Q2 2021 Covetrus Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the third Q2 thousand 21 earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
And finally, 1 should require assistance during the conference. Please press star Zero and your thoughts on the telephone as a reminder, this conference call is being recorded how we'd now like to turn the conference over to your host Mr. Bryan Mcdonald, Vice President of financial planning and analysis. Please go ahead Sir.
Thank you Greg good afternoon, and thank you for joining us and record Q2, 2021earnings conference call joining.
Joining me on this afternoon's call are Ben Wolin, our President and Chief Executive Officer, and Matthew Foulston, Our executive Vice President and Chief Financial Officer.
And Matthew will begin with prepared remarks, and then we'll be happy to take your questions.
During today's conference call, we anticipate making projections and forward looking statements based on our current expectations.
Statements other than statements of historical facts made during this conference call and forward looking including statements regarding management's expectations for future for future financial business and operational performance and operating expenditures.
And looking statements maybe identified with words, such as will expect believe.
And we should or similar terminology and the negative of these terms.
And looking statements or non 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 to differ materially from those contemplated and these forward looking statements.
These risks and uncertainties include those under the heading risk factors and our most recent annual report on form 10-K, and other periodic reports filed with the Securities and Exchange Commission, which are available on the investors section of our website at IR docs and veterans Dot com and on the SEC website at Www.
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Forward looking statements speak only as of the date hereof and except as required by law, we undertake no obligation to update or revise these forward looking statements.
You can find this afternoon's press release announcing our second quarter 2021 results and the accompanying slides back from this call on IR docs from <unk> Dot com.
Release and presentation also contains further information about the non-GAAP financial measures that we will discuss today. Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results.
With that I'll now turn it over to Ben to provide highlights beginning on slide 3.
Yeah.
Thank you Brian Good afternoon, everyone and thank you for joining US today, I hope, everyone is safe and well before jumping in and I just wanted to recognize that Brian and his replacement Janssen for the day, Nick and his wife and delivering a baby today, and where we're seeing Nick and Katy a happy and healthy day.
And we're thinking of you.
Now onto the business.
And for items, we discussed with you on the call today, 1 of the health of our business as reflected in our solid Q2 results. The progress, we are making and executing our strategy and driving growth within our higher margin products and services the.
And the enthusiasm and long term opportunity, we have and wellness plan administration through our recent acquisition of the market leading platform BCP and force highlights from the Companys first ever ESG report that was also released today.
As you can tell we have a packed agenda for the call. This afternoon.
So I will dive right into some of our recent highlights starting on slide 3.
Overall Q2 marked another strong quarter from Cove address where we delivered 12% year over year non-GAAP organic net sales growth and $66 million and non-GAAP adjusted EBITDA, both of which were a bit ahead of the expectations that we have.
Outlined on our Q1 earnings conference call in early May.
Our team executed very well and we once again improved our market position and advanced our value proposition to our veterinary practice customers and their clients and what remains a healthy dynamic and market.
And all of this was done in the face of the unknowns tied to the reopening of the global economy and the impact on consumer behavior and the supply chain and what is also and increasingly tight labor market, which remains a real challenge.
Importantly, we continue to make good progress during Q2 executing against our product roadmap and advancing our strategic objectives.
For example, we launched and SMS or text based reminder, notification service per pet parents, who receive a prescription from their veterinary practice.
And we also streamlines and key prescribing experience for our market, leading practice management software solutions.
We also added another net 300 practices to our prescription management platform and delivered a 17% sequential increase and net sales and $5 million sequential increase and non-GAAP adjusted EBITDA growth in Q1 in.
And prescription management.
While prescription management year over year growth rates were modestly below our aggressive aspirations are set back in January which was before the significant supply chain difficulties and a diet space, which I'll touch on later I think it is important to recognize the vs sales have nearly doubled over the last 2 years and actually salary.
Weighted on a 2 year stacked basis to 85% during the second quarter, highlighting our execution and our leadership position.
I remain extremely enthusiastic on the opportunity we have in front of us in the context of what is still a vibrant and growing pet prescription and market and the role we can play and helping veterinary and approved clinical and business outcomes for their practice.
