Covetrus, Inc.
Q1 2022 Earnings Call Transcript

Published: 5 May 2022

[Operator:]

Good afternoon. My name is Abigail and now we'll be your conference Operator today. At this time. I would like to welcome everyone to Covetrus 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.

[Nicholas Jansen:]

Thank you Abigail. Good afternoon. And thank you for joining us for Covetrus' First Quarter 2022 earnings conference call. Joining on this afternoon's call are Ben Wolin, our President and Chief Executive Officer, and Matthew Foulston, our Executive Vice President and Chief Financial Officer. Ben and Matthew will begin with prepared remarks, and then we will 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 expectations for future financial business, operational performance, and operating expenditure. Forward-looking statements may be identified with words such as will, expect, believe, 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.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. You can find this afternoon's release announcing our first quarter 2022 results in the accompanying slide deck for this call on ir. covetrus.com. The release and presentation also contain further information about the non-GAAP financial measures that we will discuss today. Please refer to those documents for a reconciliation of non-GAAP measures to our GAAP financial results. With that, I will now turn it over to Ben to provide the highlights.

[Ben Wolin:]

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 sites. Now, let's get started on slide 3, the first quarter represented a strong start to 2022 for Covetrus. Despite a tough year over year comparison, FX 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 a 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 some specific highlights. In North America, we continue to gain market share in 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 4, 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 was strength in 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 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 pet's 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 PIMS our customers are more likely to use prescription management, driving both better health 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 that corporate cost growth has not been a drag on earnings. As we have referenced in previous calls, we expected 2022 to be the year when the company would first experience a 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 Covetrus' role in the industry and our investments going forward. As detailed on Slide 5, the company continues to invest aggressively into our technology platform. And in the most recent quarter, we made substantial progress against our road map. First off is the upcoming launch of Pulse, our new vet operating system that has all of Covetrus' ecosystem of technology built into a single pane of glass for 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 2,500 practices under the first stage of Pulse, with the full conversion expected later this month, when it becomes generally available for the veterinary community. This has been 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 road map where we made significant progress over the last four months, we also launched Covetrus Ascend, our first ever international cloud-based practice management software solution. Ascend is coming to market internationally following several years of product development and will help fortify our leading software position in the UK, Australia, and New Zealand, as well as offer up opportunities to address new customer segments and other geographies over time. With pause and ascend, we will immediately be the market leader in global 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 Covetrus. For example, I'm excited about our recent re-branding and launch of Covetrus payments in the US. A credit card processing solution integrated directly into our industry leading team solutions by building a more seamless and integrated payment experience into the suite of software services, including calls. 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 for their clients through our new enrolled pro feature. This feature allows that marrying seamlessly sign up and managed care frank clients right out of the veterinary operating system. Although technologies, the innovation in the spotlight at Covetrus, I would be remiss to not mentioned the standout performance by our income distribution teams. In a world dominated by supply chain challenges our in-clinic teams have not missed a beat. Delivering millions of packages per year, our in-clinic solutions supports approximately a 100 thousand global customers and is the backbone for so many veterinarians and manufacturers. Our logistics network combined with our marketing in sales solutions has made Covetrus indispensable for the animal health industry. As you can tell, Covetrus is in a unique position as a leading company building solutions that drive better outcomes for veterinarians. We bring an omnichannel, unparalleled capability to the market. Whether it'd be consumer connectivity and increased revenue per pet through prescription management, in-clinic supplies to meet the demands of our veterinary practice or workflow simplicity leading to time saved through our software Payment Solutions. Covetrus is squarely focused on delivering value for veterinarians across the globe. And as veterinarians continued 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.

