Q1 2020 Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the coupon 2020, Kobe choice earnings call.

At this time, all participants are in listen only mode.

Later, we will conduct a question and answer session.

And instructions will follow at that time.

If anyone should require assistance during the conference. Please press star zero on your Touchtone telephone.

As a reminder, this conference is being recorded.

I would now like turn the conference over to your host Nick Jansen. Please go ahead Sir.

Thank you very good afternoon. Thank you for joining us for co buttresses Q1, 2020 earnings call I am Nick Jansen, Vice President Investor Relations, joining me on today's call or bad one our president and Chief Executive Officer, and Stuart Glycan House, our interim Chief Financial Officer, Dan and Stuart will begin with.

Prepared remarks, and then we'll be happy to take your questions.

During this call, we anticipate making projections and forward looking statements based on our current expectations.

All statements other than statements of historical fact made during this conference call are forward looking including statements regarding management's expectations for future financial.

Yes operational performance and operating expenditures.

Forward looking statements made the identified with words, such as well expect.

Believes should or similar terminology negative that'd be terms.

Forward looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties many of which are beyond our control, which could cause actual results could differ materially from that was contemplated when these forward looking statements.

These risks and uncertainties include those under the heading risk factors in our most recent annual report on form 10-K.

Quarterly report on form 10-Q, and other periodic reports filed with the Securities and Exchange Commission, which are available on the Investor section of our website at <unk> IR Daqo mattress dot com and on yet he sees website at www Dot FTC Dot go.

Forward looking statements speak only as the date hereof and except as required by law, we undertake no obligation to update or revise these forward looking statements.

Additionally, statements regarding preliminary financial information covering periods beyond March 31st 2020 discussed during this conference call are subject to the close of the quarter completion of our quarter end closing procedures and further financial review.

You can find this afternoon's press release announcing our first quarter 2020 results and the accompanying slide presentation for this call on IR Daqo buttress Dot Com, we will continue to use our site to distribute important and time critical information.

The press release in slide presentation also contain further information about the non-GAAP financial measures that we will discuss during this call. Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results with that I will now I'll turn it over to bend to provide the highway.

Thanks, Nick and good afternoon, everyone.

We know this it's still a very challenging time for everyone listening in and we hope you are all safe and managing through cobot 19, as well as possible.

To start I'd like to say that I'm thankful to all the veterinarians and animal health professionals across the globe, who continue to push forward and operate as an essential service.

Their passion for the well being of animals and their clients is inspiring and motivates our entire team as we seek to provide even greater value in service to enable our customers to continue to thrive and grow.

Also very proud to see our team rise to the challenge as I have witnessed unheard of numerous stories from around the globe as to how our employees are going above and beyond normal expectations to help.

It is very heartening to see our company inaction and keeps me energetic and optimistic about the future.

Now turning to the state of 'cause address I would like to review three main topics on today's call first our overall health as an organization.

Second our commitment to our strategy and how we are executing against the core drivers of our business even didn't miss the disruptions presented by Cobot 19, and third how we have prepared and continue to adapt for near term uncertainty while positioning our company for sustainable growth through the eventual recovery.

As Nick said at the opening of the call. We've included a presentation to accompany our prepared remarks, and I will be referencing some of those slides in the next couple of minutes.

So starting with slide three.

First and foremost our top priorities the health and safety of our employees throughout the pandemic. Our leadership leadership teams have done an excellent job supporting safety measures within our facilities, we've been for social distancing and increased hygiene and protective measures and we were able to preemptively reduce.

Our onsite staff by enabling extensive work from home solutions for over 60% of our employees around the globe.

We've augmented our existing protocols as necessary to meet Tobin 19 specifics in accordance with local government in health organizations, including wholeness reporting and case management.

Beyond the physical safety measures taken we're focused on the support of our employees overall wellbeing from providing online training modules to continuing access to employee assistance programs, we are encouraging professional growth opportunities and team connectivity. During these uncertain uncertain times.

As part of the world begin to reopen our planning efforts will anticipate a slow and gradual return of employees to our offices, we will be deliberate in our planning and we'll maintain are focused on keeping our team and our customers business businesses as healthy as possible and to do so our phase.

Returned to work approach may in some cases be more conservative than local regional and local regional restrictions.

Wow Cobot 19 has created a new set of challenges for our company and the animal health community at large our focused approach, which is detailed on slide four of the accompanying presentation involved executing against the core drivers of our business emphasizing our commitment to our customers into innovate.

Jason and continuously building a culture of success.

These are the foundation for both our strategy and new wave working and our actions and strong Q1 results, including 10% year over year pro forma organic net sales growth and $48 million in adjusted EBITDA, both of which exceeded external expectations reflect the.