We also announced in Q2 and subsequently closed in Q3, our acquisition of DCT and market, leading veterinary software platform for wellness and care plan administration.
We see tremendous opportunities to accelerate and scale and solution inside of a matrix.
Finally, we continue to bring new talent into the organization, which we believe will further accelerate our transformation efforts, including several senior roles over the last several months such and second Kid as head of North American operations and global operational Excellence and just last guide as President International and drew.
Cox as Vice President corporate controller, and Chief Accounting Officer.
Overall, I'm very energized by the talent, we are tracking as we build upon our leadership position and veterinary health care solution.
And this opportunity can be best summarized and how we are still and the early and then you keep driving growth and a positive shift and our business towards our higher margin products and services as seen on slide 4.
During Q2, we delivered double digit year over year growth and net sales and gross profit and these category and I was particularly pleased with the results achieved and our congrats and branded and proprietary brands during the second quarter.
The collective growth rate and beef products and services continues at a pace faster than our overall portfolio and these products and services now represent 43% of the company's gross profit or a 200 basis point increase versus the prior year and a 600 basis points improvement versus 2019 pro forma levels.
Yes.
We expect this positive shift to continue as our strategic accounts across our segments build momentum and we see a pathway to more than 50 per cent of the companys gross profit tied to these higher margin products and services over the next 18 to 24 months. This team is doing a great job.
Turning to slide 5.
Given the significant opportunity and our Quebec, and branded and proprietary brand product portfolio and the anticipated benefit and this growing contribution will make to the company's profitability and thought it would be useful to investors to share. Some additional color on these products highlight our recent financing progress during the second quarter and key areas of focus for the company.
And we think about the second half of 2021 and beyond.
Our increased focus and Cabela's branded products during the second half of last year is starting to drive tangible financial progress in 2020, 1 with non-GAAP organic net sales for these products, increasing 21% year over year during the second quarter.
This includes and even more impressive 25% year over year non-GAAP organic net sales growth rate in North America, partly driven by the organizational changes we made last year.
We are optimistic that we can deliver continued strong growth during the second half of the year and our veterans branded products driven by the ramp up and launch of 75, new products globally. This year, including several that are now available through our prescription management platform in North America, emphasizing the synergies between all aspects of our business.
We are also entering a couple of new high growth geographies and 2021, which we believe can further enhance our opportunity in the years ahead.
The company's portfolio of proprietary brands, which includes cruiser.
And for Libra and also saw strong adoption during the second quarter with non-GAAP organic net sales growth of 13% year over year continuation of recent positive trends.
This growth is being supported by strong commercial execution, and we anticipate new product introductions and geographic.
The expansion to drive further growth.
We also continue to actively explore M&A and partnership opportunities in this area as we seek to leverage our unique channel access and scale to accelerate growth.
And turning to compounding, we delivered double digit year over year net sales growth and second quarter of 2021 and with the recent opening of our new state of the art compounding and 500, <unk> outsourcing facility and Phoenix, Arizona, and it's May and the launch of our new ecommerce platform and integration with third party and ordering sites, we are well position.
And to build upon our opportunity as we drive innovation and leverage our customer relationships and membership organizations.
Moving now to slide 6 I'm extremely excited about our recently completed acquisition of BCP, the market leader and veterinary wellness and care plan administration software as many of you are aware now more than ever pet owners need helped by moving from pet care and treatment and veterinarians and looking for ways to drive.
Compliance strengthen their relationship with their clients and offer innovative plans and solution for all types of treatment needs based on best practices and that is where <unk> comes in.
<unk> sales of proprietary wellness brand management solution, providing a comprehensive end to end technology platform that simplifies and enables the process of creating launching and managing a wellness program at the practice.
Dcp's innovative wellness technology and proprietary business of wellness process enables veterinary practice customers and launching successful wellness solutions care plan and lifestyle program to their pet parent clientele.
The practices adopted with ECP platform reported up to a 10% revenue growth and the first year with significant increases in spending per spend.
Spending per pet overtime.
And the pet parents adopting these plans and value the convenience and customization of the program, which is less and strengthened relationship with their veterinarian.
