — $ (80) $ (80) Three Months Ended September 30, 2020 Balance at June 30, 2020 $ (7) $ (100) $ (107) Other comprehensive loss before reclassifications (1) 14 13 Reclassified from Accumulated other comprehensive loss to earnings 3 — 3 Period Change 2 14 16 Balance at September 30, 2020 $ (5) $ (86) $ (91) Nine Months Ended September 30, 2021 Derivative Gain (Loss) Foreign Currency Translation Gain (Loss) Total Balance at December 31, 2020 $ (3) $ (63) $ (66) Other comprehensive loss before reclassifications (2) (17) (19) Reclassified from Accumulated other comprehensive loss to earnings 5 — 5 Period Change 3 (17) (14) Balance at September 30, 2021 $ — $ (80) $ (80) Nine Months Ended September 30, 2020 Balance at December 31, 2019 $ — $ (86) $ (86) Other comprehensive loss before reclassifications (8) (2) (10) Reclassified from Accumulated other comprehensive loss to earnings 3 2 5 Period Change (5) — (5) Balance at September 30, 2020 $ (5) $ (86) $ (91) |
Redeemable Non-controlling In_2
Redeemable Non-controlling Interests (Tables) | 9 Months Ended |
Sep. 30, 2021 | |
Noncontrolling Interest [Abstract] | |
Redeemable Non-controlling Interests | The following table presents the components of change and balances of Redeemable non-controlling interests within the condensed consolidated balance sheets: Nine Months Ended September 30, 2021 Year Ended Balance at beginning of period $ 36 $ 10 Decrease due to redemptions (13) (4) Increase due to business acquisitions — 24 Net income (loss) attributable to redeemable non-controlling interests — 2 Dividends declared (2) — Effect of foreign currency translation (gain) loss attributable to redeemable non-controlling interests — (2) Change in redemption value 2 6 Balance at end of period $ 23 $ 36 |
Business Acquisitions (Details)
Business Acquisitions (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2021 | Sep. 30, 2021 | Dec. 31, 2020 | |
Business Acquisition [Line Items] | |||
Goodwill | $ 1,247 | $ 1,247 | $ 1,187 |
VCP and AppointMaster | |||
Business Acquisition [Line Items] | |||
Consideration transferred | 85 | 85 | |
Goodwill | 60 | 60 | |
Intangible assets, including technology | $ 31 | $ 31 |
Segment Data - Operating Result
Segment Data - Operating Results by Segment (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
Segment Reporting Information [Line Items] | ||||
Net sales | $ 1,162 | $ 1,126 | $ 3,453 | $ 3,217 |
Adjusted EBITDA | 58 | 59 | 181 | 170 |
Net income (loss) attributable to Covetrus | (4) | (35) | (51) | (15) |
Plus: Depreciation and amortization | 42 | 41 | 128 | 124 |
Plus: Interest expense, net | 8 | 10 | 26 | 37 |
Plus: Income tax (benefit) expense | (10) | 3 | 7 | 6 |
Earnings (loss) before interest, taxes, depreciation, and amortization | 36 | 19 | 110 | 152 |
Plus: Share-based compensation | 14 | 11 | 39 | 30 |
Plus: Strategic consulting (a) | 2 | 3 | 16 | 13 |
Plus: Transaction costs | 1 | 1 | 3 | 8 |
Plus: Separation programs and executive severance | 3 | 2 | 5 | 4 |
Plus: Formation of Covetrus | 4 | 2 | 17 | |
Plus: IT infrastructure | 1 | 3 | ||
Plus: Equity method investment and non-consolidated affiliates | 1 | 1 | 2 | 1 |
Plus: Capital structure | 2 | |||
Operating lease right-of-use asset impairment | 8 | 0 | 8 | |
Loss on managed exit of a business | 8 | 0 | 8 | |
Plus: Other items, net | 1 | 1 | 4 | 76 |
Non-GAAP Adjusted EBITDA | 58 | 59 | 181 | 170 |
Severance benefits | 7 | 7 | ||
Inventory write-down | 1 | |||
Disposal Group, Held-for-sale, Not Discontinued Operations | Animal Care Business | ||||
Segment Reporting Information [Line Items] | ||||
Gain on divestiture | 72 | |||
Foreign exchange adjustment | 1 | |||
Corporate | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 0 | 0 | 0 | 0 |
Adjusted EBITDA | (23) | (13) | (71) | (44) |
Non-GAAP Adjusted EBITDA | (23) | (13) | (71) | (44) |
Eliminations | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | (4) | (3) | (14) | (8) |
Adjusted EBITDA | 0 | 0 | 0 | 0 |
Non-GAAP Adjusted EBITDA | 0 | 0 | 0 | 0 |
North America | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 697 | 618 | 2,045 | 1,771 |
North America | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 697 | 618 | 2,045 | 1,771 |
Adjusted EBITDA | 55 | 45 | 166 | 141 |
Non-GAAP Adjusted EBITDA | 55 | 45 | 166 | 141 |
Europe | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 353 | 403 | 1,080 | 1,166 |
Europe | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 353 | 403 | 1,080 | 1,166 |