Early momentum we have achieved in these efforts.

Turning to slide five.

To achieve our strategy, we outlined four priorities earlier this year, one maximizing effectiveness and efficiency to driving proprietary products and solutions.

Three expanding capabilities in developing sourcing excellence and for creating a high performing customer centric culture.

And while we are still early in this process, we've taken a number of significant steps as an organization over the last quarter as we execute against our strategic plan.

For example, we made progress on our commitment to improve effectiveness and efficiency and delivering more consistent and profitable performance in our north American distribution business in Q1, our distribution business generated 4% pro forma organic net sales growth when excluding the loss of a customer.

We're in early 2019 and modestly increased its contribution to adjusted EBITDA as compared to the prior year.

And by entering into multi year renewals with several of our largest customers and winning new corporate accounts in the second half of 29 team and thus far in 2020, we believe our market position isn't a much healthier place as compared to this time last year.

Another highlight I would point out is accelerating same store sales delivered by our prescription management business as seen on slide six.

As a reminder, we made the strategic decision late last year to kick it from an enrollment focused organization towards customer and client engagement as we seek to drive even greater utilization on our platform.

Wow Cobot 19 provided an incremental tailwind to our internal efforts in late March 25% same store a year over year net sales growth and stronger performance out of our 2019 cohort as compared to prior ones are a testament to the initiatives. We launched this year across our entire organization.

These efforts include better leveraging our manufacturing partners, improving our software integration work flow upgrading the E commerce experience and enhancing our marketing capabilities importantly, the prescription management business continues to successfully scale their operations with profitability improve.

I think both year over year and sequentially compared to Q4 2019.

With the support of the external third party advisor we brought in during Q4 2019. We have also started to successfully execute against the initiatives identified early this year that could deliver significant savings from improved direct and indirect sourcing and overall gionee expenses.

As we further centralized and coordinate purchasing activity and leverage our global scale, we expect to improve our operating efficiency significantly.

We also continue to prioritize service and innovation as we believe additional investment in support and product capabilities, particularly in times like today strengthen our ability to drive deeper engagement with our sizable customer base. For example, help veterinarians respond and deliver continued care during.

Cobot 19 pandemic, we created specific resources for use by veterinary practices, including launching a series of Webinars featuring industry thought leaders practice managers and owners discussing strategies and real world tactics.

In April 2020, we also began embedding secure video teleconferencing capabilities across our global sleep, a practice information management systems client communication and prescription management management solutions. This new functionality provides a seamless and easily accessible wafer veterinarians to say.

Service to their clients and patients remotely by practicing tele medicine using their existing co Vectrus technology solutions and we are proud that within the first weeks of the launch that we were able to facilitate more than 1200, and 50 Tele medicine visits between our customers and their clients.

Lastly, retaining and recruiting talent has and will continue to be a critical focus of ours as it is paramount to building a shared culture of success and I'm pleased to announce several developments on this front.

In a separate release issued this afternoon, we announced the hiring of Matthew Foulston as global Chief Financial Officer, Steve fell Mucci, as global Chief Information Officer, and Matthew Mountain font as President of our North American distribution business, we're thrilled to point these high quality individuals to critical roles.

Within our organization each of whom bring impressive experience of working in and through periods of transformation.

It is a testament to our continued momentum and employer brand that we now have a very talented and industrious group of leaders in place and I'm confident. There addition to our team will continue to charter a positive path forward for called address.

Now, let me address cobot, 19th financial impact on Coke batteries, and how we are preparing for near term uncertainty and eventual recovery as well as future growth.

To start our commitment to serving our customers and their clients has never wavered and our approach remains centered on delivering better experiences and outcomes for these customers.

We believe this philosophy has served us well and we took necessary action to control costs within the business as net sales softened during the last few weeks of March and into April as outlined last month in our Q1 pre release, while still investing in our teams capabilities and innovation to maintain the mom.

And of executing against our strategic plan.

We believe our ability to successfully invest in.

Service and support animal health professionals.

During these uncertain times positions us well as we look toward a global recovery in the weeks and months ahead, and we believe some of the emerging market trends tied to the pandemic.

Including veterinarians embracing technology to stay connected to pet owners.

Our central to our core strategy and consist silicate new business growth with our customers and drive opportunity for our manufacturer partners.

As we consider the near term financial impact on our business net sales from our global distribution and supply chain services businesses experienced a negative impact from declining wellness related business visits have veterinary practices and to a lesser extent softer clinical activity.

As seen on slide seven of the accompanying presentation dataset from approximately 6500 of U.S. veterinary practices that leverage our prescription management platform indicate that clinic traffic was down 20% to 25% in late March through mid April with trends over the last few weeks.

Showing signs of an ongoing recovery.