BCP is currently experiencing strong demand and has a growing customer base of more than a thousand and veterinary clinics with more than 350000 pets unplanned and importantly, we currently have a large backlog of signed but not yet onboard and clinic and and significant pipeline of new opportunities, providing visibility into double digit growth and.
High margin recurring revenue and 2022 and beyond.
What's even more exciting data and that this is all before the uplift we anticipate from BCP joining forces with co veterans as we leverage our customer relationships and membership organization and build a unique platform that can integrate practice management software prescription management and wellness into 1 offering for the practice.
By accelerating the adoption of and enhancing the impact from wellness and care plan. We believe we will drive enhanced clinical outcomes and empower veterinarians to run better businesses and deliver and unparalleled experience for the pet salmon, we will speak more to this opportunity and quarters ahead, as we work to execute our strategy and deliver.
As synergies.
Finally on slide 7 I wanted to start on Investor and test them to come back to us its first ever ESG report, which was also released this afternoon just over 2 years ago from essentially was established as a new company. The company was the result of a merger of a collection of animal health weaknesses from around the world many of their own sustainability initiatives and corporate social responsibility.
Total commitment.
Now as 1 unified company, we're bringing a more cohesive focus to our ESG efforts.
Our initial progress as demonstrated in today's report food storage and her team's actions around the globe, including our COVID-19 response for our employees customers and pets and pet owners.
And the sustainability and continuous improvement and reduction and plastic consumption.
Launch and with diversity and inclusion program and support for animals around the world, we aspire to lead and everything that we do.
And this reported both a celebration of where we are today as well and with commitments to where we're going and we're just getting started.
In summary, and so pleased with the progress the company has made during the first half of 2021 and I'm energized by the opportunity that still lies ahead and we continue to execute against our strategy, while theres still plenty of work to do and we drive forward, our transformation and what remains a dynamic and market I am confident and our value.
And market position and anticipate that we will continue to build upon our momentum and the second half of 2021 and beyond.
I will now turn the call over to Matthew and to provide details on the financials.
Thanks, Ben Good afternoon, everyone and thanks for joining us today.
I will now review, our second quarter, 2020, 1 financial results and provide additional commentary on our full year expectations.
And the focus of my comments will be on hand, and non-GAAP results, where applicable and these items provides the most installment and the underlying trends and <unk> businesses.
Please refer to today's press release for a more detailed description of our second quarter 2021, and GAAP financial results.
Additionally, where applicable we are also providing financial comparisons from second quarter 2020 volume results. So the second quarter of 2019, given the lumpiness of outperformance and created by the COVID-19 pandemic from the second quarter of 2020.
As Ben mentioned and summarized on slide 9 Q2 was another solid quarter from debentures with 12% year over year, non-GAAP organic net sales growth and $66 million and non-GAAP adjusted EBITDA, which represented a 5 percentage year over year increase.
We are pleased with our overall performance, which exceeded expectations, particularly given the unknowns, we face and turned the quarter price of the global economy reopening during Q2, and the challenging neuro and can be a comparison.
As a reminder, last year's results benefited from the COVID-19, driven spike in demand and also.
Description management service, which led to a 66% year over year growth and those sales during the front of the interest.
And the significant cost reduction actions, we took across our global footprint with approximately $4 billion and temporary benefit and anticipation of the uncertainties created by the onset of COVID-19, and then.
As we previously discussed those temporarily low costs with progressive we reinstated the near prior levels, what the impact from COVID-19 on our oakleaf business ended up being less severe than originally anticipated.
Importantly, our growth and non-GAAP adjusted EBIT and.
And the 47 million and free cash flow generated during Q2 led to a sequential improvement and a net debt to LTM non-GAAP adjusted EBITDA ratio of 3.6 times at the end of Q2.2010 loans.
Now turning to the details on slide 10 debentures.
<unk> net sales were $1.2 sales into Q2 and increase of 16% year over year.
Non-GAAP organic year over year net sales growth was 12%, reflecting healthy companion animal and market demand trends across many of the company's markets.
And the COVID-19 disruption experienced in the prior year period, and solid sales execution across many of our local markets.
