Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Covetrus, Inc. (NASDAQ:CVET)
Q1 2020 Earnings Call
May 14, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the Q1 2020 Covetrus Earnings Call.

[Operator Instructions]

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

Nicholas Jansen -- Vice President of Investor Relations

Thank you, Elaine. Good afternoon, and thank you for joining us for Covetrus's Q1 2020 Earnings Call.

I am Nick Jansen, Vice President, Investor Relations. Joining me on today's call are Ben Wolin, our President and Chief Executive Officer, and Stuart Gleichenhaus, our Interim Chief Financial Officer. Ben and Stuart will begin with prepared remarks, and then we'll be happy to take your questions.

During this call, we anticipate making projections and forward-looking statements based on our current expectations. All statements other than statements of historical fact made during this conference call are forward-looking, including statements regarding management's expectations for future financial business, operational performance and operating expenditures. Forward-looking statements may be identified with words such as will, expect, believes, should or similar terminologies 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, quarterly report on Form 10-Q and other periodic reports filed with the Securities and Exchange Commission, which are available on the Investors section of our website at ir.covetrus.com and on the SEC's website at www.sec.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. Additionally, statements regarding preliminary financial information covering periods beyond March 31, 2020, discussed during this conference call are subject to the close of the quarter, completion of our quarter end closing procedures and further financial review. You can find this afternoon's press release announcing our first quarter 2020 results and the accompanying slide presentation for this call on ir.covetrus.com. We will continue to use our site to distribute important and time-critical information.

The press release and slide presentation also contain further information about the non-GAAP financial measures that we will discuss during this call. Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results.

With that, I will now turn it over to Ben to provide the highlights.

Benjamin Wolin -- President and Chief Executive Officer

Thanks, Nick, and good afternoon, everyone.

We know this is still a very challenging time for everyone listening in, and we hope you are all safe and managing through COVID-19 as well as possible. To start, I'd like to say that I'm thankful to all the veterinarians and animal health professionals across the globe who continue to push forward and operate as an essential service. Their passion for the well-being of animals and their clients is inspiring and motivates our entire team as we seek to provide even greater value and service to enable our customers to continue to thrive and grow. I'm also very proud to see our team rise to the challenge as I have witnessed and heard of numerous stories from around the globe as to how our employees are going above and beyond normal expectations to help. It is very heartening to see our company in action and keeps me energetic and optimistic about the future.

Now turning to the state of Covetrus. I would like to review three main topics on today's call. First, our overall health as an organization, second, our commitment to our strategy and how we are executing against the core drivers of our business, even amid the disruptions presented by COVID-19, and third, how we have prepared and continued to adapt for near-term uncertainty while positioning our company for sustainable growth through the eventual recovery. As Nick said at the opening of the call, we have included a presentation to accompany our prepared remarks, and I will be referencing some of those slides in the next couple of minutes.

So starting with Slide 3. First and foremost, our top priority is the health and safety of our employees. Throughout the pandemic, our leadership teams have done an excellent job supporting safety measures within our facilities. We have enforced social distancing and increased hygiene and protective measures, and we were able to pre-emptively reduce our on-site staff by enabling extensive work-from-home solutions for over 60% of our employees around the globe. We have augmented our existing protocols as necessary to meet COVID-19 specifics in accordance with local government and health organizations, including illness reporting and case management.

Beyond the physical safety measures taken, we are focused on the support of our employees' overall well-being. From providing online training modules to continuing access to employee assistance programs, we are encouraging professional growth opportunities and team connectivity during these uncertain times. As parts of the world begin to reopen, our planning efforts will anticipate a slow and gradual return of employees to our offices. We will be deliberate in our planning, and we'll maintain our focus on keeping our team and our customers' businesses as healthy as possible. And to do so, our phased return-to-work approach may, in some cases, be more conservative than local regional restrictions.

While COVID-19 has created a new set of challenges for our company and the animal health community at large, our focused approach, which is detailed on Slide 4 of the accompanying presentation, involves executing against the core drivers of our business, emphasizing our commitment to our customers and to innovation and continuously building a culture of success. These are the foundation for both our strategy and new way of working. And our actions and strong Q1 results, including 10% year-over-year pro forma organic net sales growth and $48 million in adjusted EBITDA, both of which exceeded external expectations, reflect the early momentum we have achieved in these efforts.

Turning to Slide 5. To achieve our strategy, we outlined four priorities earlier this year. One, maximizing effectiveness and efficiency. Two, driving proprietary products and solutions. Three, expanding capabilities and developing sourcing excellence. And four, creating a high-performing customer-centric culture. And while we are still early in this process, we have taken a number of significant steps as an organization over the last quarter as we execute against our strategic plan. For example, we made progress on our commitment to improve effectiveness and efficiency and delivering more consistent and profitable performance in our North American distribution business.

