Q3 2021 Covetrus Inc Earnings Call
Good day, everyone and thank you for standing by and welcome to the Covid trusts third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode and after the Speakers' presentation. There will be a question and answer session to ask a question. During this session you will need to press star one.
One on your telephone and if you require any assistance. Please press star zero. Please be advised that today's conference is being recorded.
I'd now like to hand, the call back over.
Do you have a speaker today, the vice President of Investor Relations. Mr. Nicholas Jansen. Please go ahead Sir.
Okay.
Good afternoon, and thank you for joining us for Covid cases.
2020 earnings conference call.
On this afternoon's call or bad Wallin, 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 other 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 expectations for future financial business operational performance and operating expenditures Forwardlooking statements, maybe identified with words such as well.
<unk> elite should or similar terminology and the negative of these terms.
Forward looking statements are not promises or guarantees of future performance and are subject to a variety of risks and uncertainties.
All of which are beyond our control, which could cause actual results to differ materially from those contemplated in 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, and other periodic reports filed with Securities and Exchange Commission, which are available on the investors section of our website at IR Dot mattress Dot com.
And on the SEC's website at Www SEC Gov.
Forward looking statements speak only as the date of 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 third quarter 2021 results and the accompanying slide deck for this call on IR Dot <unk> Dot com.
The release and presentation also contain further information about the non-GAAP financial measures that we will discuss today. Please.
Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results.
With that I'll turn it over to bank to provide highlights beginning on slide three.
Thanks, Nick and welcome back from Europe, returning to <unk>.
Good afternoon, everyone and thanks for joining us today.
Everyone is staying healthy getting vaccinated and is gearing up for hopefully a more normal upcoming holiday season with family and friends.
On this afternoon's call I will briefly discuss some of the highlights from the quarter and then focus the rest of my prepared remarks versus this broader technology strategy, which is a key pillar of the company. The overall value proposition for our customers and a long term driver of value creation.
<unk>.
Now turning to the third quarter <unk> delivered solid performance in Q3 with good execution by the team as well as continued healthy end market demand.
North America had another great quarter, where non-GAAP organic net sales grew 12% year over year and non-GAAP adjusted EBITDA increased by 22% year over year to $55 million as a broader value proposition continues to resonate in the market.
With the exception of Germany, and the U K all other markets, our technology offerings and our proprietary brands delivered solid results, leading to a 10% year over year increase in total gross profit and 110 basis point increase in gross margin.
Unfortunately, we did not have our historical flow through from gross profit to adjusted EBITDA.
$5 million of intercompany loan FX headwinds year over year, and $3 million of unanticipated legal fees tied to redevelopment, which created an $8 million year over year headwind in corporate expense.
One of the clear highlights of Q3 was the Reacceleration in net sales growth within our prescription management business in North America, where net sales increased 24% year over year this compared favorably to the 19% year over year growth delivered in Q2.
Currently the number of proactive prescription continues to increase and the visibility we have to increase adoption of our Autosave service continues to grow.
As in every quarter since going public all cohorts going back to the original cohort in 2012 continued to grow double digits and our most recent cohorts in 2019 and 2020 at ramped faster than any thoughts before that.
We also showed excellent leverage in this business during Q3, our non-GAAP adjusted EBITDA more than doubled.
Year over year and increased 18% sequentially.
Business is now on pace to deliver more than $40 million and non-GAAP adjusted EBITDA in 2021, which compares to a breakeven business just two short years ago.
In the quarter, we delivered a 10% non-GAAP adjusted EBITDA margin in prescription management, which highlights the long term potential for margin expansion to consolidate because as this business grows alongside our other high margin solutions, including 10 Wellness plan administration communication solutions payments elusive smart.
And our proprietary brands.
As highlighted in earlier announcement, we took a major step forward on this portfolio during the third quarter the acquisitions of <unk> the market leading platform for wellness wellness and a point faster a provider of integrated communications loosen for veterinary practices.
We are clearly investing in these new capabilities and in our next generation technology, and we see significant opportunity to scale. The total portfolio as we leverage our channel access and our integrated ecosystem of solutions.
Although we often focus on prescription management on these quarterly calls it is important to note that with our recent growth our combined technology offering across prescription management Global software services and Smart App is now at nearly $800 million in annual sales and approaching $100 million and non-GAAP.
The EBITDA.
That is a substantial technology business in almost any industry.
This provides a great segue to slide four and the opportunity ahead for <unk>.