The previously disclosed challenges and our UK and German markets continued to negatively impact year over year results. Although these trends are relatively stabilized.
Q1 activity.
Turning to slide 11 non.
Non-GAAP adjusted EBITDA was $66 million with second quarter of 2021 compared to 63 million from the prior year period.
The 5% year over year improvement, reflecting positive contributions from all 3 reporting segments as well as a modest FX tailwind, which more than offset growth and corporate overhead and the reversal of the temporary COVID-19 related task and implemented last year.
Non-GAAP adjusted EBITDA margins with 5.6% at June Q2, and a 50 basis point year over year decline, which is primarily a reflection of the temporary cost actions taken last year, and the sponge and prescription management and demand as discussed.
Compared to Q2.2019 levels non-GAAP adjusted EBITDA margin increased 50 basis points, reflecting the margin benefit as we drive growth and higher margin products and services.
Additionally, when we compare to Q1 and 2021 and non-GAAP adjusted EBITDA margin improved 40 basis points.
Moving to our operating segments beginning on slide 12, North America net sales increased 18% year over year and Q2.
Both the reported and non-GAAP organic basis.
Segment, adjusted EBITDA increased 7% year over year and Q2.
Segment, adjusted EBITDA margin declined 80 basis points versus the prior year again reflection of the temporary COVID-19, and cost actions taken in 2020.
And the other income contribution per year.
From a spike and prescription management demand at a time when we also force investments due to COVID-19 months.
North America segment margin expanded 50 basis points.
The second quarter of 2019, and 10 basis points versus the first quarter of 2021, reflecting from the growing contribution from prescription management and from that trust brand and products.
Drilling deeper into North America, and settlement trends starting on slide 13.
And our supply chain and non-GAAP organic net sales increased 19% year over year and in Q2, and reflective of healthy companion animal and market demand and.
Fifth consecutive quarter of year over year market share growth and distributions.
Along with continued strength, but small.
Supply chain and non-GAAP, adjusted EBITDA increased to $42 million per the quarter compared to $37 million and compliance period with.
And with a strong topline growth, partially offset by the reversal of the temporary cost reduction actions implemented last year.
And our software services was stable during the second quarter, while we continued to invest and building our next generation cloud space practice management and technology solutions.
Turning to slide 14, and our prescription management business in North America.
The second quarter place and unique comparison challenges given the demand spike last year, plus the additional COVID-19 block and loans, the total of 66% year over year and consumer sales in Q2, 2020 and the evolving consumer behavior issue.
Sorry for the reopened and fee income.
Additionally, supply chain constraints for certain product categories, particularly diets food continues to be a source of pressure.
While net sales fell modestly short of the aspirational growth assumptions set in early 2021, primarily clearer in the months of months net sales of 131 million and still increase month teen percentage year over year, and Q2 or 22% when excluding the 300 basis.
Points headwinds from a challenging corporate policy related to how we recognize and report certain 19th century and incentives, which are now included as a reduction to cost of goods and celebrate.
Additionally, on a sequential basis Q2, net sales increased 17% and notably on now and nearly double where they were just 2 years ago.
On a 2 year stacked growth basis, which we believe is a better way to look at the whole loans given last year's 66% comp.
Our growth rate was 85% and actually accelerated versus recent trends highlight the positive fundamentals, we're seeing and the business.
And with June marking and highest months.
Restriction and management net sales in company history.
Additionally, we added another 300 net new enrollments during Q2, and we ended June with more than 11700 practices on the platform.
Demonstrating the continued demand for our services.
For the first 6 months of 2020, 1 prescription management net sales were up 25% year over year or approximately 29 percentage year over year.
Excluding the accounting change.
These results include an estimated $5 million to $10 million of headwinds and <unk>.
Don and constraints, which has resulted in an increase and canceled shipments given the back order issues and production challenges at some of them HFF and we don't foods bottles.
With this headwind and likely to continue through the balance of the year and.
Knowledge and the inherent volatility of the overall e-commerce market alongside the reopening of the economy.
We now estimate prescription management net sales to approximately $508 million to $528 million.
And in 'twenty 1.
Or 20% to 25% year over year growth.