In Q1, our distribution business generated 4% pro forma organic net sales growth when excluding the loss of a customer in early 2019 and modestly increased its contribution to adjusted EBITDA as compared to the prior year. And by entering into multi-year renewals with several of our largest customers and winning new corporate accounts in the second half of 2019 and thus far in 2020, we believe our market position is in a much healthier place as compared to this time last year.

Another highlight I would point out is accelerating same-store sales delivered by our prescription management business, as seen on Slide 6. As a reminder, we made the strategic decision late last year to pivot from an enrollment-focused organization toward customer and client engagement as we seek to drive even greater utilization on our platform. While COVID-19 provided an incremental tailwind to our internal efforts in late March, the 25% same-store year-over-year net sales growth and stronger performance out of our 2019 cohort as compared to prior ones are a testament to the initiatives we launched this year across our entire organization. These efforts include, better leveraging our manufacturing partners, improving our software integration and workflow, upgrading the e-commerce experience, and enhancing our marketing capabilities. Importantly, the prescription management business continues to successfully scale their operations with profitability improving both year-over-year and sequentially compared to Q4 2019.

With the support of the external third-party advisor we brought in during Q4 2019, we have also started to successfully execute against the initiatives identified earlier this year that could deliver significant savings from improved direct and indirect sourcing and overall G&A expenses. As we further centralize and coordinate purchasing activity and leverage our global scale, we expect to improve our operating efficiency significantly. We also continue to prioritize service and innovation as we believe additional investment in support and product capabilities, particularly in times like today, strengthen our ability to drive deeper engagement with our sizable customer base.

For example, to help veterinarians respond and deliver continued care during the COVID-19 pandemic, we created specific resources for use by veterinary practices, including launching a series of webinars featuring industry thought leaders, practice managers, and owners discussing strategies and real-world tactics. In April 2020, we also began embedding secure video teleconferencing capabilities across our global suite of practice, information management systems, client communications and prescription management solutions. This new functionality provides a seamless and easily accessible way for veterinarians to service their clients and patients remotely by practicing telemedicine using their existing Covetrus technology solutions. And we are proud that within the first weeks of the launch that we were able to facilitate more than 1,250 telemedicine visits between our customers and their clients.

Lastly, retaining and recruiting talent has and will continue to be a critical focus of ours as it is paramount to building a shared culture of success. And I am pleased to announce several developments on this front. In a separate release issued this afternoon, we announced the hiring of Matthew Foulston as Global Chief Financial Officer, Steve Palmucci as Global Chief Information Officer, and Matthew Malenfant as President of our North American distribution business. We are thrilled to appoint these high-quality individuals to critical roles within our organization, each of whom bring impressive experience of working in and through periods of transformation. It is a testament to our continued momentum and employer brand that we now have a very talented and industrious group of leaders in place, and I'm confident their addition to our team will continue to charter a positive path forward for Covetrus.

Now let me address COVID-19's financial impact on Covetrus and how we are preparing for near-term uncertainty and eventual recovery as well as future growth. To start, our commitment to serving our customers and their clients has never wavered, and our approach remains centered on delivering better experiences and outcomes for these customers. We believe this philosophy has served us well, and we took necessary action to control costs within the business as net sales softened during the last few weeks of March and into April as outlined last month in our Q1 pre-release, while still investing in our team's capabilities and innovation to maintain the momentum of executing against our strategic plan.

We believe our ability to successfully invest in, serve and support animal health professionals during these uncertain times positions us well as we look toward a global recovery in the weeks and months ahead. And we believe some of the emerging market trends tied to the pandemic, including veterinarians embracing technology to stay connected to pet owners, are central to our core strategy and could facilitate new business growth with our customers and drive opportunity for our manufacturer partners. As we consider the near-term financial impact on our business, net sales from our global distribution and supply chain services businesses experienced a negative impact from declining wellness-related visits at veterinary practices, and to a lesser extent, softer clinical activity.

As seen on Slide 7 of the accompanying presentation, a data set from approximately 6,500 of US veterinary practices that leverage our prescription management platform indicate that clinic traffic was down 20% to 25% in late March through mid-April, with trends over the last few weeks showing signs of an ongoing recovery. Patient visits, for example, declined a little more than 10% during the week ending May 1.

Similarly, as seen on Slide 8, the trend line for our business has also improved week-to-week since the trough experienced in early to mid-April, with an 8% year-over-year decline in our global supply chain organic net sales during the week ending May 1 as compared to the 17% year-over-year decline during the week ending April 10. Importantly, our supply chain organic net sales during the week ending May 1 in North America declined only 8% year-over-year and APAC & Emerging Markets actually increased 5% year-over-year as these end markets have either recovered at a faster pace or were impacted less than the rest of the world, respectively.

