Portland-based Covetrus Inc. used the release of its third-quarter earnings report Tuesday to send a message to investors that the company is aware of its problems and is trying to set things right.

The veterinary technology and services firm reported revenue and net income from operations for the quarter that exceeded analysts’ expectations, while recording a massive “goodwill” impairment charge of nearly $1 billion in an attempt to square the company’s value on paper with its present reality.

Goodwill is an intangible asset whose dollar value is based on the perceived potential of a company to make money in the future. Decreasing the value of a company’s goodwill has no effect on operations, but the company still must record the impairment as a net loss.

The story of Covetrus and its local predecessor, Vets First Choice, generated glowing headlines as the company rose from a startup in 2010 to a publicly traded company with an initial public offering early this year. It has the potential to become a top employer in Portland, with plans to build a five-story headquarters downtown that could accommodate up to 1,200 more employees than its current local workforce of about 300.

But since Covetrus released its disappointing second-quarter earnings report in August, its stock price has plunged, investors have sued, and its father-and-son team of board chairman and chief executive, both co-founders of the company, have been demoted to lesser roles.

Still, Tuesday’s third-quarter earnings report offered hope for a financial turnaround, with better numbers and a promise from its acting president and CEO, Benjamin Wolin, to shape Covetrus into a more focused and successful company. The report prompted a 22 percent spike in the company’s stock price, and in an interview with the Press Herald, Wolin said the company’s employment outlook remains bright.


Covetrus reported revenue for the third quarter of $1.02 billion, up roughly 10 percent from its two predecessor companies’ combined revenue a year earlier and $56.3 million above analyst expectations, according to the investor website Seeking Alpha. It reported net income from operations of $19 million, or 15 cents per share, down slightly from a year earlier but still ahead of analysts’ average forecast of 9 cents per share.

However, the company’s goodwill impairment charge of $939 million dragged down its bottom line to an adjusted net loss of $906 million, or $8.09 per share, for the quarter. Covetrus said in the report that the previous value of goodwill was based on its initial valuation at the time of the the company’s launch in February and was no longer in line with its current fair market value.

Wolin opened Tuesday morning’s earnings call with analysts and investors by admitting the company’s mistakes and vowing to make improvements.

“All of us here need to acknowledge and take responsibility for the very difficult and challenging entry and early life we have had as a public company,” Wolin said. “We underestimated the sheer complexity of the (spinoff, merger and IPO) transaction and the many competing priorities which drove increased spending and added an additional set of challenges to the already complex process. Clearly, some of these difficulties were self-inflicted missteps.”


After forming from the merger of Portland-based Vets First Choice and a spinoff of the animal health division of Melville, New York-based Henry Schein Inc., the company’s Aug. 13 earnings release for its first full quarter of operations fell far short of analyst expectations and led to a stock sell-off that slashed the company’s share value by 40 percent in a single day. Covetrus also revised its previous earnings outlook for 2019 from $250 million to $200 million, citing unanticipated merger-related costs and a slowdown in customer activity.


On Tuesday, the company revised its earnings outlook downward again but only slightly, to a range of $190 million to $196 million for the year.

The value of Covetrus shares has fallen even further since August and as of Monday was down by about 75 percent from the initial public offering price of roughly $43 per share. On Sept. 4, the company announced its co-founder and chairman David Shaw, who also founded Westbrook-based Idexx Laboratories Inc., was stepping down from his role as chairman, although he remains a director on the board.

In October, Covetrus took the even more drastic step of ousting its co-founder, president and CEO Benjamin Shaw – David Shaw’s son – less than nine months after the company’s troubled launch. Benjamin Shaw will receive more than $2.3 million in severance compensation and has transitioned to a role as strategic adviser to the board of directors.

In late September, a Covetrus institutional investor, the City of Hollywood (Florida) Police Officer Retirement System, filed a lawsuit seeking class-action status that accuses the company and its top executives of securities fraud. More than a dozen other class-action law firms have issued calls for additional plaintiffs to join the case or file their own lawsuits.

Covetrus has declined to comment on the pending investor lawsuit.



In an interview Tuesday, Wolin said Covetrus’ latest financial statement shows it is on “solid footing” and that its future as a Maine employer remains bright. He also emphasized the contributions of its co-founders, David and Benjamin Shaw, and said Covetrus is fortunate to have their continued involvement.

Wolin indicated that the company may be looking to shed some business units acquired through the Henry Schein Animal Health merger that stray too far from its core focus of providing pharmacy- and practice-management software and prescription fulfillment services to veterinary practices.

“Anything that falls outside of that scope is (in) areas that we are looking to de-emphasize in terms of our investment,” Wolin said. “I’m not sure if people are aware of this or not, but when Vets First Choice merged with Henry Schein, it wasn’t really one business merging into another; it was one business merging into a holding company that had 30 different businesses and maybe 70 or 80 different entities.”

Investors responded favorably to the earnings report Tuesday. The value of Covetrus shares surged by 22 percent to $12.26 per share, their highest value in over a month.

Covetrus stock began trading in early February at roughly $43 per share on the Nasdaq stock exchange under the symbol CVET. It is Maine’s largest publicly traded company in terms of annual revenue, although two other companies, Wex Inc. and Idexx, have higher market capitalization – the total value of all their outstanding shares.

Vets First Choice received city approval in fall 2018 to build a five-story, 170,000-square-foot headquarters for Covetrus in downtown Portland. The facility is expected to provide office space, a pharmacy, fulfillment center, and software and data science labs. It is designed to have space for 1,500 employees – 1,200 more than the company’s current Portland employee base of roughly 300. Covetrus employs about 5,500 workers worldwide.

The company said in October that the Portland headquarters project is proceeding as planned.

Wolin told investors Tuesday that despite the company’s many challenges, its fundamentals remain strong.

“Our team is unified in our belief in the Covetrus business model and the power of our integrated platform to drive measurable value for our customers, shareholders, employees and partners,” he said. “We have the assets, we have the relationships, we have the technology tools our customers need, and we are in a growing market. With a relentless focus on execution and the core drivers of our business, we will continue to innovate and grow.”

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