Which is equal to 28, 3%, excluding the accounting change.
This range includes the anticipated impact of certain growth initiatives and the contribution from recent enrollments and the second half of the year and it's balanced by and a negative income from supply chain disruptions.
His firm.
Turning to profitability Q2, prescription management and non-GAAP, adjusted EBITDA was $11 million, which.
Which was flat versus the prior year as we lap the periods. When there was a significant spike in demand without a corresponding increase in funnel and acquisition cost or and operating expenses given the initial uncertainties from COVID-19.
I would point out that we did increase non-GAAP adjusted EBITDA from our clients as compared to last quarter on a $19 million sequential increase and net sales highlights from the scalability of the business of net sales continue to try and clients.
Overall for 2021, we remain focused on converting approximately 15% of the euros EBITDA dollar growth and prescription management net sales. So non-GAAP adjusted EBITDA recognizing that we do have to overcome duplicate costs from 2021 tied to the Walgreens and the pharmacy.
And as well as incremental challenges currently experience and investment you've done foods.
Turning to our Europe business segment on slide 15 non.
Non-GAAP organic net sales increased 1% year over year, and Q2, reflecting healthy underlying companion animal and market demand and easier comparisons from the prior year due to COVID-19, primarily offset by the previously disclosed year over year headwinds.
<unk> UK and Germany.
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Our businesses operating in Ireland, the Netherlands, and Czech Republic, and notable contributors to the quarter and as Ben mentioned, we also had very strong performance from our proprietary brands and businesses of crews.
And when non-GAAP organic sales are getting increased low double digits year over year.
Turning to profitability despite.
Despite only a modest increase and non-GAAP organic net sales year over year, our Europe segment adjusted EBITDA from Q2 increased 25% year over year to 20 million cells with margin expanding 80 basis points year over year to 5 and ops.
The European team delivered another quarter of disciplined expense management, considering the sales challenges and the UK and Germany and.
The segment benefited from the strengths and tire margin.
And for spring and proprietary brand and sales and bunch of prescribe.
Moving on to APAC and emerging markets segment on slide 16.
Team delivered a 16% year over year increase and non-GAAP organic net sales in Q2.
Flexing and another quarter of strong sales execution on top of Opus and easier comparison from the prior year due to the COVID-19.
Brazil, New Zealand and Australia, all delivered notable year over year growth during the second quarter.
Segment, adjusted EBITDA increased 80% year over year from Q2 and <unk>.
Segment, adjusted EBITDA margins expanded by 200 basis points year over year, driven by positive gross margin trends and the ongoing operating leverage from better than expected net sales, which more than offset the reversal of temporary cost functions taken and the prior year on strength in Shanghai.
The COVID-19 pandemic.
Now certainly from a balance sheet on slide 17.
And net leverage at the end of Q2 stood at 6 times as compared to 3.7 times at the end of Q1.
Our cash balance of $230 million at the end of June was $19 million and higher as of March 31st 2.
2021, primarily reflecting positive free cash flow generation during the second quarter, which more than offset the 23 million and combined cash outflows, primarily tied to the buyout of non Brazilian and menorah components during Q2, and the final payment tied to last year's formation and the distributor.
Net.
We ended Q2 with $529 million and available liquidity and with approximately 2 turns low temp room under our net leverage covenant as defined in our credit facility.
We expect our cash balance to decrease modestly in Q3 tied to the acquisition of ACC and July, but we believe that liquidity and a net leverage ratio will improve in Q4, as we drove non-GAAP adjusted EBITDA and the second half of the year and generate additional cash and line for them and some small.
Now I'll turn to our 2021 guidance as outlined on slide 19.
I will now forecast and non-GAAP organic net sales growth of 5 to 6 percentage 100 basis point improvement versus the upfront and forecast.
This increased net service forecast factors, and our strength and Q2 and the positive and market conditions continue across from any of our markets against a slower recovery and our U K business and the modest reduction and a prescription management net sales discussed previously.
Looking at non-GAAP, adjusted EBITDA, and our outlook remains unchanged and we continue to forecast a range of $245 million to $255 million.
Which represents 11% year over year growth at the midpoint and steady progress against our long term module expansion objectives.