Additionally, our legacy Vets First Choice business continues to track ahead of our expectations with organic net sales increasing in excess of 55% year-over-year during April, a continuation of the momentum seen in Q1. This is despite the deterioration in veterinary practice client visit trends during the month that impacted certain office use products in our specialty business. The Covetrus platform, which represents more than 80% of prescription management net sales, grew a fantastic 70% year-over-year in April, including same-store sales year-over-year growth of 31%. This strong growth continues to be driven by increased practice engagement as well as from pet owners that have historically not purchased through their veterinary practices online pharmacy service powered by Covetrus.

We expect these pet owners new to our online pharmacy service to behave similarly as compared to our existing pet owner clients. It has also been encouraging to see increased manufacturer engagement and support recently, which has allowed the veterinarians in partnership with us to be very competitively priced versus traditional e-commerce.

Overall total Covetrus April non-GAAP organic net sales declined only 8% year-over-year, and we believe the result would have been stronger if not for the inventory stocking activity that incurred in March in many of our international markets, which pulled forward more than $30 million in net sales into Q1 as previously reported. For additional perspective, year-to-date non-GAAP forma organic net sales growth through April was positive 5%. And while near-term trends are likely to still face a headwind in connection with COVID-19, the stronger relative performance of the global animal health category as compared to other healthcare markets highlights the attractive nature of the businesses in which we operate, our strategic positioning within the markets in which we compete and our very compelling portfolio of value-added capabilities. Additionally, it speaks to the resiliency of the strengthening human companion animal bond, which connection provides the foundation for growth in our categories in the years ahead.

Longer term, we remain enthusiastic about the prospects of the global animal health market and the recent balance sheet actions as described on Slide 9 that we have taken since April 1, which we expect will collectively reduce net debt by approximately $340 million as compared to 31 March levels and provide additional liquidity in the short term, position us well to execute against our strategy while navigating the pandemic.

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

Lastly, before I turn the call over to Stuart, I would first like to thank him for his significant contributions to Covetrus over the last five months as Interim CFO. He has played an integral role in stabilizing our core operations and improving our balance sheet. So on behalf of all of us at Covetrus, thank you very much. We're so glad that you joined us.

On that note, Stuart, can you please provide a financial review of our Q1 results?

Stuart Gleichenhaus -- Interim Chief Financial Officer

Yes. Good afternoon, everyone, and thanks, Ben, for those kind words.

We have accomplished a lot over the last five months, and Covetrus will certainly be in great hands with the hiring of Matthew Foulston as the company's global CFO.

With that, I will now review our Q1 results. The focus of my comments will be on our non-GAAP and non-GAAP pro forma results when applicable as these items provide the most insight into the underlying trends impacting our businesses. Please refer to today's press release for a more detailed description of our Q1 GAAP results. Covetrus net sales were approximately $1.07 billion in Q1. Non-GAAP pro forma organic net sales increased 10% year-over-year in Q1. As indicated when we previewed our Q1 results last month, January and February net sales reflected the positive momentum the business had entered -- had entering 2020.

March net sales benefited from accelerating prescription management growth and certain stocking activity in several geographies in connection with the COVID-19 pandemic, which helped offset a portion of the net sales impact from reduced purchases over the last two weeks of March when many of our customers began to experience declining client visits tied to certain global measures to slow the spread of COVID-19. We estimate that Q1 non-GAAP pro forma organic net sales benefited by approximately 4% from customer inventory stockpiling activity that occurred in the several international markets during March in connection with COVID-19.

Moving to our operating segment net sales performance. North America pro forma organic net sales increased 6% year-over-year in Q1. Our distribution business pro forma organic net sales growth increased 1% year-over-year in Q1 or 4% when the previously announced customer loss from early 2019 is excluded. Notwithstanding the impact of COVID-19 on the market, we believe our quarterly results demonstrated stability in the underlying business dynamics, particularly now that we have lapped last year's loss of a large customer entering Q2 of 2020 and have also recently entered into multi-year renewals with several of our largest customers.

Total Covetrus prescription management or legacy Vets First Choice pro forma organic net sales increased 47% year-over-year to $84 million in Q1, and we ended the quarter with more than 10,500 practices on our prescription management platform. Prescription management net sales were off to a strong start to the year following the launch of new customer and client engagement strategies late last year and the business further accelerated in March due in part to COVID-19. In the aggregate, same-store prescription management platform net sales, defined as customers enrolled on the platform in 2018 or earlier, increased by more than 25% year-over-year during Q1.

Turning to Europe. Pro forma organic net sales increased 13% year-over-year in Q1, of which management believes approximately 7% is due to customer stocking activity in connection with COVID-19. Excluding the estimated inventory-related stocking activity in response to COVID-19, our European team executed extremely well during the quarter despite the pandemic and delivered healthy pro forma organic net sales growth in most of our European markets, including strong performance from our businesses operating in Ireland, the Czech Republic and Poland. The UK, the company's largest market by net sales, also delivered double-digit year-over-year net sales growth during the first quarter.