Adjusted EBITDA | 16 | 19 | 57 | 53 |
Non-GAAP Adjusted EBITDA | 16 | 19 | 57 | 53 |
APAC & Emerging Markets | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 116 | 108 | 342 | 288 |
APAC & Emerging Markets | Operating Segments | ||||
Segment Reporting Information [Line Items] | ||||
Net sales | 116 | 108 | 342 | 288 |
Adjusted EBITDA | 10 | 8 | 29 | 20 |
Non-GAAP Adjusted EBITDA | $ 10 | $ 8 | $ 29 | $ 20 |
Revenue from Contracts with C_3
Revenue from Contracts with Customers - Disaggregation of Revenue (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
Disaggregation of Revenue [Line Items] | ||||
Net sales | $ 1,162 | $ 1,126 | $ 3,453 | $ 3,217 |
North America | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 697 | 618 | 2,045 | 1,771 |
Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 353 | 403 | 1,080 | 1,166 |
APAC & Emerging Markets | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 116 | 108 | 342 | 288 |
Operating Segments | North America | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 697 | 618 | 2,045 | 1,771 |
Operating Segments | Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 353 | 403 | 1,080 | 1,166 |
Operating Segments | APAC & Emerging Markets | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 116 | 108 | 342 | 288 |
Operating Segments | Supply Chain Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 1,034 | 1,019 | 3,089 | 2,912 |
Operating Segments | Supply Chain Services | North America | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 570 | 512 | 1,682 | 1,469 |
Operating Segments | Supply Chain Services | Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 354 | 404 | 1,086 | 1,169 |
Operating Segments | Supply Chain Services | APAC & Emerging Markets | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 114 | 106 | 335 | 282 |
Operating Segments | Software Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 25 | 24 | 75 | 72 |
Operating Segments | Software Services | North America | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 20 | 20 | 60 | 60 |
Operating Segments | Software Services | Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 3 | 2 | 8 | 6 |
Operating Segments | Software Services | APAC & Emerging Markets | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 2 | 2 | 7 | 6 |
Operating Segments | Prescription Management | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 129 | 104 | 372 | 298 |
Operating Segments | Prescription Management | North America | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 129 | 104 | 372 | 298 |
Operating Segments | Prescription Management | Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 0 | 0 | 0 | 0 |
Operating Segments | Prescription Management | APAC & Emerging Markets | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 0 | 0 | 0 | 0 |
Eliminations | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | (26) | (21) | (83) | (65) |
Eliminations | North America | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | (22) | (18) | (69) | (56) |
Eliminations | Europe | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | (4) | (3) | (14) | (9) |
Eliminations | APAC & Emerging Markets | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 0 | 0 | 0 | 0 |
Eliminations | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | (4) | (3) | (14) | (8) |
Eliminations | Supply Chain Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | (4) | (3) | (14) | (8) |
Eliminations | Software Services | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | 0 | 0 | 0 | 0 |
Eliminations | Prescription Management | ||||
Disaggregation of Revenue [Line Items] | ||||
Net sales | $ 0 | $ 0 | $ 0 | $ 0 |
Earnings (Loss) Per Share - Rec
Earnings (Loss) Per Share - Reconciliation of Basic Shares to Diluted Shares (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
Numerator: | ||||
Net income (loss) attributable to Covetrus | $ (4) | $ (35) | $ (51) | $ (15) |
Series A preferred stock cash dividend | 0 | (4) | 0 | (6) |
Net income (loss) available to common shareholders | $ (4) | $ (39) | $ (51) | $ (21) |
Basic | ||||
Basic shares (in shares) | 137 | 116 | 138 | 113 |
Earnings Per Share, Diluted [Abstract] | ||||
Effect of dilutive shares (in shares) | 0 | 0 | 0 | 0 |
Diluted shares (in shares) | 137 | 116 | 138 | 113 |
Earnings (loss) per share: | ||||
Basic (in usd per share) | $ (0.03) | $ (0.33) | $ (0.37) | $ (0.18) |
Diluted (in usd per share) | $ (0.03) | $ (0.33) | $ (0.37) | $ (0.18) |