[Matthew Foulston:]

Thanks, Ben. Good afternoon, everyone. And thanks for joining us today. 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 2022 GAAP financial results, and reconciliations of non-GAAP measures to the GAAP results. Starting on Slide 7, with some brief financial highlights. Q1 non-GAAP organic net sales increased 6% year-over-year. A non-GAAP adjusted EBITDA increased 11% year-over-year to $63 million. Strong performance in our North American segment. And good progress in corporate were expenses declined year-over-year were the primary drivers to our strong Q1 results. Encouragingly, we expanded our gross margin and down 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, when 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 8, Covetrus 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 billed into our outlook, but did create some variability in our 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 to a time prior for the customer and manufacturer a loss previously disclosed in the UK. Positively Germany delivered its second consecutive quarter of year-over-year growth, and 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 growth in Q1. Moving to Slide 9, consolidated Covetrus 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 continue 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, or 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 Covetrus. 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 corporate with the drivers of out-performance versus our flattish Q1 non-GAAP adjusted EBITDA growth expectations. non-GAAP adjusted EBITDA margin at 5.5% was up 30 basis points year over year. Moving onto our individual operating segments, beginning on slide 11, North America net sales increased 10% year over year in Q1, 9% on our 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 in 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 in supply chain as well as foundational investments in software ahead of an active year for planned new product launches, as Ben described. As mentioned earlier, North America prescription management net sales of a $140 million 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 self-drive the strong level of profit growth delivered 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 in prescription management, we remain focused on delivering a 15 to 20% flow-through from incremental net sales to adjusted EBITDA for the full year of 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 Germany markets. Our businesses operating in 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 are 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 year. 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 5.2%. Much of the year-over-year decline was a result of the impact from the reduction in our UK net sales, as well as a negative FX impact from the recent strengthening of the US dollar. We also faced a difficult comparison in proprietary buy-ins given the launch into several new geography's early last year, we anticipate a return to adjusted EBITDA growth in Europe during the second half of 2022, a sales trends improve. And 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 situation 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 the low single digit growth in Australia for the reasons just mentioned. Segment adjusted EBITDA on 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 and seasonal working capital trends. We're 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 under our 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 and 2019 levels prior to the start of the pandemic. But below the more robust growth rates seen in 2020 and '21, as then market conditions normalized, which started in March and continued into April. Looking at non-GAAP adjusted EBITDA, our 2022 outlook remains at $270 to $280 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, inflation refreshers, rising interest rates, and a continued tight labor market. The recent strengthening of the U.S. dollar has also created incremental headwinds. With 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 in our global software net sales alongside new products, and above average growth in our portfolio proprietary brands and Covetrus branded products across our segments. Finally, while we do not provide specific quarterly guidance, given the tough line market comparison in Q2, and 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 EBITDA 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.

[Ben Wolin:]

Thanks, Matthew, in closing, we're off to a strong start in 2022 and have momentum in our higher margins, 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 manufacturer partners. I'm excited for the future and see a path is significant shareholder value creation as we continue to execute against our strategic plan. This now concludes our prepared remarks, and I will now turn the call back over to Nicholas Jansen to moderate the Q&A.

[Nicholas Jansen:]

Thanks Ben. Now we begin the Q&A section of our conference call. We want to take as many questions as possible, though we ask you to limit them to two, and then re-enter the queue should you have additional one. So Abigail, please provide instructions and we are ready to take the first question.

[Operator:]

Ladies and gentlemen, to ask a question . Our first question comes from the line of Jon Block with Stifel. Your line is now open.

[Jon Block:]

Great. Thanks, guys. Good afternoon. Maybe just to kick it off, you ran $5 million better on EBITDA than you thought for 1Q, but no raise. And Matthew, I get it. I mean, you just called that a real 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 were 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 trended. Ben, earlier I thought you alluded to tough comps from a year ago, but is it just tough comps or if you could elaborate. Is it more complicated with any capacity constraints at the practices in North America or anything even on the demand side of things?

[Matthew Foulston:]

Yes. Why don't I kick it off drawn 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 2.1%. And let's say you get to the quarter of 74 that we mentioned. Interestingly, if you look at it on a 2-year tank basis, it's above 20 each month, which really shows you the comp is a goodly piece of the issue. I would say out early look at April and we don't have all the accounting entries on everything yet, but looks to be north of 8%, so rest fairly optimistic that March was a bit of an anomaly from the data we're seeing.

[Ben Wolin:]

Yeah, John, the only thing that I would add, Matthew listed out all of the challenges, I think of coming across the globe, everything from access to supply chain to uncertainty in certain markets. So I think that's just driving the prudence around the full-year guide. I think as it relates to North America, you're right, there's definitely been a lot of chatter and while visits have clearly been down, I think the Covetrus value proposition is resonating even more as evidenced by the number. We had 9% growth in North America, prescription management grew 24%. It's 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, maybe the challenges in the end market are better positioning the company and showing the real value that we can bring a practice.