Patient visits for example declined a little more than 10% during the week ending may 1st.

Similarly, as seen on slide eight trend line for our business has also improved week to week since the trough experienced an early to mid April with an 8% year over year decline in our global supply chain organic net sales during the week ending may 1st as compared to the 17% year overtime.

Your decline during the week ending April 10th.

Importantly, our supply chain organic net sales during the week ending may 1st in North America declined only 8% year over year and a pack in emerging markets actually increased 5% year over year. As these end markets have either recovered at a faster pace or were impacted less than that.

The rest of the world respectively.

Additionally, our legacy bets first choice business continues to track ahead of our expectations with organic net sales increasing in excess of 55% year over year during April a continuation of the momentum seen in Q1.

This is despite the deterioration in veterinary practice client visit trends during the month that impacted certain office use products in our specialty business. The CLO, the covestor platform, which represents more than 80% of prescription management net sales grew a fantastic 70% year.

Every year in April including same store still same store sales year over year growth of 31%.

This strong group growth continues to be driven by increased practice engagement as well as from pet owners that have historically not purchase through their veterinary practices online pharmacy service powered back of address we expect these pet owners new to our online pharmacy service to behave similarly, as compared to our existing pet owner client.

Yeah. That's also been encouraging to see increase manufacturer engagement and support recently, which has allowed the veterinarians in partnership with us to be very competitively priced versus traditional E commerce.

Overall total combat Trish April non GAPP organic net sales declined only 8% year over year and we believe the result would have been stronger if not for the inventory stocking activity that incurred in March in many of our inner international markets, which pulled forward more than $30 million. It now.

Sales into Q1 as previously reported.

For additional perspective year to date non-GAAP pro for pharma organic net sales growth through April was positive, 5% and while near term trends are likely to still face a headwind in connection with covert 19, the stronger relative performance of the global animal health category as compared to other health care markets highlights the.

Attractive nature of the businesses in which we operate our strategic positioning within the markets in which we compete and are very compelling portfolio of value added capabilities.

Finally, it speaks to the resiliency of the strengthening human companion animal bond, which connection provides the foundation for growth in our categories in the years ahead.

Longer term, we remain enthusiastic about the prospects of the global animal health market and the recent balance sheet actions as described on slide nine that we've taken since April 1st, which we expect will collectively reduced net debt by approximately $340 million as compared to March 31 levels and provide addition.

<unk> liquidity in the short term position us well to execute against our strategy, while navigating the pandemic.

Our team is focused our priorities are clear our ongoing investment in people and innovation differentiates us and importantly, our balance sheet is now stronger we're confident in our strategy and path forward and are well positioned to capitalize on the market recovery and to accelerate our long term.

Opportunity.

Lastly, before I turn the call over to Stuart I would first like to thank him for his significant contributions to co vectrus over the last five months as interim CFO. He has played an integral role in stabilizing our core operations and improving our balance sheet. So on behalf of all of US a coke batteries. Thank you very much.

We're so glad that you joined us on.

On that note Stuart can you. Please provide now a financial review of our Q1 results.

Yes, good afternoon, everyone and thanks again for those kind words, we've accomplished a lot over the last five months since debentures will certainly be in great hands for the hiring of Matthew for instance, the company's global CFO.

With that I will now review our Q1 results focus with my comments will be on our non-GAAP and non-GAAP pro forma results you when applicable as these items provides the most insight into the underlying trends impacting our businesses. Please refer to todays press release for a more detailed description about.

Q1 GAAP results.

Vectrus net sales were approximately 1.07 billion into Q1, non-GAAP pro forma organic net sales increased 10% year over year in Q1.

As indicated wouldn't we previewed our Q1 results last month January and February that sales reflected the positive momentum the business had entered.

Had enrolled 2020.

March net sales benefited from accelerating prescription management growth in certain stocking activity in several geographies in connection with the kindred 19, pandemic, which helped offset a portion of the net sales impact from reduced purchases over the last two weeks in March when many of our customers we began to experience.

Declining client visits tied to certain global measures to slow the spread of kind of good night.

We estimate the Q1 non-GAAP pro forma organic net sales benefited by approximately 4% from customer inventory stockpiling activity that occurred in the several international markets during March in connection with corporate 19.

Moving to our operating segment net sales performance North America pro forma organic net sales increased 6% year over year in Q1.

Our distribution business pro forma organic net sales group increased 1% year over year in Q1 or 4% when the previously announced a customer loss from early 2019.

Is excluded.

Notwithstanding the impact of cobot 19 on the market.

We believe our quarterly results demonstrated stability in the underlying business dynamics, particularly now that we have lapped last year's losses in the large customer during Q2 2020 and have also recently entered into multi year renewals with several of our largest customers.