And extremely tight labor market, increasing inflation supply chain disruption and certain product categories, particularly dominance.
And general uncertainty science, and COVID-19, reopening are offsetting the positive earnings contribution from the high and non-GAAP organic net sales growth forecast.
And so it took a step back and look at where the company stands today versus where we were less than 2 years ago I see a business from 2021 with non-GAAP adjusted EBITDA and is forecasted to be 25% higher and <unk>.
19, despite navigating the challenges of a global pandemic.
And our opportunity we remaining in the early and things and driving towards the company's long term potential and are poised to deliver shareholder value as we execute against our strategic plan.
This concludes our prepared remarks, and I will now turn the call back over to Brian to moderate the Q&A that's it.
Thanks and.
And then we begin and Q&A section of our conference call and want to take as many questions as possible from the afternoon.
And the 2 and then re-entered the queue should you have official.
Bruce Please provide and instructions and were then ready to take the first question.
Absolutely the ladies and gentlemen, if you have a question at this time, please past 5 and the number 1 key on your Touchtone telephone is a question and that's being asset are you wish team and they'll get sauce and the cute police breast of hockey.
Yeah first question comes from the lineup John a cracker from William Blurry line is open.
Hi, Thanks, very much guys.
And then can you maybe just you know now that we're a year beyond and that sort of initial surge of prescription management and kind of reflect on what has been stick and what has been proven to be a little bit more temporary and and sort of as a result of that what you view the kind of longer term growth out look for for a prescription management is it still sort of and that.
30% range.
Yeah.
John and good good to hear from you I think is.
And we look at the business, we continue to see lots of positive momentum and and data points.
And initiatives like integrating prescription management, and Japan is clearly starting to pay dividends and it's still early days, but while we see in terms of proactive prescription is that come right out of the and the point of care.
Starting to drive from the velocity and the business. We've also added a bunch of new accounts, which will pay dividends and.
In the future year.
Firstly on.
On the prescription management side Ah you had I think I've mentioned last quarter of the drinks 1 good around 40% YY growth and and.
And and that much was at 46% YY. So how did things shapes, and then and was there any.
Elemental force pull forward from 2 <unk> from Tokyo, and just talked and also in the context of the wise guidance for the prescription management business I was.
Back pain that since the integration of payments with a prescription management and may probably see better or accelerated revenue growth, while under side and it's not going to be immediate but.
The second after years seems to be slow and expectations. Thanks.
Yes.
Start by talking about.
Second quarter growth and I haven't seen.
Really sore and and timing issue between first and second quarter, but what I think is really important.
And 2 years back because the call is so difficult last year. When we were up 66%. So if you take a peek at a slide 14 and in the back you will see the.
2 years back for the 85% which represented.
And acceleration from Q1 and in fact, where we've been in queue for on queue through so I think it was.
Solid quarter not quite as good as we thought for this band mentioned, we faced the free tomsic.
And about Madonna from.
And a lot of the last song and also shift and when you lose the authorship it kind of gum for awhile, and it's not like and almost supply constraints supply and comes back home. So we've got a book also to windows back and.
And then if I could give us too full year.
With guys and a range of 528, and 568 million 548, and a moot point we've.
We've now and reduce the phyllo 528, so we basically taken $30 million out of the year.
<unk> is what what's happened.
Q too and what we've effectively model tiers of that repeats itself and.
83, and the 4 all around the uncertainty of.
Of the glass situations.
Thank you and may be able to.
Follow up there can you describe the major categories now available on prescription management and are they any opportunities for you to introduce new categories. There.
Yeah, absolutely I agree and you kind of look out further.
And.
And to the subject during the business and there's kind of 2 factors that will focus on 1 and using our access to the consumer through the value of court.
And doing exactly what you are saying provided and new opportunities byproduct beyond and say preventative and die and we started to do that but it's very early days and there is absolutely opportunities. So you would start to see that may be average order value and got a lot.
Or.
The number of purchases that happen and a period of time, so that definitely is an area of focus and the business. It hasn't been historically, but it will be this decade is really using the technology access and that we have to integrate prescription management and so we've talked a bit about and have it on the same side.
