Q1 2022 Covetrus Inc Earnings Call
Good afternoon, My name is Abigail and I will be your conference operator today.
This time I would like to welcome everyone to go Vetches first quarter 2022.
Earnings Conference call I would now like to turn the call over to Mr. Nicholas Jansen Vice President Investor Relations. Please go ahead.
Okay.
Thank you Abigail good afternoon, and thank you for joining us because mattresses first quarter 2022 earnings conference call Joy.
Joining me on this afternoon's call are Ben Walden, our President and Chief Executive Officer, and Matthew Foulston, Our executive Vice President and Chief Financial Officer.
Ben 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 management's expectations for future financial business.
Operational performance and operating expenditures.
Forward looking statements maybe identified with words, such as will expect believes 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 many 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 the Securities and Exchange Commission, which are available on the investors section of our website at IR Doc debentures dot com and on the SEC's.
Website at Www Dot SEC Dot Gov.
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 you.
You can find this afternoon's release announcing our first quarter 2022 result, and the accompanying slide deck for this call on IR docs vectors Dot com.
The release and presentation also contain further information about the non-GAAP financial measures that we'll discuss today.
Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results.
With that I will now turn it over to Ben to provide the highlights.
Thanks, Nick Good afternoon, everyone and thank you for joining us I hope, everyone is well and staying safe and I look forward to seeing many of you. Many of you in person at several of our events and presentations later this year.
As usual our prepared remarks are accompanied by a presentation that can be found on our IR site.
Now, let's get started on slide three.
The first quarter represented a strong start to 2022 for Covid dress, despite a tough year over year comparison.
<unk> headwinds due to the recent strength of the dollar and a dynamic end market total non-GAAP organic net sales grew 6% year over year prescription management net sales grew 24% year over year and non-GAAP adjusted EBITDA grew 11% year over year.
The solid numbers are a result of the continued focus of our team and the momentum of our solutions that drive better outcomes for veterinarians across the globe.
Let me get to some specific highlights.
In North America, we continue to gain market share and in clinic distribution and our comprehensive solution for customers is clearly resonating total North America organic net sales grew 9% year over year, which includes compelling performance from prescription management as you can see on slide four prescription.
Management net sales increased 24% year over year to $140 million and non-GAAP adjusted EBITDA more than doubled to $13 million.
Driving this growth with strength in the auto ship, where net sales increased 50% year over year, and a 30% year over year improvement in sales from veterinarian initiated prescriptions or what we call proactive prescriptions. These.
These kpis not only give us visibility into future growth, but underscore the stickiness of our solution. Most important our auto ship customers are often more compliant with their pets medication, leading to better health care outcomes.
Our progress in proactive prescriptions is driven by the integration of our technology platforms, which we have spoken about in the past by providing an easy to use platform that integrates directly into the Thames. Our customers are more likely to use prescription management driving both better house and business outcomes for themselves and for their pet owners.
Beyond the growth in North America. The company also made real progress on operating leverage as corporate costs declined on a year over year basis. This is the first quarter since the company's inception at corporate cost growth has not been a drag on earnings as we have referenced in previous calls we expect.
The 2022 to be the year when the company with first experienced the leveling out of corporate expense and we're very proud of the progress we made in Q1.
It's impossible for me to not mention that our earnings growth would have been even stronger than reported had there not been a $2 million FX headwind year over year tied to the recent strengthening of the U S. Dollar without this headwind growth would have been 14%.
Let me now turn your attention to some non financial highlights and thoughts about <unk> role in the industry.
<unk> going forward.
As detailed on slide five the company continues to invest aggressively into our technology platform and in the most recent quarter. We made substantial progress against our roadmap first off is the upcoming launch of pulse, our new vet operating system that has all of co mattresses ecosystem of technology built into a single pane of glass.
The veterinary practice. This includes a new enhanced E. Prescribing feature that will now make it even easier to write and renew prescriptions. We've already migrated 2500 practices under the first stage of pulse with the Falcon Virgin expected later this month when it becomes generally available for the veterinary community. This is Ben.