Total <unk> prescription management.

Or legacy that's first choice pro forma organic net sales increased 47%.

Year over year to $84 million in Q1, and we ended the quarter with more than 10500 practices on our prescription management platform.

Prescription management net sales were off to a strong start to the year. Following the launch new customer and client engagement strategies late last year and the business further accelerated in March due in part to cope with 19.

In the aggregate same store prescription management platform net sales.

Find us customers are enrolled on the platform in 2018 or earlier increased by more than 25% year over year during Q1.

Turning to Europe pro forma organic net sales increased 13% year over year in Q1 of which management believes approximately 7% is due to customer stocking activity in connection with the code at night to.

Excluding the estimated inventory related stocking activity in response to cope with my team our European team executed extremely well during the quarter. Despite the pandemic and delivered healthy pro forma organic net sales growth in most of our European markets, including strong performance from our business is operated again.

Our London, the Czech Republic and Poland.

The UK the company's your largest market by net sales also delivered double digit year over year net sales growth during the first quarter.

Moving onto a pack in the emerging markets our team delivered a 20% year over year increase and perform organic net sales in Q1, including an estimated benefit.

Fortunately, 8% from customer stocking activity in connection with comes it might to overall good momentum of the business segment.

Had <unk> overall the momentum the business secondhand exiting 2019 continued into the first quarter of 2020, and this team continues to execute well and deliver robust financial results.

Total company non-GAAP adjusted EBIT da was 48 million for the first quarter of 2020 versus 50 million in the prior year period as calculated on a non-GAAP pro forma basis, the 4% year over year decrease Mr.

Driven by higher corporate Cellengine G selling general administrative expenses tied to establishing called ventures as an independent global public company and a $1 million overall negative impact from changes in foreign exchange as a reminder, Q1 2019 included only a partial quarter.

Corporate overhead, whereas Q1 2020 was burdened by the near four year run rate of Standalone expenses.

This approximated a 14 million dollar headwind year over year and it was generally consistent with our commentary discussed on the Q4 earnings conference call back in early March.

These added overhead costs offset the significant year over year improvement and that's first choice profitability underlying organic growth in our supply chain businesses across many geographies and the modest contribution from 20, Nike and acquisitions.

Additionally, management estimates that the customer inventory stocking activity in March and many of the company's international markets added approximately 3 million to 4 million in non-GAAP adjusted EBITDA in the first quarter of 2020.

Looking at our segments segment, adjusted EBITDA increased 17% year over year in North America, driven by the improving contribution of the company's prescription management business as well as modest growth in our supply chain business in fact, our prescription management business in Q1 delivered more adjusted EBIT.

Okay. Then all of 2019 combined as we continue to increase the scale of our operations and leveraging strong net sales growth.

Adjusted EBITDA increased 13% year over year in Europe.

And 40% year over year and they packed in emerging markets driven by operating leverage from strong net sales activity, including the customer inventory stocking benefit in connection with Kogan 19.

Our total company Q1, GAAP net loss was $33 million or negative 30 cents per diluted share.

Non-GAAP adjusted net income was $20 million during Q1 versus 19 on a pro forma basis in the prior year period.

Turning to the balance sheet and cash flow metrics called Vectrus used 76 million in cash flow from operations. During Q1 and had negative 87 million in non gap free cash flow when subtracting that purchases of property and equipment of 11 million.

Dollars the timing of certain year in payables and growth in accounts receivable from the strong March sales performance drove the increase use of cash in the first quarter of 2020 as compared to the prior year.

As a reminder of the company historically experiences a use of cash in the first quarter and then we drive cash flow improvements through the balance should be or.

Note that our cash balance was also impacted during the quarter by deferred M&A payments related transactions that closed in 2019 and fees paid for the credit agreement Amendment executed in late February of this year.

We ended Q1 with 1 billion to 185.

More yen in term loan debt outstanding and 190 million borrowed against our 300 million revolving credit facility. Much you made at the end of March when Koby 19, Mr. clarity pandemic, which improved our liquidity position as we ended the quarter with 205 million in cash cash equivalents on our balance sheet.

Our net leverage ratio.

Defined by a credit agreement shed at approximately 4.8 homes for the trailing 12 months ended March 31st 2020, well inside the 4.5 times covenant maximum threshold.

Immediately following quarter in coal batches amounts the closing of its the best teacher skill animal health care to Heska Corporation for $110 million or approximately 100 million metal deal related fees and other transaction widens and before any talks on.

On that transaction.

The company used 45 million in those proceeds to repay the remaining quarterly term loan principal amortization leveraged 2020.

Adjusting for these actions the company would have had at quarter end March 31st 2020, approximately 260 million in pro forma cash and equivalents 1.14 billion in term loan debt and 190 million outstanding on the company's revolving credit facility.