The company everything we do is centered on helping veterinarians drive better house and business outcomes, while investors have come to appreciate the steady growth and scale of our implant supply chain and proprietary products businesses around the world our unique value proposition to our customer base stems from our portfolio of technology solutions that drive.
Efficiency revenue growth and better pet health as we strengthen our relationships with our customers and their pet parents let.
Let me explain how this actually works.
And at a COVID-19 could powered practice, a pet parent against their journey by booking an appointment via <unk> online booking tool disappointment is followed up with text and email reminders from our communications platform. Once at the practice of veterinary manages this patients using our industry, leading practice information management system or <unk>.
Which provide medical record storage treatment path and workflow solutions.
Straight out of the pins and right at the point of care veterinarians can now proactively prescribe medications and have that medication delivered via our prescription management solution straight to the pet owner at home.
The same e-commerce solution pet parents can also sign up to use auto ship program and receive personalized medication from our compounding pharmacy to drive compliance and provide financial visibility to pet parents, a commensurate practice can now enabled care plan by our wellness plan administration solution, creating a subscription relationship with pet parents.
Back at home Pet parents can shop online with their veterinarian manage their prescription and communicate with their veterinarian via telehealth platform.
It is disconnected practice that allows the veterinarian to run an effective and profitable business.
This portfolio that drives the connected practice has already seen significant upgrades over the last nine months and we will continue to improve over the next year.
Highlights include first the launch of our next generation cloud based Siem solution, which are now live in Australia, and launching a beta in the U S. This quarter second significant enhancements to our integrations with diagnostic and imaging.
Third continued improvements to our leading on premise Tim solutions ABA market inform that.
Tight integration of Bcp's Wellness plan administration software independence, and our E. Commerce solution further strengthening the relationship and fifth a complete blending of prescription management and Tim to support data interoperability improved workflow and a better standard of care a true operating system for the practice.
Yes.
With such a substantial technology business, it's hard to say that we are just at the beginning of our technology journey, but it is true over.
Over the coming quarters and years <unk> metrics will continue to enhance our solutions all with the intent of helping veterinary MCC.
With strong end market growth and industry, leading technology platform. It is clear that our future is bright.
Now I'll turn the call over to Matthew to discuss our Q3 financial results.
Good afternoon, everyone and thanks for joining us today I'll now review, our third quarter 2021 financial results and provide additional commentary on our full year expectations.
Most of my comments will be on a non-GAAP results where applicable.
Please refer to today's press release for a more detailed description of our third quarter 2021, GAAP financial results and reconciliation of non-GAAP measures to GAAP results.
Starting on slide six.
<unk> non-GAAP organic net sales increased 3% year over year, our non-GAAP adjusted EBITDA decreased 2% year over year to 58 million.
The previously disclosed challenges of UK, and German businesses, as well as unanticipated FX and legal related costs negatively.
Negatively impacting consolidated results and marks another quarter of strong performance in our North America and APAC.
And emerging market segments.
We encourage you we delivered 110 basis points to <unk> gross margin improvement during the third quarter.
<unk> positive trends across all three of the company's operating segments.
And we continue to scale prescription management.
Non-GAAP adjusted EBITDA more than doubled.
Yes.
Additionally, underlying cash generation was strong with $45 million of free cash flow in Q3.
Net leverage ticked up modestly in Q3 because of the M&A activity that's been referred to earlier.
We anticipate returning to our targeted three to three and a half times net leverage range in Q4.
Now turning to the details on slide seven.
First net sales were $1 6 billion in Q3, an increase of 3% year over year on both a reported and non-GAAP organic basis.
<unk> healthy companion animal end market demand across many of the company's markets.
Against the backdrop of more challenging year over year comparisons as we lap the surge in volume during the second half of last year types of COVID-19 market dynamics.
The previously disclosed challenges in our UK and German markets continued to impact year over year results with non-GAAP organic net sales growth negatively impacted by approximately 700 basis points.
While these markets have stabilized operationally, we have not yet seen order tougher than sales volume, which has impacted profitability.
We will be taking further action on that front near term to better align our cost structure.
Moving to slide eight.
Consolidated Q3, <unk> gross profit increased 10% year over year with gross margin of 18, 6% expanding 110 basis points versus prior year period.
Encouragingly gross margin expanded in all three of the company.
The underlying margin strength was driven by healthy growth in the company's technology E Commerce and proprietary products and services with gross profit increased 23% year over year led by strong performance in prescription management.