Moving on to APAC & Emerging Markets. Our team delivered a 20% year-over-year increase in pro forma organic net sales in Q1, including an estimated benefit of approximately 8% from customer stocking activity in connection with COVID-19. Overall, the momentum of the business segment had -- overall, the momentum the business segment had exiting 2019 continued into the first quarter of 2020, and this team continues to execute well and deliver robust financial results. Total company non-GAAP adjusted EBITDA was $48 million for the first quarter of 2020 versus $50 million in the prior-year period as calculated on a non-GAAP pro forma basis. The 4% year-over-year decrease was driven by higher corporate selling, general and administrative expenses tied to establishing Covetrus as an independent global public company and a $1 million overall negative impact from changes in foreign exchange.

As a reminder, Q1 2019 included only a partial quarter of corporate overhead, whereas Q1 2020 was burdened by the near full-year run rate of stand-alone expenses. This approximated a $14 million headwind year-over-year and was generally consistent with our commentary discussed on the Q4 earnings conference call back in early March. These added overhead costs offset the significant year-over-year improvement in Vets First Choice profitability, underlying organic growth in our supply chain businesses across many geographies and the modest contribution from 2019 acquisitions. Additionally, management estimates that the customer inventory stocking activity in March in many of the company's international markets added approximately $3 million to $4 million in non-GAAP adjusted EBITDA in the first quarter of 2020.

Looking at our segments. Segment adjusted EBITDA increased 17% year-over-year in North America, driven by the improving contribution of the company's prescription management business as well as modest growth in our supply chain business. In fact, our prescription management business in Q1 delivered more adjusted EBITDA than all of 2019 combined as we continue to increase the scale of our operations and leverage strong net sales growth. Segment adjusted EBITDA increased 13% year-over-year in Europe and 40% year-over-year in APAC & Emerging Markets, driven by operating leverage from strong net sales activity, including the customer inventory stocking benefit in connection with COVID-19. Our total company Q1 GAAP net loss was $33 million or negative $0.30 per diluted share. Non-GAAP adjusted net income was $20 million during Q1 versus $19 million on a pro forma basis in the prior-year period.

Turning to the balance sheet and cash flow metrics. Covetrus used $76 million in cash flow from operations during Q1 and had negative $87 million in non-GAAP free cash flow when subtracting net purchases of property and equipment of $11 million. The timing of certain year-end payables and growth in accounts receivable from the strong March sales performance drove the increased use of cash in the first quarter of 2020 as compared to the prior year. As a reminder, the company historically experiences a use of cash in the first quarter, and then we drive cash flow improvements through the balance of the year. Note that our cash balance was also impacted during the quarter by deferred M&A payments related to transactions that closed in 2019 and fees paid for the credit agreement amendment executed in late February of this year.

We ended Q1 with $1.185 billion in term loan debt outstanding and $190 million borrowed against our $300 million revolving credit facility, much of it at the end of March when COVID-19 was declared a pandemic, which improved our liquidity position as we ended the quarter with $205 million in cash and cash equivalents on our balance sheet. Our net leverage ratio, as defined by our credit agreement, stood at approximately 4.8 times for the trailing 12 months ended March 31, 2020, well inside the 5.5 times covenant maximum threshold.

Immediately following quarter end, Covetrus announced the closing of its divestiture of scil animal healthcare to Heska Corporation for $110 million, or approximately $100 million net of deal-related fees and other transaction items and before any tax on that transaction. The company used $45 million of those proceeds to prepay the remaining quarterly term loan principal amortization payments for 2020. Adjusting for these actions, the company would have had at quarter end March 31, 2020, approximately $260 million in pro forma cash and equivalents, $1.14 billion in term loan debt and $190 million outstanding on the company's revolving credit facility. Our leverage ratio, as defined by the company's credit agreement, would have also modestly improved pro forma for the scil proceeds and subsequent debt reduction.

Additionally, on April 30, 2020, Covetrus announced a $250 million investment from CD&R, from which we expect to receive the proceeds on or around May 19, 2020, next week. The net proceeds from the perpetual convertible preferred equity issuance to CD&R will be used to repay a portion of the company's revolving borrowings, provide additional short-term liquidity and support general corporate purposes. The additional capital from the sale of the scil animal care and perpetual convertible preferred equity issuance meaningfully strengthens our financial profile by reducing net debt by approximately $340 million as compared to 31 March reported levels, allowing us to continue executing against our strategic growth objectives while simultaneously navigating the near-term uncertainties tied to the COVID-19 pandemic.

The structure of the investment and our improved financial profile also better positions us for additional conversations with our lending syndicate about obtaining further operating flexibility under our current credit agreement. We may have more to comment on this in coming weeks.