An immense effort by the team and we're thrilled to bring so many advancements to the industry.
Pulse is not the only area of our technology roadmap, we made significant progress over the last four months. We also launched <unk>, our first ever International cloud based practice management software solution.
Sand is coming to market internationally. Following several years of product development and will help fortify our leading software position in the U K, Australia, and New Zealand as well as offer up opportunities to address new customer segments and other geographies over time.
With pulse and us and we will immediately be the market leader in global cloud based solutions for the veterinary market.
With the modernization of our platform, we have the ability to drive more value for customers and high margin revenue for <unk>. For example, I am excited about our recent rebranding and launch of <unk> payments in the U S. A credit card processing solution integrated directly into our industry, leading <unk> solutions by building, a more seamless and integrated paint.
<unk> experience into the suite of software services, including pulse, we see an opportunity to accelerate our value proposition to our customers.
Another example of the power of our platform and integration capabilities is the progress we have made with our veterinary care plans well, we've now made it even easier for customers to launch care plans to their clients through our new enroll pro feature. This feature allows veterinarians to seamlessly sign up in managed care plan clients right out of the veterinary operating system.
Although technology is the innovation in the spotlight at <unk> I would be remiss to not mention the standout performance by our in clinic distribution teams in a world dominated by supply chain challenges are in clinic teams have not missed a beat delivering millions of packages per year are in clinic solution supports approximately 100000.
Global customers and is the backbone for so many veterinarians and manufacturers our logistics network combined with our marketing and sales solutions has made converter is indispensable for the animal health industry.
As you can tell <unk> is in a unique position as the leading company building solutions that drive better outcomes for veterinarians, we bring an omnichannel unparalleled capability to the market, whether it would be consumer connectivity and increased revenue per pet prescription management in clinic supplies to meet the demands of our veterinary practice or workflows.
Solicitor, leading to time saved through our software payment solutions Covid, just is squarely focused on delivering value for veterinarians across the globe and as veterinarians continue to face labor challenges and an increasingly complex operating environment, we know our positioning in the marketplace will only strengthen overtime.
Now I will turn the call over to Matthew to discuss our financials in more detail.
Thanks, Ben Good afternoon, everyone and thanks for joining us today and I will now review, our first quarter 2022 financial results and provide additional commentary on our reaffirmed 2022 financial outlook. The focus of my comments will be on our non-GAAP results, where applicable please refer to today's press release.
For a more detailed description of our first quarter of 2022, GAAP financial results and reconciliations of non-GAAP measures to the GAAP results.
Starting on slide seven with some brief financial highlights.
Q1, non-GAAP organic net sales increased 6% year over year, our non-GAAP adjusted EBITDA increased 11% year over year to $63 million.
Strong performance in our North American segment, and good progress in corporate where expenses declined year over year were the primary drivers to our strong Q1 results.
Encouragingly, we expanded our gross margin and non-GAAP adjusted EBITDA margin versus the prior year period.
And we remain on track to deliver continued margin improvement for full year 2022.
While our net leverage ticked modestly higher during Q1 due to seasonal working capital related outflows on a couple of tuck in M&A transactions, we did reduce the amount of cash used as compared to the prior year.
And we expect to return to our targeted leverage range in the second half of 2022, excluding any additional M&A as we grow our operating earnings and normal seasonal cash dynamics play out.
Now turning to the consolidated details on slide eight.
<unk> net sales were 1.15 billion in Q1.
An increase of 4% year over year or 6% on a non-GAAP organic basis.
North America led the way once again, delivering 9% year over year non-GAAP organic net sales growth despite challenging comparisons from the prior year.
As a reminder, the U S market experienced tremendous year over year growth during March and April 2021, because of reduced vet clinic activity in 2020 during the initial shutdowns related to the COVID-19 pandemic.
This dynamic was expected and built into our outlook, but did create some variability in that month to month results.
Europe net sales were flat year over year on a non-GAAP organic basis with Q1, marking the last quarterly sales comparison.