[Jon Block:]

Great to hear, great color and maybe just a shift gears on the second question, Matthew 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 we're coming through. I thought that may unwind this quarter, but clearly it didn't, the inventory builds 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 that some of your partners are pushing through and your ability, which seems to be the case to pass it on to the veterinarian. Thank you.

[Matthew Foulston:]

I'd say there's a couple of aspects to inventory early in the year. Our typical pattern is for our inventory to build in the first two quarters. And you generally see that comes through in some fairly tough cash flow, which then comes back to us in the back off. 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, and we're beginning to see indications in some cases of 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 allow them to absolutely take advantage of it. In terms of parsing 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. And I've probably pushed through most of the freight and fuel. Let's say there's a little bit lingering that will get after here quickly. And obviously on the proprietary brands, we've been fairly asserted in that regard. So we're pretty happy with the pricing environment.

[Jon Block:]

Okay. Thanks guys, I'll follow-up offline.

[Operator:]

Our next question is from Elliot Wilbur with Raymond James. Your line is now open.

[Elliot Wilbur:]

Thanks. Good afternoon. Maybe just some general commentary. Ben in Matt in terms of the overall inflation area environment, what you're seeing in terms of price cost increases versus expectations originally established at the beginning of the year, and then what you described briefly, some inventory or supply chain challenges. What those are, and what you may be seen in terms of 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.

[Matthew Foulston:]

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 it's the dollar strength and that gives you a headwind. What we've assumed in our go-forward is that FX rates are flat to the average of Q1. So I've been wrong more times on FX than I've been right. So we took a fairly simple approach here and 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 away, the largest on inbound containers primarily from Asia going up 3, 4, 5 fold, and extraordinarily material. Obviously, you see, what's happening on oil prices, and that's slowing through 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 fuel that we're hanging out on about 20% of the last increase that we're going to execute here shortly, and then we will be fully caught up. So I think the guys have done a great job in the logistics area in terms of securing supply. We probably out ordered a bit seeing some of this coming. I think when you talk about challenges, there are really small little pockets of things where we're tripping off as opposed to anything wholesale. I could point to two or three real small bumps in the road, that aren't big enough for us to even talk about from a supply issue. The only one worth talking about, and we had it in the prepared remarks, was the diets in Australia, which is a pretty big headwind and a big chunk of business for us.

[Operator:]

And our next question comes from the line of Nathan Rich with Goldman Sachs. Your line is now open.

[Nathan Rich:]

Great. Thanks. Good afternoon and thanks for the questions. Ben, maybe to 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 urge of management platform, in terms of helping the vet clinic sell some of the -- for some of their capacity constraints and allowing continuation of some of the maintenance or chronic scripts that Pulse might be checking?

[Matthew Foulston:]

Yeah, I think you now date actually answered your question, in a sense. As our customers come under pressure, either because traffic is down or labor is up for the combination of the two. They're really looking for ways to drive revenue per pet. They don't have capacity or are seeing a slowdown and so prescription management clearly does that. It not only protects them against retail, but it drives compliance and greater connectivity with 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 feel that only about five or 6% penetrated consumer utilization at any given practice. So despite having now 12,000 customers with those 12,000 customers, only 6% of their clients on average are on the platform. So we view even if there's 2% reduction or 3% reduction in visits, tremendous head room on prescription management, and I think Q1 results are the best signal of that visits were down, revenue went up 24% year-over-year.

[Nathan Rich:]

And just on the margin outlook for that business. And Matt, I think you talked about continuing to target the 15% to 20% contribution margin. But did a little bit better in the first quarter. Can you maybe talk about what drove the outperformance there? And it does seem like there could be some variability quarter-to-quarter with investments. I think labor is also being something that vary quarter-to-quarter. So could you maybe just talk about how you see that margin cadence playing out for that piece of the business? Thank you.