Lastly, as indicated in our April 22 press release that provided a preview of our Q1 financial results, we withdrew our full-year 2020 financial guidance as a result of the uncertain demand outlook for our veterinary practice customers caused by COVID-19. While complete and accurate visibility into the trajectory of the future recovery of our end market remains relatively uncertain, we have been encouraged by the sequential improvement in our net sales growth over the last couple of weeks following the slowdown seen in late March and early April. As Ben mentioned, despite the inventory stocking benefit seen in March that pulled forward sales from April and the additional COVID-19-related headwinds, Covetrus non-GAAP organic net sales declined only 8% year-over-year during the month of April and non-GAAP organic net sales declined only 4% for the week ending May 1.

And as we think about profitability over the near term, we've taken certain measures to help better align our cost structure with sales performance, including Executive Board and other senior level employee compensation reductions, employee furloughs in certain European countries, several shift eliminations in different localities, a global hiring freeze and discretionary spending deferrals. Additionally, we've made progress on some of our direct and indirect procurement initiatives that we've rolled out in partnership with an external third-party advisor to drive greater efficiency through our organization. These actions should partially offset some of the lost gross profit from lower net sales tied to the impact of COVID-19 and the potential negative $5 million impact to adjusted EBITDA year-over-year from foreign exchange volatility if rates remain at current levels.

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

I'll now turn the call back over to Ben for some brief closing remarks. Ben?

Benjamin Wolin -- President and Chief Executive Officer

Thank you, Stuart.

Before my closing remarks, I want to take a moment to thank David Shaw, who retired from our Board earlier this week, for his combined 10 years of leadership and service to Covetrus and predecessor company, Vets First Choice. His experience and industry knowledge played a critical role in the creation and growth of the company, and we are appreciative of all of his efforts. David will remain a close friend to me and the organization, and I wish him all best as he continues to champion multiple philanthropic activities.

In closing, and as outlined on Slide 10 of our presentation, I want to reiterate that I am proud of our team's accomplishment and their tireless efforts to support our customers across the globe as we all navigate and adapt to the COVID-19 pandemic. Our strong first quarter results are evidence to early progress as we have achieved by focusing on the core drivers of our business. Veterinary care remains an essential service, and we are encouraged by the moderately improving trends we are beginning to see with many of our customers over the last few weeks.

As the recovery in our end market continues, I believe the combination of our strengthened financial profile and organizational health position us well to accelerate growth and create shareholder value over the long term.

This concludes our prepared remarks, and I will now turn the call back over to Nick to moderate the Q&A session.

Nicholas Jansen -- Vice President of Investor Relations

Thanks, Ben.

[Operator Instructions]

So Elaine, please from instructions for the Q&A session, and we are ready to take the first question.

Questions and Answers:

Operator

[Operator Instructions]

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

John Kreger -- William Blair & Company -- Analyst

Hi, thanks very much. Ben, I was hoping to dig in a little bit on the very good trends in prescription management and curious if you think they're sustainable. Are you seeing any stocking there? I know you mentioned in international markets you were, but curious if you think you're seeing any stocking driving up the numbers in prescription management.

Benjamin Wolin -- President and Chief Executive Officer

Thanks, John. Good to speak to you. I think the short answer is not really from a stocking standpoint. While there certainly could be an individual consumer or two that would be ordering large quantities more than they need in the short term, most of the activity is really coming from our existing customers engaging with their own customers at just a much greater rate. As COVID picked up, the desire of our customers to maintain continuity or connectivity with their own consumers increased. And what we saw was just greater engagement across the board.

As I mentioned in the prepared remarks, we started to see a lot of that progress even pre-COVID, and obviously, COVID has been a bit of fuel on the fire. So we're excited about the progress and expect to continue to drive that business forward aggressively.

John Kreger -- William Blair & Company -- Analyst

Great. Thanks. And then a follow-up, and I think you just touched on it, but to dig a little bit more. As you look at where the growth is coming from within prescription management, does that tend to be from kind of legacy Schein customers? Are you seeing any interesting patterns between kind of Henry Schein legacy versus people using other sources of distribution? Thanks.

Benjamin Wolin -- President and Chief Executive Officer

Yeah. Sure thing. So if you use the slide presentation that we provided, one of the nice things is that you can see that all of our cohorts, going all the way back to 2012, have continued to grow. And that would be a mix of customers who are using Covetrus for distribution and those that are less reliant on Covetrus for distribution. I think one of the nice things that I would point out is that when the company came together, the new customers that we had started to engage with in 2019 have been a very strong cohort for us, and that really has continued to occur in 2020.

So time to revenue for new customers getting onto the platform has decreased, and revenue scale on the platform has increased substantially. So whether it's the combination of our services and the excellent job that our -- the variety of our sales teams are doing across distribution and technology, the combination of that with COVID and the continued investment in the technology platform, all of those things together are really creating a dynamic environment for that business. And it's exciting to see the growth and -- as well as the EBITDA contribution.