Two of time prior to the customer and manufacturer of loss previously disclosed in the UK.
Positively, Germany delivered its second consecutive quarter of year over year growth in the rest of our European market continues to perform well growing mid single digits.
APAC and emerging markets also delivered another solid quarter of mid single digit.
Mid single digit growth in Q1.
Moving to slide nine consolidated Quebec Trust GAAP gross profit increased 7% year over year in Q1 to $225 million.
A faster rate than the reported net sales growth of 4% as we.
To make progress in driving our higher margin technology e-commerce, and proprietary products and services throughout our segments during the first quarter.
In the aggregate this collection of businesses gross profit increased 15% year over year.
Seven times faster than the 2% average growth rate of third party products distribution.
And now represents 44% of gross profit as compared to 41% in the first quarter of 2021.
This positive mix shift helped drive a 50 basis point year over year improvement in our gross margin during the first quarter to 19, 6% a record quarterly rate for that for us and a good sign for the future.
Turning to slide 10, consolidated non-GAAP adjusted EBITDA was $63 million for the first quarter of 2022 compared to $57 million in the prior year period.
An increase of 11%.
Year over year growth rates were negatively impacted by more than 200 basis points by the recent strengthening of the U S dollar.
Strength in North America, and progressing Copa what the drivers of outperformance versus out flattish Q1, non-GAAP adjusted EBITDA growth expectations.
non-GAAP adjusted EBITDA margin.
Five 5% was up 30 basis points year over year.
Now moving on to our individual operating segments beginning on slide 11.
North America net sales increased 10% year over year in Q1, and 9% on a non-GAAP organic basis.
This included 24% year over year growth in prescription management, and 7% growth in supply chain, including another quarter of year over year market share gains and companion animal products.
Segment, adjusted EBITDA increased 10% year over year in Q1 with margins flat versus the prior period.
Robust growth in prescription management drove the bulk of the segment adjusted EBITDA growth during the first quarter.
Which helped offset higher logistics costs, and certain inventory challenges and supply chain.
As well as foundational investments in software ahead of an active year for planned new product launches has been described.
As mentioned earlier.
North America prescription management net sales of $140 million.
<unk> increased 24% year over year during the first quarter, including an immaterial contribution from a small tuck in acquisition completed in March.
Importantly, we once again delivered significant operating leverage in this business during the quarter.
With non-GAAP adjusted EBITDA more than doubling year over year to $13 million.
We were pleased with the ability to grow the top line by more than 20% year over year.
While simultaneously, reducing our internal discounting spend for client acquisition versus the prior year period.
This helped drive the strong level of profit growth.
In the first quarter overall, we delivered a 25% flow through of incremental net sales into incremental non-GAAP adjusted EBITDA in Q1.
While the timing of investments can always be lumpy and prescription management.
We remain focused on delivering a 15% to 20% flow through from incremental net sales to adjusted EBITDA for the full year 2022.
Now turning to our European segment on Slide 12.
non-GAAP organic net sales were flat year over year in Q1, demonstrating progress following a more challenging 2021 due to the previously disclosed issues in our UK and German markets.
Our business is operating in the Netherlands, Poland, Romania, and Germany were notable contributors in Q1 that helped offset the ongoing UK headwinds during the quarter.
Of note it was our second consecutive quarter of year over year growth in Germany, and I'm encouraged to share that the UK challenges that have impacted the business over the last 12 months and now beginning to level off as we start the second quarter boding, well for more pronounced European segment non-GAAP .
Organic net sales growth entering the second half of the.
Turning to profitability, our European segment adjusted EBITDA in Q1 decreased 14% year over year to $18 million with margins declining 60 basis points year over year to five 2%.
Much of the year over year decline was a result of the impact from the reduction in our U K net sales as well as the negative FX impact from the recent strengthening of the U S dollar.
We also faced a difficult comparison and proprietary brands given the launch into several new geographies early last year.
We anticipate a return to adjusted EBITDA growth in Europe during the second half of 2022.