[Matthew Foulston:]

Yeah, we've been pretty consistent, 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, and bumpiness. Obviously, with as much activity as we've got on the technology side, and growing as fast as we are, these investments do come in in chunks. So 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 coincided with, not a massive investment on the investment side, and we just had a tremendous drop down. But I think the same are just getting better and better of how the tuning the market. Yeah, and Nathan, I'd refer you back to the slide deck that goes along with 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 vet initiated prescriptions grew 30% and represents 25% of sales. So you just think about 50% or almost 40% coming from auto-ship, 25% coming from vet initiated prescriptions, that's two-thirds of the whole business is being driven in a very compelling high-margin way. And so that's what is helping drive the drop down. 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 magic that was just great performance by the team, but really kind of shows the strength of the model.

[Nathan Rich:]

Thanks, appreciate the comments.

[Operator:]

Our next question is from Balaji Prasad with Barclays. Your line is now open. Excuse me, Balaji Prasad. Your line is now open.

[Nicholas Jansen:]

Abigail, let's go to the next caller and we'll see if Balaji can come back in.

[Operator:]

Next question is from Christine Rains with William Blair, your line is now open.

[Christine Rains:]

Hi, thanks for taking my question. My first one is on the exposure just high end, you guys have and the impact of lock downs in the quarter. And if you expect this impact to the larger or smaller in Q2. And then kind of the same question for Russia-Ukraine impact.

[Matthew Foulston:]

Yeah. Just to make sure we heard the question right, because the line broke up a bit, was the first one China?

[Christine Rains:]

Yeah. Exactly.

[Matthew Foulston:]

Okay. Let me start with the second one. Having clarified the first one because it's a quicker answer. Our exposure to Ukraine, and Russia is really limited to, I think it was about 85 software developers that we had working there. And I know managing contact with them relatively frequently, I think work is continuing under extremely difficult circumstances. I think most of them got themselves to safer spots. And oddly enough, Internet connectivity seems to have been amazingly good. So this is 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. But it really wouldn't even be around ending era. There is business there, but it's not big enough for us to talk about.

[Christine Rains:]

Okay, thanks for that caller. And then my second one is just on your goals to migrate inviting customers to Pulse. How many are you targeting by year end or by year-end 2023?

[Ben Wolin:]

So we will have 100% migrated by the end of this month. And I think -- so that's about 25, a little bit more than 2500, and then new additions to Pulse will be either net new to the business or migration from our other existing PIMS platforms, AVImark and ImproMed. I think that we can get to about 3,000 by the end of this year, and have a nice backlog in a tremendous amount of interest, whether it comes from our existing customer base or our customers that are using competitive FIM solutions.

[Christine Rains:]

Great. Thank you.

[Operator:]

And again, if you have a question at this time, . Next question is from Erin Wright with Morgan Stanley, your line is now open.

[Erin Wright:]

Great. Thanks. So it seems you're still successfully able to pass on price here. But are you hearing anything at the customer level, your vet practice customers, any push back from a pet owner perspective on that front and just more broadly, can you remind us how you're thinking about the resiliency of your business and a potentially more challenging economic backdrop. Thanks.

[Matthew Foulston:]

Hi Erin. 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 Animalytics you would see that we did 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 are following closely in the industry, you see some of our competitors actually following us on price. So no push back. The business continues to be on the forefront, I think in terms of the company's ability to succeed in a macro environment that's slowing down. I kind of pointed 2 things, one kind of micro and macro and micro basis, I think our business is actually very well suited to that environment. Our technology solutions are 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 in-clinic supply standpoint, if you're 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 going back to '08, '09, maybe it's the last turned down that animal health remain very strong. People clearly want to continue to spend on their pets. And maybe at the fringes, you see some slowdown. But this is not likely luxury or some other categories. Pets are essential parts of people have lives and families and we expect that to continue.

[Erin Wright:]

Okay. Thanks. And then how should we be thinking about the quarterly progression of just the overall prescription management growth here? Do you think that there was any lift from omicron dynamics or anything like that contributing to that or is the momentum continuing quarter-to-date on that front? And then just one other follow-up one. The tuck-in acquisition, you mentioned, what's the contribution there or any detail? Thanks.

[Matthew Foulston:]

We're still confident in the full-year number of 20% plus growth. Obviously quarter-to-quarter, you've got variations in volatility, but 20% plus is still a good number. And no significant contribution on the tuck-in acquisitions as our capability and talent acquisition.

[Operator:]

And there are no further questions. I will now turn the call back over to our presenters for closing comments.

[Ben Wolin:]

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.

[Matthew Foulston:]

Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.