John Kreger -- William Blair & Company -- Analyst

Very good. Thank you.

Operator

And your next question is from Nathan Rich from Goldman Sachs.

Nathan Rich -- Goldman Sachs -- Analyst

Good afternoon, and thanks for the questions. Maybe just sticking about the prescription management platform. When we think about the consumers who are maybe trying their vets' website for the first time due to this pandemic, historically, kind of what's been the conversion rate from those kind of first-time purchasers into more loyal regular customers on the site? And are there any metrics you can kind of share around that just in terms of purchase frequency or basket size for the more loyal customers on the platform?

Benjamin Wolin -- President and Chief Executive Officer

Yeah. I think maybe the metrics that I can point you to that is maybe most relevant is kind of same-store sales growth because I think that captures the -- what is going on as a consumer enters the platform for the very first time. And as I said in the prepared remarks, we saw 25% year-over-year growth in Q1. In April, we saw a 31% year-over-year growth. And our -- the early data on people who've joined in Q1 is that there really is no sign of those consumers being any different than historical consumers in terms of average order value and potential lifetime value of that consumer.

So I think that the foundation that we're building here really starts to get exciting as those customer cohorts just continue to build throughout the year and next year and the year after.

Nathan Rich -- Goldman Sachs -- Analyst

Thanks. That's helpful. And maybe as a follow-up, last week, Elanco announced, I think, what's a more -- can kind of be described as a more targeted distribution strategy that I think will result in just lower inventory levels for its products in sort of the distribution channel. Can you maybe just give us your view on kind of what that means for Covetrus? And does it impact how you think about going to market on those products?

Benjamin Wolin -- President and Chief Executive Officer

Yeah, I don't want to comment too specifically on any one manufacturer. But I think if you look at the results in Q1, especially in the US with that business growing 4% on a pro forma basis, we feel really good about the progress that the team did across all of our manufacturers. And that really has continued here into the second quarter as demonstrated in the slides that we prepared. So I would say there's always going to be some movement around the suppliers as they figure out the best way to use distribution. But we're excited about the progress that were made and the stabilization of that business.

And maybe one other just point to highlight is that, I think as COVID continues to move on, in some ways, the distribution rep becomes even more powerful, the veterinarian wants to see less and less people in their practice or needs to space them out. They don't need sales teams from every manufacturer calling on them. And I think we sit in a pretty unique position in terms of being able to bring lots of different products to market and combine that with a very compelling prescription management platform.

Nathan Rich -- Goldman Sachs -- Analyst

Great. Thanks for the time today.

Benjamin Wolin -- President and Chief Executive Officer

Yeah. Thank you.

Operator

And your next question comes from the line of Erin Wright from Credit Suisse.

Erin Wright -- Credit Suisse -- Analyst

Great. Thanks. A follow-up on the Elanco question. Just starting, I guess, this year, earlier, it already narrowed its distribution partners from eight to four. How much did that transition benefit you in the quarter? And how big of a relationship is that for you? And then now that it's taking another step forward in terms of narrowing or a more targeted approach, how do you think other relationships with vendors evolve in response to Elanco's kind of recent commentary? And do you think there is a competitive response from this move? Thanks.

Benjamin Wolin -- President and Chief Executive Officer

Yeah. I think the company is very well positioned. We're the only company that can bring together distribution, prescription management, PIMS on behalf of a manufacturer and on behalf of a customer. So I think as suppliers look to partner with companies, we obviously sit in a very compelling position given the variety of services that we can offer and the scale that we can do it. As it relates to this -- Elanco narrowing it's distribution relationships, that certainly helped a bit in the quarter and probably here in the balance of 2020. But those are relatively small players in the market, and I don't think it moved the financials significantly in any given direction.

Erin Wright -- Credit Suisse -- Analyst

Okay. That's interesting. And then my second question is, do you think overall parasiticide purchasing patterns will be different this year, regardless of the severity of the season? And given some of the COVID dynamics, but also in light of the product launches such as Simparica Trio, do you think there will be any differences from what you typically see in a normal -- in terms of normal purchasing patterns for parasiticides? Thanks.

Benjamin Wolin -- President and Chief Executive Officer

It's a good question. We're obviously paying close attention. We'll see how that plays out. I think if you look at the trends that we put forward in the presentation and some of the trends that have been talked about by other parties, you definitely saw this dip in late March and early April, but it really has come back. And now you're talking about year-over-year revenue for a vet practice in the first week of May to be about down 5%, and you can see our total business down about 5% in that same period of time. So while there certainly could be some short-term decline in that market, we're seeing a pretty resilient and healthy marketplace. So I think we feel good about the overall position of our company and just the overall health of the industry, frankly.

Erin Wright -- Credit Suisse -- Analyst

Okay, great. Thank you.

Operator

And your next question comes from the line of Jon Block from Stifel.