Our leverage ratio as defined by the company's credit agreement with have also modestly improved pro forma for the skill proceeds and subsequent debt reduction.

Additionally, on April Thirtyth, 2020, called Vectrus announced a 250 million dollar investment from C.D. and all from which we expect to receive the proceeds on or around maybe 19 to 2020 next week.

The net proceeds from the perpetual convertible preferred equity issuance to CD and all will be used to repay a portion of the company's revolving borrowings provide additional short term liquidity and support general corporate purposes.

The additional capital from shale or the skill animal care and perpetual convertible preferred equity issuance meaningfully strengthens our financial profile are reducing net debt by approximately $340 million as compared to March 31 reported levels, allowing us to continue executing.

Against our strategic growth objectives, while simultaneously navigating the near near term uncertainties tied to the code made to pandemic.

The structure of reinvestment and our improved financial profile also better positions us for additional conversations whether linden, saying lending syndicate about obtained in further operating flexibility under our current credit agreement. We may have more to comment on this in coming weeks lastly, as indicated in our April 20 checking press release.

That provided a preview of our Q1 financial results, we withdrew our full year 2020 financial guidance as a result to be uncertain demand outlook for our veterinary practice customers calls Microgrid my team.

Well complete an accurate visibility into the trajectory of the future recovery of our end market remains relatively uncertain. We had been encouraged by the sequential improvement in our net sales growth over the last couple of weeks.

Following the slowdown seen in late March in early April.

As Ben mentioned, despite the inventory stocking benefit seen in March that pulled forward sales from April and the additional Carbonite junior related headwinds <unk> non-GAAP organic net sales declined only 8% year over year during the month of April and non-GAAP organic net sales declined.

Only 4% for the weekend they made first.

And as we think about profitability over the near term, we take a we've taken certain measures to help better align our cost structure with sales performance, including executive Board and other senior level employee compensation reductions employee furloughs in certain European countries, several shift eliminations or different mortality.

Just a global hiring freeze and discretionary spending deferrals, but.

Additionally, we've made progress on some of our direct and indirect indirect procurement initiatives that we've rolled out in partnership with an external third party adviser to drive greater efficiency through our organization.

These actions should partially offset some of the lost gross profit from lower net sales tied to the impact of covered my team and the potential negative 5 million dollar impact to adjusted EBITDA year over year from foreign exchange volatility.

Rates remain at current levels.

We'll continue to monitor this evolving situation on a week by week basis. It will take additional action as necessary to balance the short term uncertainties with our desire to continue investing in our team and global capabilities needed to execute our strategy and accelerate our sales and profit your trajectory alongside the recovery, although I'll turn the.

Call back over to Ben for some brief closing remarks then.

Thank you Stewart.

One of my closing remarks, I want to take a moment to thank David Shaw, who retired from our board earlier. This week for its combined 10 years of leadership and service to come to address and predecessor companies. That's first choice.

His experience in industry knowledge played a critical role in the creation and growth of the company and we are appreciative of all of his efforts David will remain at close friend to me and the organization.

And I wish him all the best as it continues to champion multiple philanthropic activities.

In closing and as outlined on slide 10 of our presentation.

I want to reiterate that I am proud of our teams accomplishment and their tireless efforts to support our customers across the globe as we all navigate and adapt to the Togut 19 pandemic.

Our strong first quarter results are evidence to early progress as we have achieved by focusing on the core drivers of our business.

Veterinary care remains an essential service and we are encouraged by the moderately improving trends we are beginning to see with many of our customers over the last few weeks.

As the recovery in our end market continues.

I believe the combination of our strengthened financial profile and organizational helped position us well to accelerate growth and create shareholder value over the long term.

This concludes our prepared remarks, and I will now turn the call back over to net to moderate the Q in a fashion.

Thanks, Ben we want to take as many questions as possible. So we ask that you limit them to two and then reenter the queue should you have additional ones.

So lane, please provide instructions for queuing recession, and we are ready to take the first question.

And if he would like to ask a question at this time press the star and the number one on your telephone keypad Star one now.

And we'll pause for a moment to compiles acuity roster.

And your first question comes from the line up John Kreger from William Blair.

Hi, Thanks very much.

When I was hoping to dig in a little bit omni the very good trends and prescription management and.

Curious if you think there sustainable <unk> are you seeing any stocking there I know you mentioned in Internet International markets Youre, but curious if you think you're seeing any stocking driving up the numbers and prescription management.

It Thanks, John going to speak to you or you know I I think.

The short answer is not really from a stocking standpoint.

Wow, there's certainly could be an individual consumer or to that would be ordering large you know quantities.

More than they need in the short term.

Most of the activity is really coming from.