Collectively these businesses now represent 45% of the company's consolidated gross profit.
An increase of 400 basis points versus the prior year period.
200 basis points from the second quarter of this year.
Turning to slide nine non-GAAP adjusted EBITDA was $58 million in the third quarter of 2021 compared to $69 million.
In the prior year period.
The 2% year over year decrease reflected a decline in profitability in Europe.
Due to a combined $6 million negative impact from the challenges in the UK and in Germany.
As well as higher corporate expenses, including a $5 million negative impact year over year from changes in foreign exchange company loans that are included in our non-GAAP results and a $3 million year over year increase in legal and professional fees tied to recent developments.
These headwinds more than offset another strong quarter of growth and margin expansion in North America.
In emerging markets.
Non-GAAP adjusted EBITDA margins were 5% during Q3 of 20 basis points year over year decline reflective of the headwinds and corporate just listed.
I would also highlight incremental freight equity.
And counsel during the quarter.
Now being repriced into our product offerings for Q4, and an additional $1 million to $2 million impact year over year from the rebound of certain sales and marketing expenses, primarily travel and entertainment as COVID-19 restrictions have eased at trade shows as a response to the post once again.
Moving to our operating segments beginning on slide 10.
North America net sales increased 13% year over year in Q3 on a reported basis and 12.
One 5% year over the long natural gas.
Yes.
Segment, adjusted EBITDA increased 22% year over year in Q3 with segment adjusted EBITDA margins expanded 60 basis points.
Versus the prior year period, reflecting the increased contribution from higher profitability generating areas of business, including prescription management, and <unk> branded products and incremental operating expense leverage.
Drilling deeper into the North American segment trends starting on slide 11.
Supply chain non-GAAP organic net sales increased an impressive 11% year over year.
Maturity.
What was the robust economy of scale and the growth rate of 10%.
Collective a strong sales execution and a healthy companion animal end market as well as continued strength in our <unk> business.
Supply chain non-GAAP, adjusted EBITDA increased to $34 million for the third quarter compared to $31 million in the prior year period with a strong topline growth, partially offset by increased freight costs and labor pressures.
Moving to software services the business continues to perform well and now includes the very modest contribution from our <unk>.
<unk> back in July.
We expect additional investments near term awards that unfold.
The building out of our suite of next generation technology solutions.
Including our new cloud based practice management software have been hotline Sidoti in his remarks, the seasonal launches anticipated just to accelerate the trajectory of our software and net sales in the second half of next year and beyond.
Turning to slide 12, and our prescription management business in North America.
While supply chain constraints for certain products, particularly done in two months.
We were pleased with the overall reacceleration in growth in that business. During Q3 with net sales of 120 months $129 million up 24% year over year or 26% when excluding the headwinds from a changing corporate policy related to how we recognize the importance of the menu.
For incentives, which are now included reductions in cost of goods sold.
Same store levels also bounced back to 20% year over year growth.
<unk> continued strong engagement by our existing network.
Currently the practice customers and pet owners.
Clients.
Yesterday prescription management net sales are up 25% year over year or approximately 27%.
When excluding the accounting change.
Of note when excluding prescription volume sales in both periods prescription management net sales increased 30% year over year, highlighting the underlying health of the business.
Encouragingly, we saw signs of stabilization in the prescription diet food categories exited in Q3.
This combined with the anticipated settles withdrawn and for our customers during cyber week and month.
Should enable a solid finish to the year.
In total full year 2021 prescription management year over year.
<unk> should increase by approximately 25% or 28%, excluding the accounting change.
Turning to profitability Q.
Q3 prescription management non-GAAP, adjusted EBITDA was 13 million or more than doubled to $6 million reported in the prior year quarter.
This represents a 10% non-GAAP adjusted EBITDA margin during the quarter.
And reflects the team's those will focus on driving increased profitability after several quarters of increased investment.
On an LTM basis, and normalizing for the legal challenge in Q4 2020, we converted approximately 11% of the Euro dollar growth in prescription management payables to non-GAAP adjusted EBITDA.
We continue to target approximately 15% flow through for all of 'twenty one despite the duplicate costs from opening out in compounding pharmacies and Wendy on the ongoing headwinds we've previously discussed.
Turning to our Europe business segment on slide 10 non.
Non-GAAP organic net sales decreased 11% year over year in Q3.