Sales trends improve on our recent cost actions deliver anticipated savings.
Moving on to our APAC and emerging markets segment on slide 13.
Our team delivered 4% year over year growth in non-GAAP organic net sales in Q1, reflecting another quarter of strong sales execution. Despite unanticipated headwinds tied to notable out of stock situations in the veterinary diet food category in this region.
And the recent flooding in Australia.
New Zealand and Brazil grew high single digits year over year on a non-GAAP organic basis during the quarter as compared to low single digit growth in Australia for the reasons just mentioned.
Segment, adjusted EBITDA and margins were flat year over year during Q1 with underlying growth offset by the negative impact from the recent strengthening of the U S. Dollar.
Now turning to the balance sheet on slide 14.
Typical of normal seasonal cash flow activity free cash flow was a net cash usage of $44 million in Q1.
After investments in capital expenditures.
However, this was a $28 million improvement versus the prior year period, and we expect to deliver strong free cash flow during the second half of 2022 alongside increased operating earnings.
Seasonal working capital trends.
We are spending we spent $28 million on tuck in acquisitions during the quarter of which $18 million was in cash and we ended Q1 with approximately $415 million in available liquidity, which is comprised of cash and cash equivalents, along with availability under our revolving credit facility.
We continue to have adequate headroom on ground net leverage covenant as defined in our credit agreement.
Now turning to our reaffirmed 2022 guidance as outlined on slide 15.
We continue to forecast year over year, non-GAAP organic net sales growth of 7% to 8% in 2022.
The outlook includes 10% to 11% growth in North America, 3% to 4% growth in Europe , and 6% to 7% growth in APAC and emerging markets.
Our outlook continues to assume market growth rates above 2018 in 2019 levels prior to the start of the pandemic, but below the more robust growth rates seen in 2020, and 21 as end market conditions normalize which started in March and continued into April .
Looking at non-GAAP adjusted EBITDA, our 2022 outlook remains at $270 million to $290 million and reflects 11% to 15% year over year growth.
While the 11% growth reported in Q1 was above our original expectations for the quarter. We believe it is prudent at this stage of the year to maintain our full year outlook as we monitor dynamic end market conditions.
COVID-19 impacts global supply chain uncertainties of escalated alongside the war in Ukraine.
Inflationary pressures rising interest rates and a continued tight labor market.
The recent strengthening of the U S. Dollar has also created incremental headwinds.
That said, we remain confident in the trajectory of our higher margin strategic growth drivers in 2022, including another year of 20 plus percent net sales growth in prescription management in North America.
An acceleration and a global software net sales alongside new product products and.
And above average growth and a portfolio of proprietary brands and <unk> branded products across our segments.
Finally.
While we did while we do not provide specific quarterly guidance given the tougher end market comparison in Q2.
The fact, we have not yet lapped some of the global supply chain challenges that emerged in the second half of 2021.
We expect Q2 non-GAAP adjusted EBIT down.
To approximate prior year levels with a return to double digit year over year growth anticipated during the second half of the year.
With that I will now turn the call back over to Ben for some brief closing remarks.
Thanks, Matthew in closing we are off to a strong start in 2022 and have momentum in our higher margin strategic growth drivers as seen in our better than expected Q1 results and we have a slate of new products coming to market. This year that stand to strengthen our value proposition to our customers pet owners and manufacture.
Partners I'm excited for the future and see a path to significant shareholder value creation as we continue to execute against our strategic plan.
This now concludes our prepared remarks, and I'll now turn the call back over to Nicholas Jansen to moderate the Q&A.
Thanks, and now we begin the Q&A section of our conference call. We wanted to take as many questions as possible. So we ask you to limit them to two and then reenter the queue should you have additional ones. So Abigail. Please provide instructions and we are ready to take the first question.
Sure, ladies and gentlemen to ask a question you will need to press star one on your telephone.
A question best abound at Husky.
Our first question comes from the line of Sunblock with Stifel. Your line is now open.
