Novel Coronavirus Disease 2019 ("COVID-19")

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Novel Coronavirus Disease (COVID-19)

Novel Coronavirus Disease 2019 (“COVID-19”)

The COVID-19 pandemic has resulted in social distancing and other measures that were instituted in various localities around the world. These measures led to phased temporary closures of non-essential businesses throughout many of the regions in which we conduct operations. However, veterinary care has been deemed an essential business in most of these regions and we continue to deliver products and services to our customers and their animal-owner clients. In addition, most of our customers are generally able to continue their operations through new social distancing guidelines which, depending on local regulations, can include telehealth and animal curbside check-in and drop-off at clinics. As a result, through June 30, 2020, we experienced limited disruption to our results of operations from the COVID-19 pandemic. However, the COVID-19 pandemic has created volatility and unpredictability to our business, including shifts in timing and channel mix, reduced travel and entertainment expenses due to travel restrictions, as well as other changes.

We believe our allowance for credit losses related to our accounts receivable is adequate as of June 30, 2020, due to the essential nature of our customers' businesses, as noted above, as well as the historic behavior of our large customer base. As the COVID-19 pandemic continues, there could be an increase in the aging of our accounts receivable, however, we do not anticipate a significant increase in defaults for such accounts receivable.

During the first quarter ended March 31, 2020, we experienced a sustained decline in our share price and a resulting decrease in our market capitalization due to the overall macroeconomic effects of the COVID-19 pandemic. Due to this overall market decline and the uncertainty surrounding COVID-19, we concluded that a triggering event occurred and conducted an interim impairment review of our goodwill as of March 31, 2020. We tested for goodwill impairment by quantitatively comparing the fair value of our North America reporting unit (the only reporting unit currently bearing goodwill) to its carrying amount. Using the income-based approach, fair value exceeded the carrying amount as of March 31, 2020. We did not experience triggering events during the second quarter ended June 30, 2020.

We took the following actions to help ensure that our business has flexibility to mitigate potential effects from continued global economic pressure:

•During the quarter ended March 31, 2020, we borrowed funds under our revolving line of credit to increase our cash position and provide flexibility. In May 2020, we used a portion of the $244 million in aggregate net proceeds from the issuance of our Series A Convertible Preferred Stock to repay borrowings under our revolving line of credit. See Note 7 - Long-term Debt and Other Borrowings, Net and Note 12 - Redeemable Series A Convertible Preferred Stock.

•We reduced our non-critical, near-term planned capital expenditures.

•We negotiated for extended payment terms on certain contracts.

•We managed our inventory levels in line with expected demand.

•We instituted cost containment measures including temporary executive, board, and other senior-level employee compensation reductions, employee furloughs in certain European countries, certain shift eliminations, a temporary hiring freeze, discretionary spending deferrals, deferred payroll taxes as available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and suspended our 401(k)-employer match.

Some of these actions have been eased alongside our improved business performance and the recovery in our end-market. For example, in July, we returned to pre-COVID-19 compensation levels and, in August, we expect to reinstate our 401(k)-employer match. Hiring for our business was strictly limited, especially in response to the COVID-19 pandemic; however, we are relaxing the restrictions we instituted as part of our temporary hiring freeze. We continue to monitor our business performance and intend to take a cautious, but balanced approach in managing our expenses in light of uncertainty created by the COVID-19 pandemic.

Risk and Uncertainties

The duration and severity of COVID-19-related potential disruptions and the actions we have taken, and may take in the future, in response thereto, involve risks and uncertainties, and it is not possible at this time to estimate the impact that COVID-19 could have on our business. The impact of COVID-19 on various business activities in affected countries could adversely affect our estimates, results of operations, and financial condition.