The previously disclosed challenges, we are experiencing U K, and German markets, which negatively impacted organic growth by 19%.
More than offsetting healthy beverage demand fundamentals across the rest of our European markets.
Our businesses operating in Ireland, the Netherlands, and Czech Republic. Once again were notable contributors to our results with strong performance in proprietary brands in a number of our markets as well.
We are taking concrete actions to address the UK and Germany challenges, including leadership changes and cost cutting and expect those markets to return to growth in 2000, and 2020 and 2022 as we anniversary the headwinds and benefit from our new commercial assets in these months.
Turning to profitability, our Europe segment adjusted EBITDA in Q3 decreased 16% year over year to 16 million with margins declined 20 basis points year over year foreign offset.
The UK and German markets represented a combined $6 million a year over year negative impact to profitability in Q3.
These challenges more than offset the growth seen in the rest of Europe and the benefits from increased penetration and proprietary brands.
Moving on to our APAC and emerging markets segment on slide 14.
The team delivered a 4% year over year increase in non-GAAP organic net sales in Q3 on top of the exceptional 16% organic growth rate reported in the prior year period.
<unk> another quarter of strong sales execution, despite the challenging times.
Australia, and Brazil delivered healthy on a single digit year over year non-GAAP organic net sales growth during Q3.
Segment, adjusted EBITDA increased 25% year over the near term Q3 segment adjusted EBITDA margins expanded by 120 basis points year over year.
Driven by 40 basis points of gross margin expansion and the ongoing operating leverage from strong demand cycles.
Now turning to the balance sheet on slide 16.
We generated $45 million in free cash flow in the third quarter.
Leverage ticked up to three eight turns as a result of the $81 million spent on the two acquisitions completed in Q3.
We ended the quarter with $495 million and available liquidity and approximately $1 90 in terms of headroom under our net leverage covenant as defined in our credit funds.
We expect our net leverage will come back within our targeted range by year end driven by growth in adjusted EBITDA During Q4, our normal seasonality of our cash flows.
Now I'll turn to our 2021 guidance as outlined on slide 16.
We continue to forecast non-GAAP organic net sales growth of five 6%.
The outlook includes a slightly higher net sales previously expected in North America, and APAC and emerging markets.
With Europe, continuing to be impacted by the challenges in UK and Germany.
As a reminder, these two markets are expected to negatively impact because that trust is consolidated organic net sales for 2021.
One.
On approximately 600 basis points.
Looking at non-GAAP adjusted EBITDA, our outlook also remains unchanged at $245 million to $255 million.
But now includes the added legal professional fees and FX headwinds experienced during the third quarter.
As we look at year over year growth in adjusted EBITDA for the fourth quarter, we anticipate another quarter of healthy growth in North America. We expect continued strong performance in prescription management profitability.
Including the number of taking the posture is lethal expense and improved results in supply chain.
This growth is partially offset by increased corporate costs.
Flexing the non repeat of favorable FX in the prior year period.
We are also monitoring the vaccine mandate in the U S.
Potential disruption that may have on that business and thats the function of us, but have not yet incorporated this into our outlook given the many unknowns at this stage.
Looking ahead, it's too early to comment on our detailed 2022 plants, but based on the available information we have today.
Preliminarily targeting an overall modest acceleration in non-GAAP organic net sales growth and non-GAAP adjusted EBITDA growth in 2022.
As anticipated 2021 growth rates.
This is driven by the lapping of the specific challenges in the UK and German markets, which collectively are expected to negatively impact 2021, non-GAAP adjusted EBITDA by more than $15 million year over year.
Additionally, we anticipate continued healthy growth with net sales and profitability infrastructure management.
The improvement in our software growth outlook with multiple new products coming to market in 2022.
We also anticipate general stability in our supply chain businesses around the globe with continued focus on Brian on that margin proprietary brands.
Some of this growth will be offset by higher.
<unk> costs.
Yeah.
Thanks, Ben Hey, now we begin the Q&A section of our conference call. We wanted to take as many questions as possible from the analysts. So we ask that you limit them to to reenter the queue should you have additional ones. So.
Delfin, please provide instructions and when we're ready to take the first question.
Yeah.
Yes.
Operator, we're ready to take the first question.
Thank you here. So first question John Kreger William Blair.
Hey, Thanks, guys.
Maybe my first question.
You guys could just kind of go over some of the.