Potential dilutive securities (in shares) | 5 | 26 | 5 | 27 |
Commitments and Contingencies (
Commitments and Contingencies (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2021 | Sep. 30, 2021 | Dec. 31, 2021 | |
Long-term Purchase Commitment [Line Items] | |||
Purchases in the period | $ 2 | $ 6 | |
Forecast | |||
Long-term Purchase Commitment [Line Items] | |||
Unconditional purchase obligation for 2021 | $ 8 | ||
Customer Concentration Risk | |||
Long-term Purchase Commitment [Line Items] | |||
Unrecorded unconditional purchase obligation | $ 30 | $ 30 |
Income Taxes - Narrative (Detai
Income Taxes - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
Income Tax Disclosure [Abstract] | ||||
Income tax benefit (expense) | $ 10 | $ (3) | $ (7) | $ (6) |
Income (loss) before taxes and equity in earnings of affiliates | $ (14) | $ (32) | $ (44) | $ (8) |
Fair Value - Narrative and Sche
Fair Value - Narrative and Schedule Financial Instruments Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Millions | Sep. 30, 2021 | Dec. 31, 2020 |
Volatility | ||
Liabilities | ||
Distrivet, call put options, measurement input | 35.00% | |
Cost Of Capital | ||
Liabilities | ||
Distrivet, call put options, measurement input | 15.00% | |
Fair Value, Recurring | ||
Assets | ||
Total assets | $ 1 | $ 2 |
Fair Value, Recurring | Level 2 | ||
Liabilities | ||
Total liabilities | 2 | 6 |
Fair Value, Recurring | Level 2 | Interest rate swap contracts | ||
Liabilities | ||
Total liabilities | 0 | 5 |
Fair Value, Recurring | Level 3 | ||
Liabilities | ||
Distrivet call and put options, enterprise value | 130 | |
Fair Value, Recurring | Level 3 | Distrivet call option | ||
Assets | ||
Total assets | 1 | 2 |
Fair Value, Recurring | Level 3 | Distrivet put option | ||
Liabilities | ||
Total liabilities | $ 2 | $ 1 |
Derivatives - Narrative (Detail
Derivatives - Narrative (Details) - Cash Flow Hedging - Interest rate swap contracts - Designated as Hedging Instrument - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | Aug. 31, 2019 | |
Derivative [Line Items] | |||||
Notional amount | $ 500 | ||||
Interest (income) expense | |||||
Derivative [Line Items] | |||||
Interest rate swap contracts | $ 1 | $ 3 | $ 5 | $ 3 |
Accumulated Other Comprehensi_3
Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2021 | Sep. 30, 2020 | Sep. 30, 2021 | Sep. 30, 2020 | |
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||||
Beginning balance | $ 1,502 | $ 1,273 | $ 1,537 | $ 1,253 |
Other comprehensive loss before reclassifications | (15) | 13 | (19) | (10) |
Reclassified from Accumulated other comprehensive loss to earnings | 1 | 3 | 5 | 5 |
Period Change | (14) | 16 | (14) | (5) |
Ending balance | 1,502 | 1,413 | 1,502 | 1,413 |
Derivative Gain (Loss) | ||||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||||
Beginning balance | 1 | (7) | (3) | 0 |
Other comprehensive loss before reclassifications | (2) | (1) | (2) | (8) |
Reclassified from Accumulated other comprehensive loss to earnings | 1 | 3 | 5 | 3 |
Period Change | (1) | 2 | 3 | (5) |
Ending balance | 0 | (5) | 0 | (5) |
Foreign Currency Translation Gain (Loss) | ||||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||||
Beginning balance | (67) | (100) | (63) | (86) |
Other comprehensive loss before reclassifications | (13) | 14 | (17) | (2) |
Reclassified from Accumulated other comprehensive loss to earnings | 0 | 0 | 0 | 2 |
Period Change | (13) | 14 | (17) | 0 |
Ending balance | (80) | (86) | (80) | (86) |
Accumulated Other Comprehensive Income (Loss) | ||||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | ||||
Beginning balance | (66) | (107) | (66) | (86) |
Ending balance | $ (80) | $ (91) | $ (80) | $ (91) |
Redeemable Non-controlling In_3
Redeemable Non-controlling Interests - Summary of Redeemable Non-controlling Interests (Details) - USD ($) $ in Millions | 9 Months Ended | 12 Months Ended |
Sep. 30, 2021 | Dec. 31, 2020 | |
Increase (Decrease) in Temporary Equity [Roll Forward] | ||
Balance at beginning of period | $ 36 | $ 10 |
Decrease due to redemptions | (13) | (4) |
Increase due to business acquisitions | 0 | 24 |
Net income (loss) attributable to redeemable non-controlling interests | 0 | 2 |
Dividends declared | (2) | 0 |
Effect of foreign currency translation (gain) loss attributable to redeemable non-controlling interests | 0 | (2) |
Change in redemption value | 2 | 6 |
Balance at end of period | $ 23 | $ 36 |