Well and this is obviously and a key area that we're driving at so as we go into 22 and 23, and we would expect those offerings to be really very connected 1 and consumer experience.
With the bat, regardless of how you are interacting with that and so lots of opportunities to expand Sarah and wallet.
And strength and the best at bond as we move forward.
Thank you.
Thank you and next absolutely have Casey try and gain from credit sales Chinese up and.
Thanks for taking my question and can you speak to the underlying drivers and strained per call Tonight.
Hi changed since quarter and how have you involved your strategy to drive the market share gains and for the past couple of years and then from there and how should we think about and the second half prospects are not business and some of the key factor and it's better than me.
Thanks.
Survey. Thank you for the question. So first there's obviously this strong and market growth I think you see that amongst off and all of our fears and the category in terms of picking up market share, which we've continued to do it's clearly coming from 2 main areas of focus from the business 1 was our decision and unit.
By our sales force and have 1 face a customer.
That's starting to pay dividends and it's really continuing with salary across the business second is we have an unparalleled collection of assets that there is no player in North America that can walk into a customer and say we can help you on distribution and logistics proprietary brands compound and 10.
Prescription management and now wellness.
And as you know from public talking to customers.
They have a lot on their plate and and someone can come in and connect all of the different offerings and not just make it easier to be service, but have really and interoperable environment between them and you really have an opportunity to move the needle on behalf of your customer and 4 per Patrick.
Hello.
And this training and so on the line.
And you have actually don't ask price.
Okay.
Okay moving on and you also have a question from John block from <unk> and I need all day.
Great Hey, guys this stuff and learn per job and thanks for the questions.
And shown up with prescription management, and maybe next year and I understand you're working through this year some of the double row costs with the compounding facilities and then there's been spend around software integration.
I guess, we're of 2022 is they're incremental spend we should be mindful of or do you think we can start to basically see some leverage returned from the business.
And.
1 thing we've been very mindful mindful also so we've been growing that business.
Is getting the dropdown from incremental revenue too adjusted.
And to 20% range. So that's sort of guidance this over a 12 month period.
So you will see is.
Largely live within the most and strengths and maybe a little bit lumpy and bumpy from quarter to quarter, but that will.
Really and what kinds of the growth.
Got it that makes sense and then more of a longer term question.
Your guidance for full year organic growth of 5 to 6 per cent and I think it's still impressive given the challenges and Europe are kind of persisting and then some.
Newer headwinds and prescription management and the supply chain so.
Those things start to normalize maybe next year is it unreasonable to think about the total business as.
Maybe a sustainable high single digit growth longer term and.
Maybe not just above market and single digit growth. Thanks, guys.
I think a lot of is predicated on how you, what's gonna happen and the and market.
Obviously, our market has been robust.
And we feel like we will continue to certainly get above market growth and those areas and life prescription management and as we go forward and and the numbers get Margaret starts to us and fluid.
Fluency overall.
Growth rate of the business, where it might not have and in the past.
But certainly.
Hopefully only have an appointment and then in Germany, and 1 UK and we're passing those and and we will be growing above that and we expect to continue to have outside and market growth and.
North America and Australia.
It really comes back to how you model and the and market, but we feel like we're going to be able to continue to grow rapidly and grow at are evolving and market and the year of your car.
Great. Thanks.
Thank you moving on and I also have a classroom from Nathan Ranch from Goldman Sachs, Caroline yourself and Sir.
Great. Thanks for taking my question I, just wanted to follow up on me a supply disruption.
And the prescription diets I guess, how much visibility do you have on when we might see this normalize and has there been any impact on attach rates to drugs. As a result of this and can you maybe just talk about the profit implications as well from losing the sales.
Yeah. Thanks for your question and Nathan.
So in terms of visibility into what's going on and we have high visibility. We don't have a lot of control over what's happening and I don't think we have great visibility when it rolls and.
I think.
You spend time with those manufactured all of them are apathetic being driven by accurate the API of Korean and some of it to be driven by assets of labor. So even if they have the product and can't get it out the door. So it's been really challenging and it's been covered and the price and I think as I said and my earlier remark I think some.