Nor is that had impacted your numbers in the last couple of quarters, and where you think those items go in the fourth quarter. It sounded like you think the therapeutic food issue is maybe about to be alleviated. So if you could just clarify that and what sort of assumptions, you're making on that FX and legal cost item. Thanks.
Yes, Thanks, Joe.
Therapeutic side, we saw things begin to stabilize as we exited Q3.
I think to count my chickens before they hatch.
Volatile situations when you fall.
Bob Your line is.
Take much of a bomb so knock you off track so I'd say we're wildly.
Positive on the outlook for that but certainly not a return to normal.
In the immediate short term, we still got quite a few skus on material last quarter, but better than we will on.
The other two big items, we had some headwinds in the quarter on FX on the intercompany loans.
We assume in our guidance, but we will not have a headwind or tailwind in the coming quarter. So we're basically assuming exchange rates stay flat.
Well I was going to market in Q4 are in beta.
We will continue to focus on the integration of our prescription management into the assumes platform, which we're very excited about and then some of the more recent areas like our wellness plan administration through.
Through the acquisition of DCT.
We feel like there's just tremendous runway there and I'm getting.
Lots of positive support from from customers. So you know the tech business as I mentioned in the prepared remarks is almost $800 million in revenue, but we're feeling like theres, just tremendous market opportunity general secular shifts.
In our favor going online and it is right to invest in that opportunity. So.
It was it was great to see the Reacceleration of the business in in Q3 versus Q2.
So we're feeling pretty bullish about the prospects for the tech platform and all of the things that surround it.
Sounds good thank you.
And our next question is from Jon Block from Stifel Go ahead, Sir.
Hi, guys. This is Tom Stefan on for John Thanks for the questions.
I want to start off with the 2022 preliminary guide on adjusted EBITDA.
Matthew I think you said.
You know the Guy just for it to accelerate so if it were to accelerate from the.
10% growth implied in the guide for 2021 to call. It 12%, 13% for instance, I think that'd be roughly.
$30 million of EBITDA dollar growth and I guess my question is at a high level, how should we think about the contribution between prescription management and the rest of the business is it 50 50 or <unk>.
Can you maybe have confidence in one area of the business over the other.
Yes, I mean, we will see.
When you flip it and they start over a rolling 12 month period because of the Lumpiness from.
Bumping is suddenly investments, yet, but we feel pretty good about the 15% for this year on a really strong fourth quarter coming up.
And you know what I would think we'd be in that 15 to 20 range as Ben said, there's so much growth opportunity here I think more bias towards the lower end rather than the high end. It feels now so time to grow but we feel pretty comfortable about that yeah. The only thing I would add to Matthew's comments that you know you're looking at a ton.
It'll pharmacy spend you know in the U S alone are north of $10 billion growing very fast you know the prescription management business $500 million. This year that we don't want to sub optimize the opportunity. So we are committed to driving profitability out that out of that business, but we are going to and that's when we see opportunity.
The either directly in the prescription management or really around the things that we think will drive that lifespan.
I'll Miss plans our appointment management.
You know all of those things contribute to the prescription management.
Here going forward.
Got it that's helpful. Thanks, guys.
And for our next question from Nathan Rich Goldman Sachs go ahead Sir.
Thanks, Good afternoon.
I wanted to stick with the prescription management business I guess, you know as you've started to see some of these.
Supply issues. He's have you seen impacted customers come back and.
Ben I don't know if you'd be willing to maybe comment on either the September or October sort of exit rates.
For that business as we think about trajectory into the fourth quarter and Relatedly was there any impact on practices that you could onboard onto the platform. During this period of.
The supply disruption.
Yeah.
Nathan.
A couple of different ways of looking at it I think the supply disruption less of a clinic disruptor.
But proud of the work with the team is doing and confident in our prospects by forward.
Great. Thanks, and then maybe a follow up for you I just wanted to go back to the EBITDA stuff up in the fourth quarter I think with the one time items you called out that would probably get you into the low end of the annual guidance range, if I'm doing the math correctly I. So I guess like maybe outside of those items what are sort of the key factors.
It kind of get would get you to the midpoint or the high end of the range for the year. Thank you.
Yeah.
Yeah.
Hello.
The the aspects.
Illegal stuff, but we will.
Okay.
Improvement.
Search and management and supply chain.
One of the phenomenon.
<unk> three I would say.
Inflation.
I'll put that box in the late in the quarter everything goes to shop in queue for.
Which will which will help us out.