Great. Thanks, guys good afternoon.
Maybe just to kick it off you ran 5 million better ish on EBITDA than you thought or <unk>, but no raise and Matthew I get it I mean, you just called out of radio.
Half dozen or so reasons why you didn't raise and want to remain prudent but wondering I didn't hear you.
Call out or specify where near term trends in North America and as you can imagine there's a lot of chatter there. So we'd love to get your thoughts on how March and April trends had been earlier I thought you alluded to tough comps from a year ago, but is it just tough comps or if you can elaborate is a more complicated with any capacity constraints at the practices in north.
America or anything even on the demand side of things.
Yes, why don't I kick it off John and then I'll hand over to Ben in terms of how the quarter unfolded started off really strong nearly 17% up in January we were up about 11% in February and then in March we were down two 1% and Thats, how you get to the quarter of seven four that we mentioned.
Interestingly, if you look at it on a two year stacked basis, it's above 20, each month, which really shows you the comp is.
A goodly piece of the issue.
I would say our early look at April and we don't have all the accounting entries and everything yet, but looks to be north of 8%. So.
We're fairly optimistic that March was a bit of an anomaly from the data we're seeing.
Yeah, John the only thing that I would add Matthew kind of listed out all of the challenge is that they're kind of coming across the globe everything from.
Effects of the supply chain.
You know uncertainty in certain markets. So I think thats just driving.
Driving the prudence around the full year guide.
I think as it relates to new North American Youre right Theres definitely been a lot of chatter chatter and while visits have clearly been down I think that covers this value proposition is resonating even more as evidenced by the number I mean, we had 9% growth in North America prescription management grew 24%.
It is clear that we are becoming more essential whether it's driving efficiency for the practice and having one in clinic supply solution or efficiency through software or driving revenue per pass through prescription management. So in some ways the maybe the challenges and the.
And market are better positioning the company in selling the real value that we can bring to a practice.
No it's great to hear great color and maybe just to shift gears on the second question, maybe I can just one for you.
Last quarter, you talked about the build on the inventories and try to capitalize maybe on some of the price increases that were coming through I thought that may unwind this quarter, but clearly it did the inventory built further maybe just talk to us a little bit about that about that is it just again trying to capitalize on what's going on in sort of our play.
There with price increases and if that's the case, maybe more broadly if you can speak to the types of price increases, but some of your partners are pushing through and your ability, which seems to be the case to pass it on through to the to the veterinarian. Thank you.
Yes, I'd say, there's a couple of aspects to inventory early in the year. Our typical pattern is for inventories to build in the first two quarters and you generally see that come through in some fairly tough cash flow, which then comes back to us in the <unk>.
In the back half, but we have continued to take advantage of the pricing environment and to execute in a disciplined way.
Pre buy activity so that is absolutely a tailwind in the quarter, we're beginning to see.
Indications in some cases, a second rounds of pricing, which is pretty unusual in recent history. So we have not factored any of that in but I think to the extent. It provides more opportunity we will absolutely take advantage of it in terms of.
Passing pricing through I think we've done a pretty good job once we got organized after the shock of the inflation in the second half of last year.
Probably pushed through.
Most of the freight and fuel lets say theres, a little bit lingering that we'll get after here quickly.
And obviously on the proprietary brands, we've been fairly assertive in that regard so we're pretty happy with the pricing environment.
Okay. Thanks, guys I'll follow up offline.
Our next question is from Alex Wilbur with Raymond James Your line is now open.
Thanks, Good afternoon.
Maybe just some general commentary Ben and Matt in terms of the overall inflation area environment, what youre seeing in terms of.
Price cost increases versus expectations originally established at the beginning of the year and then what you describe briefly.
Inventory or supply chain challenges.
Those are and what you may be seeing in terms of <unk>.
Cost increases around logistics.
Follow up for Matt just so we can level set so FX was a negative.
2% in the quarter.
But.
What should we be thinking about in terms of the current full year.
Impact thanks.