Our existing customers engaging with a their own customers that just a much greater rate as co bid picked up the desire of our customers to.

Maintain continuity or connectivity with their own consumers increase than what we saw was just a greater engagement across the board as I mentioned in the prepared remarks, we started to see a lot of that progress even pre cove. It and obviously you know cove it has been.

A bit of fuel on the on the fire so.

We're excited about the progress and expect to you know continue to drive that business forward aggressively.

Great. Thanks, and then a follow up and I think you just touched on it but dig a little bit more as you look at where the growth is coming from within prescription management did that does that tend to be from kind of legacy shine customers are you seeing any interesting patterns between I'm kind of Henry Schein like.

I see versus people using other sources of distribution. Thanks.

Yeah sure thing. So you know if you use the slide presentation that we provided one of the nice things is that you can see that.

All of our cohorts are going all the way back to 2000 Twelves have continued to grow.

And you know that would be a mix of customers who are using a couple that just for distribution and those that are less rely on co batches for distribution I think one of the nice things that I would point out is that when the company came together.

The the new customers that we have started to engage with in 2019 have been a very strong cohort for us.

And that really has continued to occur in in 2022 in 2020. So you know time to revenue for new customers getting onto the platform has decreased and revenue scale on the platform has increased substantially so you know whether it's the combo.

A nation of our services in the excellent jobs that are the variety of our sales teams are are doing a cost distribution and technology.

The combination of that with a co bid and the continued investment in the technology platform. All of those things together are really creating a dynamic environment for that business and it's exciting to see the growth and as well as the EBITDA contribution.

Very good thank you.

And your next question is from Nathan.

<unk>.

Great.

Thanks for the questions.

Maybe just sticking with the prescription management platform you know when we think about the consumers who are maybe trying their best you know website for the first time.

Due to due to this pandemic historically kind of looked in the conversion rate from those kind of first time purchasers into more loyal regular customers on the side and are there any metric you can kind of share around that just in terms of purchase frequency your basket size for the more loyal customer the on the platform.

Yeah, I I think you know maybe the metrics that I can point you to that is maybe most relevant is kind of same store sales growth because I think that captures you know the what is going on as a consumer enters the platform for the very first time and you know as I said in the prepared remark.

Thanks.

You know, we saw 25% year over year growth in in Q1 in April we saw 31% year over year growth and our you know the early data on people who joined in Q1 is that there really is no sign of those consumers being any different than historical consumers in terms of average.

Order value and you know potential lifetime value of that have that consumer. So I think that you know the foundation that we're building here you know really starts to get exciting <unk> you know as those customer cohorts just continue to build throughout the year and next year and thereafter.

Thanks, that's helpful and maybe as a follow up.

You know last week long ago analysis, I think you know what's the more kind of be described as a more targeted.

Distribution strategy that I think will result in lower inventory levels for its products in sort of the distribution channel can you maybe just give us your view on kind of what that means for coke batteries and and does it impact how you think about going to market on those products.

Yeah, I, you know I don't want to comment too specifically on any one manufacturer, but I think as you look at the results.

In Q1, especially in the U.S. with that business growing you know a 4% on a pro forma basis, a we feel really good about the progress that you know the team did across all of our car manufacturers and and that really has continued.

Here into into the second quarter as as a.

Demonstrated in that in the slides that we prepared so you know I would say, there's always going to be some movement around.

The suppliers as they figure out the best way to use distribution, but.

We're excited about the progress that were made in the stabilization of that business and and you know maybe one other just point to sit to highlight is that I think as Cove. It continues to move on in some ways. The distribution rep becomes even more powerful the veterinarian a wants to see less and less people in their pro.

Active certain needs to space them out they don't need sales teams from every manufacturer calling on them and I I think we sit in a pretty unique position in terms of being able to bring lots of different products to market and combine that with a very compelling prescription management platform.

Good thing some time today.

Yep. Thank you.

Your next question comes from the line of terrain right from credit Suisse.

Great. Thanks.

Well up on me along.

Just.

Starting I guess it here earlier it already.

Distribution partners from eight to four how much did that transition benefit in the quarter and how big of a relationship is that for you and then now that it's taking another step forward in terms of narrowing or more targeted approach.

How do you think are their relationship with vendors are ball in response to losses, and if we can comment Aireon and you think there isn't competitive response.

[music].

Yeah, I mean, I think the company's very well positioned where you know the only company that can bring together distribution prescription management Tim's on behalf of Bay.

Manufacture and on behalf of a customer so I think as as suppliers look to partner with companies. We obviously sit in a very compelling to position given the variety of services that we can offer in the scale that we can do it.

You know as it relates to this you know a alanco narrowing its it's a distribution.