Jonathan Block -- Stifel Nicolaus and Company, Incorporated -- Analyst

Thanks, guys. Good afternoon. The 16% same-store sales growth the VFC last year experienced a real big step-up to 25% in 1Q, and it certainly seems to have validated the strategy you laid out last quarter of focusing on the installed base. I'm just curious, with the outbreak of the pandemic, is there any want to try to drive new practices a bit more? I'm just guessing, they're now more than ever in need of an online solution. So from you guys, is there any want to try to juggle both, if possible, the same-store and the new enrollees? And then I got a follow-up.

Benjamin Wolin -- President and Chief Executive Officer

Yeah. A great question and one that we ask ourselves, too. I think we're staying true to our priorities and focus on engagement. However, I would say, as you pointed out, new customers are even more hungry to get on the platform, and we've seen a lot of organic progress. I believe Stuart highlighted a number of 10,500 practices at the end of Q1 2020, which is almost double the number of practices on the platform since 2017. So some of that is happening on its own or maybe with a less concerted effort given where we decided to focus. And I think you'll see us increase the aperture of things that we can focus on as the business has stability, and that we'll be able to make some market share gains on that front.

I think the other dynamic that I would point out is that not all practices are equal in terms of their use of engagement of the platform. So as important as adding a new practice, it's getting that practice to really engage with us. And what we have seen really differently in the past, our corporate customers, our consolidators really pushing hard to work with us in conjunction to use all of the aspects of client communication on the platform, and that's a huge leverage point for the practice. So the short answer is, yes, we'll add more practices, but we're going to continue to focus on driving that engagement because there's just so much opportunity with our existing customer base.

Jonathan Block -- Stifel Nicolaus and Company, Incorporated -- Analyst

Got it. Great. Thanks for the color. I think just second question to shift gears. The $44 million-ish, if you would call it, normalized EBITDA, ex the stocking, that I still believe was handily ahead of what you conveyed back in the fourth quarter call, which was -- and that was in early March. I'm just sort of curious what drove the upside on a normalized basis? And then what regions drove the upside relative to your expectations? Thanks, guys.

Benjamin Wolin -- President and Chief Executive Officer

Yeah, so I would say it was just solid performance all around by the business. The big drivers were continued cost control, so operating leverage going down below gross margin. The prescription management platform and the GTS team did a really excellent job, and as I mentioned in my prepared remarks, had not only year-over-year EBITDA growth or -- and sequential quarterly growth. But likewise, the distribution businesses across the world, Europe, APAC and US, all were having good quarters even prior to COVID coming in, and that really got accelerated. So I think we feel just, all in all, very pleased with the progress. It's one quarter and there's many more quarters to come, but a very good start to the year.

Jonathan Block -- Stifel Nicolaus and Company, Incorporated -- Analyst

Perfect. Thanks for your time, guys.

Operator

And your next question comes from Andrew Cooper from Raymond James.

Andrew Cooper -- Raymond James & Associates -- Analyst

Hi guys. Thanks for the questions. I guess first, just as we look at kind of the margins, I think one of the comments you made was that North America distribution or supply chain EBITDA was -- contribution was up. But can you give us a little bit of color just how to think about the mix as to [Phonetic] what were margins doing in the core supply chain business in the quarter? And then I have a follow-up from there as well, but anything around helping us kind of splice out the moving parts on margins would be great.

Benjamin Wolin -- President and Chief Executive Officer

Yeah, so pre-COVID, I would say, modest improvement to margin on a year-over-year basis in the supply chain in all regions. And different moving parts below that, but just kind of continued either steady or slightly improving performance in all parts of the globe.

Andrew Cooper -- Raymond James & Associates -- Analyst

Okay. That's helpful. And then I guess, maybe higher level, as we think about layering in telemedicine into the capabilities and the PIMS, is that something, as you think about building out sort of new capabilities, that you can really leverage? Do you see opportunity there in terms of prescription management, scheduling, things like that, where you can really tie even closer to your customer, the vet practice, but also the end consumer as well? And how do you think about what doors layering that in may open up?

Benjamin Wolin -- President and Chief Executive Officer

Yeah. I think at a big picture, Covetrus is positioned to be the leading technology-enabled services and solutions company for the industry. And I think telemedicine is just a great example of our team responding very quickly to a dynamic market, taking advantage of our installed base of practice management or information management systems, taking advantage of all of the sales relationships that we have across distribution and technology, and rolling out a much-needed application for our end customer, who they could, therefore, use with their end consumer. So I expect to see more of that in the quarters and years to come. As our customers' needs evolve, so will our platform, and it's exciting to see some of those early steps being taken.

Andrew Cooper -- Raymond James & Associates -- Analyst

Great. I'll leave it there. Thanks, guys.

Operator

And your next question comes from the line of David Westenberg from Guggenheim.