Yeah, Let me, let me start with the FX and the FX. We're talking about here just to be clear is just purely translating foreign currency profits into U S dollars and obviously as with all our strength and that gives you a headwind what we've assumed.
Our go forward as the FX rates are flat to the average of Q1 so.
I have been wrong more times online and FX and not been right. So we took a fairly simple approach here and there.
That's what our guide is based on.
Going back to.
Freight and inflation.
We've seen.
Really significant increases and certainly when you talk percentages.
By far and away the largest on inbound containers, primarily for my Asia going up 345 fold.
<unk>.
Extraordinarily material, obviously, you see what's happening on oil prices and that's flowing through into into fuel surcharges.
And.
As I said earlier, we've been pretty successful at pushing that through I'd say, we've got a little bit of feel but we're hanging out on about 20% of the last increase but we're going to execute here. Shortly and then we'll be fully caught up so.
The guys have done a great job in the logistics area in terms of securing supply.
Over ordered a bit seeing some of this coming.
I think when you talk about challenges, they're really small little pockets of things, where with tripping up as opposed to anything wholesale.
0.2, or three real small bumps in the road aren't big enough for us to do even talk about from a.
From a supply issue the only one.
Worth talking about and we had it in the prepared remarks was the the diets and in Australia, which is a pretty big headwind and a big chunk of business for us.
And our next question comes from the line of Nathan Rich Goldman Sachs. Your line is now open.
Great. Thanks, good afternoon, and thanks for the questions.
Ben you know maybe just start.
How does what we're seeing right now with the vet traffic in North America impact your outlook for the prescription management business. Obviously, you didn't change guidance, but I guess, if we do see a more prolonged period of pressure on vet traffic does that actually play into the Ares management platform.
In terms of kind of helping the vet clinic saw some of the for some of the capacity constraints and kind of allowing continuation of some of the maintenance or chronic scripts that are.
Perhaps might be taking.
Yes, I think you nailed it actually answered your own question in a sense.
As our customers come under pressure, either because traffic is down or labor is up or the combination of the two.
They are really looking for ways to drive revenue per pack.
I don't have capacity or are seeing a slowdown in sell prescription management clearly does that.
Not only protects them against retail, but it drives compliance and greater.
Connectivity with that that pet owner, so we're seeing an even greater interest in the platform or the utilization of the platform and just as a reminder, I would say.
We're still at only about five or 6% penetrated from consumer utilization at any given practice. So despite having now 12000 customers with those 12000 customers only six only 6% of their clients on average are on the platform. So we view, even if there's a 2% reduction.
Our 3% reduction in visits tremendous headroom on on prescription management and I think Q1 results.
The best signal of that visits were down revenue went up 24% year over year.
And just on the margin outlook for the business. So Matt I think you've kind of talked about continuing to target the 15% to 20% contribution margin.
But did a little bit better in the first quarter.
Could you maybe talk about what drove the outperformance there and.
It does it does seem like there.
There could be some variability quarter to quarter with investments I think labor has also been something that.
Kind of vary quarter to quarter. So could you maybe just.
Talk about kind of how you see that margin cadence playing out for that piece of the business. Thank you.
Yeah, we've been pretty <unk>.
Consistent and I think in talking about this as a target over a rolling 12 month period, and that's generally how we measure it.
So that takes out some of the Lumpiness some bumping this obviously.
As much activity as we've got on the technology side and growing as fast as we all these investments do come in in chunks. So I.
I don't actually worry about quarter to quarter variations in that but I would tell you. The team did a phenomenal job this quarter in terms of a pretty low level of discounting.
And that coincide with not a massive investment on the investment side and we just had a tremendous dropdown but.
At the same or just getting better and better how they're choosing the market, yes, Nathan I'd refer you back to the slide deck that goes along with it.
The presentation as well as the prepared remarks, we quoted that.
Auto ship revenue was up 50% year over year in the quarter and now represents 42% of platform sales and that initiated prescriptions grew 30% and represents 25% of sales. So when you just think about 50% or 40% coming from auto ship, 25% coming from that initiative.