Relationships, you know that certainly helped a bit a in the quarter and probably here in the balance of 2020, but those are relatively small players in the market and I don't think it moved the financials significantly again in any given direction.

Okay that's interesting.

And then my second question.

Overall.

Inside purchasing patterns will be different this year on regardless to the severity of eating.

And given some of the Kobe dynamic, but also in light.

In territory I do think there'll be any different.

From what you typically seen in normal in terms of normal purchasing patterns for parasiticides. Thanks.

You know it's a good question, we're obviously paying close attention will we'll see how that plays out I think if you look at the you know the trends.

And that we that we put forward in the presentation and some of the trends that have been talked about by other other parties.

Definitely saw this you know dip in late March in early April, but it really has come back and now you're talking about year over year revenue for that practice in the first week of made to be about down 5% that you can see our total business down about 5% in that same period of time so.

Wow, there certainly could be some short term.

You know declining in that market.

You know, we were seeing a pretty resilient and and and healthy marketplace. So I think we feel good about the overall position of our company and just the overall health of the industry frankly.

Okay, great. Thank you.

Your next question comes from the line of Jon Block from Stifel.

Thanks, guys good afternoon.

The year that the 16% same store sales go the via see last year experienced a real big step up to 25% in one Q. It certainly seems to validate the strategy you laid out last quarter.

Focusing on the installed base I'm, just curious with the outbreak of the pandemic.

Is there any want to try to drive new practice is a bit more I'm just guessing there now more than ever in need of an online solution. So from you guys is there any want to try to juggle both if possible the same store and the new enrollees are going to follow.

Yes, it's a great great question.

Oh, one that we ask ourselves too I think you know what we're staying true to our.

Priorities and focus on engagement, however, I I would say as you pointed out a new customers are even more hungry to get on the platform and we've seen a lot of organic progress I believe Stuart highlighted a number of 10500 practices at the end of Q1 2020, which is.

Almost double.

The number of.

Practices on the platform since 2017, so some of that is happening.

On its own or or maybe with a less concerted effort, given where we decided to focus and and I think you'll see us increased the aperture of things that we can focus on as the business that stability and that you know well, we'll be able to make.

Some market share gains on that front I think the other dynamic that I would point out is that you know not all practices are are equal in terms of their use of engagement at the platform. So as important as adding a new practice, it's getting that practice to really engage with us and what what we've seen.

You know really differently in the past our corporate customers are consolidators really pushing hard to work with us in conjunction did to use all of the aspects of client communication on the platform and that's a huge leverage 0.4 for the practice so.

The short answer is yes, we'll add more practices.

But we're going to continue to focus on driving that engagement because there's just so much opportunity with our existing customer base.

Great and it takes a color I think your second question to shift gears.

44 million fish, if you want to call it normalized EBITDA extra stocking that I still believe was heavily ahead of what you conveyed back in the fourth quarter call, which was that was in early March Im just sort of curious what drove the upside on a normalized basis and then what regions drove the upside relative to your expectations.

Thanks, guys.

Yeah. So I I would say it was just solid performance all around by the business that you know the big drivers were you know continued cost control so operating leverage going down you know below gross margin.

The prescription management platform and the GTS team did a really excellent job and as I mentioned in my prepared remarks had you know.

Not only year over year, EBITDA growth, there and sequential quarterly growth, but likewise, the distribution businesses across the World <unk> Europe Asia Pac and U.S., all all we're having good quarters, even prior to co bid a coming in and that and that really got accelerated.

So I think we feel just all in all very pleased with the progress. It's it's one quarter and there's many more quarters to come but a very good start to the year.

Perfect. Thanks, Rich I guess.

Your next question comes from Andrew Cooper from Raymond James.

Hey, guys. Thanks for the question I guess first just as we look at kind of the margins I think one of the comments you made was at North American distribution or supply chain. EBITDA was contribution was Ah Ah, but can you give us a little bit color just how to think about you know the mix relative to what where margins doing in.

The core supply chain business I'm in the quarter, and then I have a a follow up from there as well, but anything around helping us kind of slice out that the moving parts on margin candidate.

Yes, So you know pre cove, it I would say modest improvement to margin on a year over year business, a year over year basis and in the supply chain.

And in all regions.

And you know different moving parts.

Below that but.

I'm just you know kind of continued either steady or slightly improving performance in all parts of the globe.

Okay. That's helpful. And then I guess, maybe higher level as we think about you know layering in tele medicine into the capabilities in the pins or is that something as you think about building out sort of new new capabilities. You can really leverage you see opportunity. There in terms of you know prescription management scheduling.

Things like that where you can really tie even closer to your customer the vet practices, but also the the end consumer as well and how do you think about you know what doors layering that in May open up.