Diet products.
That's really helpful..1 of the other dynamics that's.
Ben talked about recently has been just changes in consumer behavior as some of the restrictions that a lot of vet practices had an in person visits have lifted I guess have you seen any impact on channel dynamics or any changes and competitive activity.
As a result of this like kind of returning to a kind of a more normal environment.
You know on the on the fringes.
Day.
And again look at the core underlying fundamentals of the per.
Prescription management business and math, you called out the 2 year stack of close to 80.
And north of 80%, you basically had condo diet plus with year over year comp.
Grew 17% sequentially at our highest quarter ever.
Through basically 20, 22% after a year, 66% growth in 'twenty, 1 and so I think I'm sorry, there are incidences of where someone who used to get it delivered at home and then they've gone back and clinic, but.
All of the data point that we have we just continue to see velocity and.
And that business and if it weren't for the supply chain.
I almost think we wouldnt be having a conversation.
Great makes sense, thanks for the questions.
Thank you. Our next question comes from the line of Elliot Wilbur from Raymond James Your line is open.
Thanks. Good afternoon question from Dan just going back to slide 5 and the deck. When you talked about some of the various branded and proprietary product.
<unk>.
Are there significant margin differences between these individual and.
And endeavors and Im wondering if you could talk a little bit about sort of the relative performance of these efforts within the Rx management platform versus on a.
A stand alone basis.
And I wanted to ask a question on the Rx management itself in terms of just adding new.
Practices.
And the relative ease of doing net in the current environment degree of competitive intensity and just sort of where the new wins are coming from is it new practices competitive wins and there's still a lot of white space in terms of practices that don't have.
Don't don't have practice management systems, but just what the incremental.
The opportunity is there thanks.
Yes.
I'll try to go through your questions 1 by 1 please.
And how do we use that channel to push our own proprietary products and as long as it obviously makes sense for our customers and the pet owners that they serve but it is absolutely an opportunity and.
And when you think of things.
Consumables ex our generics.
Nutraceuticals.
It's definitely a lot of opportunities to expand the average order value that happens on the platform and do it at a much higher margin and then some of the third party products that run on top of the business.
In terms of your last question.
The last 1 was adding new practices and with adding new Frac and sorry. Thank you Matthew.
And the last person and adding new practices.
We estimate we're close to 12000.
Somewhere around.
And 2 thirds.
The market had some sort of solution and either homegrown or.
And third party, we're obviously the clear leader in the market. So there's definitely opportunity out there the majority of the new practices are coming.
Actually from a combination of switching as well as at White space. So there's a lot of running room, both in the engagement on the existing practice as well as adding new practices to the platform and I think.
And just the letter a little bit more color on why do you only need to go back to Q3 of last year and we were up.
10900, and practices and the middle of a pandemic now were 11700 and sort of the trajectory is pretty good. It is difficult and I think this is your last question in the moment to get our practice to focus I mean, when you spend time with customers. The first thing they're going to tell you and I don't have enough that narrowing and I don't have enough backpack and I don't have and.
Practice managers and barely can see the people I have so that idea of implementing new software are changing work low it's something that they're not eager to do yet at the same time, they understand and long term implications of not having and e-commerce solution and that's.
Where we get the pick up.
Thank you and your next question comes from the line of David Rustenburg from Guggenheim Securities. Your line is open.
Hi, This is John on for David Thanks for taking my question.
So just in relation to the.
Prescription medicine business, how should we think about.
Net practice adds and whether theres been a significant like effect from the Covid environment.
And cases relating to the Delta variant.
Sorry, John could you repeat the question Im not sure I was following what you were asking.
Has there been a significant effect on your ability to make.
Make a practice adds during the quarter because of the increase in.
And concern about the Covid environment.
No I don't I don't think so I think if you just go back to the beginning of the pandemic ever since then.
Have a little bit more of a challenging environment because it is and considered sale and it is a workflow change from the customer so.
I don't I don't think it's really changed from Q.
Q4.
Thank you, though and I'm, Florida question at this time, ladies and gentlemen, this Guy goes today's conference calls and they go all for joining human I'll disconnect.
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And.