I think we'll be.
So.
Europe.
Thanks for the questions.
And for the next question.
Elliot will be Raymond James go ahead.
Thanks Caffeinated quest.
Question for Ben maybe within the.
North American supply chain business can you just talk a little bit more specifically about the performance of C.
See that branded proprietary products with in that segment I know last call you talked about fairly significant cadence of of new product launches.
And also.
Some geographic expansion there, but just wondering how that business performed within the context of the overall segment.
And for me I guess.
Year ago, so to be doing that on such a large scale number which is about.
$215 million, we're just really really excited and get closer and closer to kind of a 50% magic number that we've been pushing towards getting our own our own products to represent 50% of GP.
Really excellent execution and I think a sign that we're just picking up share.
In North America, specifically.
On all in Spanish business, whether it be third party or our own brands.
And then Matthew can speak about specific challenges and we're focused on and probably give a sense of timing.
On the rebound there yeah, let me take these separately subsidiary or a separate issue.
About Germany first.
What actually occurred.
To refresh your memory, Germany was the loss of 78 to <unk>. So we had to get off as part of the separation and Sean.
And we effectively came off of the TSA in October of last year right in the middle of a pandemic, but what that actually involved was getting out of a shared warehousing situation with Henry Schein into a new third party logistics.
Provide us.
Supplier and warehouse.
Which was which was pretty difficult donlin.
The difficult circumstances as we've mentioned on previous calls the execution of that was COO.
So put it kindly and.
Our service levels to customers, we're really good at unacceptable that resulted in a lot of lost sales.
Starting last October so in terms of timing, we are now beginning to lap that.
So we would anticipate.
Going forward.
Theres not a sales headwind in Germany, although pretty far from a problem on alignment cost structure and I'll come back second.
In the UK the situation that really revolves around two things. So the related we lost a manufacturer and then as a result of losing that manufacturer, we lost the customer and it had a pretty.
Severe impact on revenue and that started in the first quarter of this year. So the lapping of that it's going to take us a little bit long ago.
Obviously big reductions in revenue.
And we need to made corresponding.
Adjustments to our cost structure.
We're working on that as we speak.
Imagine.
Having plans in place by year end.
Obviously in some markets the consultative process around.
Making adjustments to the cost structure can take a little bit longer than expected, but certainly no related to them.
Any visibility yet on that front I think you mentioned some access to new products, maybe I'm heading into next year, but anything else, we should be thinking about.
Ah.
Very any significant shifts here, we are in the beginning of those conversations with the manufacturers and I'd say.
General messages I think people are excited about our omnichannel solution and the differentiation that we bring to the marketplace.
Obviously, there is always puts it based on these relationships, but I don't I don't.
Believe that this time that there's going to be any significant moves positive or negative.
Okay. That's helpful. And then in terms of the prescription management business I mean should we be thinking about that still has a 30% to 40% grower longer term and and I guess, it's more about retention and engagement than it is about adding new platform users, but I didn't notice. It was I guess flat on on a sequential basis was there any sort of reason.
That things.
Yeah, So I think.
We're not modeling are forecasting 30% to 40% I think the the numbers of the Misfiring you kind of always been sticking to what we think is appropriate part of it is just the law of large numbers here scale.
Growth is going to come from both at new adds to the platform at engagement on the platform. If you look at the number of consumers on our practice space. It it's still a very small number so.
I feel like there's lots of running room in the distance business.
There's lots of running room for Us Avenue, new customers to the hospital.
And I think if you look at practice said since you look back at last year, when we want a flat in the same quarter.
To get into practice.
Practices.
So the holiday season, but we'd expect that to pick that up again.
Okay, great. Thank you.
And for our next question.
<unk> Ah Buckley go ahead.
Good evening and thanks for the question.
So getting back to cushion management again can you call up some of the bank shifts at least in terms of the conversations that you're having.
And can.
Can you do you have any further updates on this and also let US know if you need to take any prohibitions too.
Make for a potential trial, a settlement going going forward.
Yes.
Philosophy.
Comment on active mitigation, but what I will say is we feel very comfortable in our position.
We know that.
Well situated as we are the only business that is truly trying to drive a positive outcome for the veterinarian whether that be out care outcome or a business outcome and that veterinarians are well within their rights to promote their own pharmacy. So.
Has been hard for me to see the response in the marketplace from our customers who are waking up so that the kinds of disintermediation and that an online retailer like Julie.