Yeah, I mean, I think it had a big picture you know co vectrus is positioned to be the leading technology enabled services and solutions company for the industry and I think telemedicine. It's just a great example of our team responding very quickly to a dynamic market taking advantage.

In age of our installed base of practice, you know a management or information management systems, taking advantage of all of the sales relationships that we caught have across distribution in technology and rolling out a much needed application for our end customer who they could therefore use.

With their end consumer so.

I expect to see more of that a in the quarters in years to calm you know as as our customers needs evolve so will our platform and its you know it's exciting to see some of that that you know those early steps being taken.

Great I'll leave it there thanks guys.

And your next question comes friend of mine I dated Westenberg from Guggenheim.

Hi, Thanks for taking the question I'm actually going to jump on a Andrew's question and maybe talk about monetization ability of on telemedicine or are you finding that that's actually are able to monetize it and maybe if you have a script attachment ratio or something along the lines that can help us figure out how that's might incorporate that in practice because it.

Actually would help them drives their piano.

Yeah, I look first of all it's obviously early early days on telling Madison and and when we brought that to market. The first thing we really thought about was just a allowing our.

Our customers to stay in business and continue to practice medicine, and and and get pet owners and their pets care.

And and so we rolled that out as a as a free solution to to start.

What we have seen it or from our customers is that they are oh liking it and that they can start to deliver some of the care that that they had done previously in practice Viatel, a medicine and continue to generate revenue for themselves.

Overtime that practice that that solution will evolve and I'd be something that we generate revenue for ourselves but.

We cannot you know we benefit when our customers benefit so when they are proactively prescribing they'll end up using the prescription management platform after using specialty Viatel a medicine, a they can use our specialty services anything that keeps our customers healthy and growing is generally a good thing for for our business.

So the data it's still early.

But but mostly we're excited to allow them to stay you know up and running and and providing continuity of care with their own consumers.

Thank you and then just ask a few questions on potential on external exposures, we related with coded on can you remind us I know, it's a small amount, but on a and customers that are related to production animal and then just on geography exposure is there any certain geographies that that my.

Maybe a little bit higher relative to the rest of distribution. For example are you a little bit heavier in the northeast relative to maybe other distributors. Thank you.

Yeah I'm. So in terms of your first question production versus companion.

You know it varies by region, a companion animal what's the vast vast majority in the U.S.

And a significant majority in a pack in Europe. There is much much more significant production animal split, especially in the UK I'm. So you're much closer to a 60 40, you know ratio between companion and production.

And I I would point out that production through the first corridor remained very solid and consistent on a year over year basis. It was really in the companion animal space, where you see saw a lot of volatility.

As as it relates to the second question you know we as.

Such a significant market presence that you know our our distribution.

Footprint really maps to the to the U.S. and and we don't over indexing anyone area compared to a you know different distributor or at least the top you know two or three distributors. So I don't do we have either any benefit or or you know headwind as it relates to our competitors.

On geographic footprint at least in the U.S.

Thank you.

And just last question comes from Kevin Keegan from GE research.

Hi, Thanks for taking my questions.

First a wanted to ask about the prescription management platform.

<unk>.

Bfc and Henry Schein got together apply the idea was that.

Management platform are essentially be legacy distribution business could essentially be lead for placements for the prescription management platform, but given the dynamics Cove and the demand for.

Digital platforms could we essentially see this turned around could be ability to offer the prescription management platform potentially lead to opportunities to pick up business on the distribution side going down the road.

Yeah, absolutely I mean, I think as as the company becomes more and more or I should say better positioned as the core partner to the veterinarian a with a combination of you know technology enabled services from distribution to specialty.

He to proprietary brands and and of course prescription management I think what you'll start to see is that.

It's really the collection of these products and services that allows us to be successful in the in the marketplace. It in and in some cases.

A customer is gonna be over indexed on prescription management and that relationship is going to allow us to broaden into distribution or other parts of the business and and in many other cases it'll be the other way around obviously when the companies were brought together you know the benefit that shine brought was a tremendous.

Customer footprint on the practice management side and on the distribution side of things and that led to a lot of leads but the other benefit I would say is that that that salesforce has done a great job just helping even our existing customers a use the platform I'm at an even greater rate. So in general you know were works.

Site at about the collection of assets and and know that we have ways to go in terms of how we bring them to market in in a way that's really beneficial to our customers in our manufacturing partners, but a you know the most recent quarters of results I think is.

It certainly has a very positive step into right direction.

Thanks.

And I am showing no further questions at this time I would now like to turn the conference.

<unk> Johnson for closing remarks.

Thanks, everyone for your time, and we look forward to seeing you guys are out a couple of conferences later this month and early next with that we'll end the call.

Thank you guys thanks to everybody.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may now disconnect.

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