David Westenberg -- Guggenheim Securities, LLC -- Analyst

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

Benjamin Wolin -- President and Chief Executive Officer

Yeah. Look, first of all, it's obviously early days on telemedicine. And when we brought that to market, the first thing we really thought about was just allowing our customers to stay in business and continue to practice medicine and get pet owners and their pets care. And so we rolled that out as a free solution to start. What we have seen from our customers is that they are liking it and that they can start to deliver some of the care that they had done previously in practice via telemedicine and continue to generate revenue for themselves.

Over time, that practice -- that solution will evolve and be something that we generate revenue for ourselves. But we cannot -- we benefit when our customers benefit. So when they are proactively prescribing, they'll end up using the prescription management platform. If they're using specialty via telemedicine, they can use our specialty services. Anything that keeps our customers healthy and growing is generally a good thing for our business. So the data is still early, but mostly, we are excited to allow them to stay up and running and providing continuity of care with their own consumers.

David Westenberg -- Guggenheim Securities, LLC -- Analyst

All right. Got it. Thank you. And then just to ask a few questions on potential external exposures related with COVID. Can you remind us, I know it's a small amount, but end customers that are related to production animal? And then just on geography exposure, is there any certain geographies that might be a little bit higher relative to the rest of distribution? For example, are you a little bit heavier in the Northeast relative to maybe other distributors? Thank you.

Benjamin Wolin -- President and Chief Executive Officer

Yeah. So in terms of your first question, production versus companion, it varies by region. Companion animal is the vast, vast majority in the US and a significant majority in APAC. In Europe, there's a much more significant production animal split, especially in the UK. So you're much closer to a 60-40 ratio between companion and production. And I would point out that production through the first quarter remained very solid and consistent on a year-over-year basis. It was really in the companion animal space where you saw a lot of volatility.

As it relates to the second question, we have such a significant market presence that our distribution footprint really maps to the US, and we don't over-index in any one area compared to a different distributor or at least the top two or three distributors. So I don't think we have either any benefit or headwind as it relates to our competitors on geographic footprint, at least in the US.

David Westenberg -- Guggenheim Securities, LLC -- Analyst

Thank you.

Operator

And your last question comes from Kevin Kedra from G. Research.

Kevin Kedra -- Gabelli & Company -- Analyst

Hi, thanks for taking my questions. First, I wanted to ask about the prescription management platform. When VFC and Henry Schein got together, part of the idea was that the prescription management platform or essentially the legacy distribution business could essentially be a lead for placements for the prescription management platform. But given some of the dynamics of COVID and the demand for digital platforms, could we essentially see this turnaround? Could the ability to offer the prescription management platform potentially lead to opportunities to pick up business on the distribution side going down the road?

Benjamin Wolin -- President and Chief Executive Officer

Yeah, absolutely. I think as the company becomes more and more -- or I should say, better positioned as the core partner to the veterinarian with a combination of technology-enabled services from distribution to specialty to proprietary brands and of course, prescription management, I think what you'll start to see is that it's really the collection of these products and services that allows us to be successful in the marketplace. And in some cases, a customer is going to be over-indexed on prescription management, and that relationship is going to allow us to broaden into distribution or other parts of the business. And in many other cases, it'll be the other way around.

Obviously, when the companies were brought together, the benefit that Schein brought was a tremendous customer footprint on the practice management side and on the distribution side of things, and that led to a lot of leads. But the other benefit, I would say, is that, that sales force has done a great job of just helping even our existing customers use the platform at an even greater rate. So in general, we're excited about the collection of assets and know that we have a ways to go in terms of how we bring them to market in a way that's really beneficial to our customers and our manufacturing partners. But the most recent quarter's results, I think, is certainly a very positive step in the right direction.

Kevin Kedra -- Gabelli & Company -- Analyst

Thanks.

Operator

And I am showing no further questions at this time. I would now like to turn the conference back to Nick Jansen for closing remarks.

Nicholas Jansen -- Vice President of Investor Relations

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

Benjamin Wolin -- President and Chief Executive Officer

Thank you, guys.

Stuart Gleichenhaus -- Interim Chief Financial Officer

Thanks, everybody.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Nicholas Jansen -- Vice President of Investor Relations

Benjamin Wolin -- President and Chief Executive Officer

Stuart Gleichenhaus -- Interim Chief Financial Officer

John Kreger -- William Blair & Company -- Analyst

Nathan Rich -- Goldman Sachs -- Analyst

Erin Wright -- Credit Suisse -- Analyst

Jonathan Block -- Stifel Nicolaus and Company, Incorporated -- Analyst

Andrew Cooper -- Raymond James & Associates -- Analyst

David Westenberg -- Guggenheim Securities, LLC -- Analyst

Kevin Kedra -- Gabelli & Company -- Analyst

More CVET analysis

All earnings call transcripts

AlphaStreet Logo