Ascription, that's two thirds of the whole business is being.
<unk>, driven and a very compelling high margin way and so that's what is helping drive the dropdown now we of course want to add consumers to the top of the funnel. So that's where the sales and marketing comes in.
So you keep the engine going but we feel like.
As Matthew said, just great great performance by the team, but really.
It kind of shows the strength of the model.
Thanks, I appreciate the comments.
Our next question is from <unk> Prasad with Barclays. Your line is now open.
Excuse me <unk> Prasad your line is now open.
Yes.
Abigail, let's go to the next caller and we'll we'll see a collage you can come back in.
Next question is from Christian <unk> with William Blair. Your line is now open.
Hi, Thanks for taking my question.
My first one is on the exposure to China that you guys have and the impact of Lockdowns in the quarter and if you expect this impact to be larger or smaller in Q2, and then kind of the same question.
Russia, Ukraine impact.
Yes, just to make sure we heard the question right because the line broke up a bit was the first one China yeah exactly Okay. Let me start with the second one haven't clarified the first one because it's a quicker answer.
Our exposure to UK, Ukraine, and Russia is really limited to I think it was about 85 software developers that we had working there.
And I know <unk> been in contact with them relatively frequently I think work is continuing under extremely difficult circumstances, I think most of them have got themselves too.
Safe of spots and oddly enough internet connectivity seems to have been amazingly. Good. So there still are an important and productive part of the team, but so far I think we've been pretty lucky so.
That's the only impact no sales revenue or sourcing out of those markets.
And then on the China from China is such a small piece of our business that it really wouldn't even be a rounding error. There is business there, but it's not big enough for us to talk about.
Thanks for that color and then my second one is just on your goals to migrate <unk> customers to pulse.
You're targeting by year end or by year end 2023.
So we will have 100% migrated by the end of this month.
And I think so thats about 25, a little bit more than 2500.
New additions to pulse will be either net new to the business our migration from our other existing payments platforms Apple market <unk> I think that we can get to about 3000 by the end of this year.
And have a nice backlog and a tremendous amount of interest whether it comes from our existing customer base or our customers that are using competitive Tim solutions.
Great. Thank you.
And again, if you have a question at this time. Please press star and then the number one key on your Touchtone telephone.
Next question is from Aaron right at the Morgan Stanley . Your line is now open.
Great. Thanks, So it seems youre still successfully able to pass on price here, but are you hearing anything at the customer level. Your vet practice customers any pushback from the pet owner perspective on that front and then just more broadly can you remind us how youre thinking about the resiliency of your business in a.
More challenging economic backdrop.
Yeah, Hi, Erinn I would say from.
Ability to pass on price.
Again, I think the quarter kind of speaks for itself, 9% top line growth, where the industry was certainly not growing at that level.
Second I think if you look at the market share data from third party sources like analytics, you would see that we've been picking up market share basically every quarter since Q1 or.
Q2 of 2020, so no evidence that we're losing share.
And I think if you know.
Our following closely in the industry you see some of our competitors actually following us on price so.
No pushback. The visit is continues to be on the forefront I think in terms of the company's ability to succeed in a <unk>.
Macro environment, that's slowing down I'd kind of point to two things, one kind of micro and macro and the micro basis I think our business is actually very well suited to that environment.
Our technology solutions is about driving incremental revenue to the veterinarian, that's clearly going to be more valuable our software solutions about driving efficiency also clearly valuable and then from the in clinic supply standpoint. If you are looking to try to simplify how you run your practice, it's just easier to go with an all in solution provider.
So I think we're very well situated and then I think from a macro standpoint. If you just look at maybe the last 10 years of animal Health I think you would conclude that it's pretty durable.
And there are no further questions I'll now turn the call back over to our presenters for closing comments.
Thank you everyone for joining our Q1 earnings conference call, we look forward to seeing everyone at upcoming industry events take care everyone. Thank you.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.
Yeah.
Okay.
Yeah.