PetIQ, Inc. Reports Record First Quarter 2020 Financial Results
First Quarter 2020 Net Sales Increased 26% Year-Over-Year to
Provides Business Update on COVID-19
“The world changed in
Christensen continued, “In early March as the pandemic accelerated, we experienced a steep decline in traffic and started closing wellness centers and clinics on
First Quarter 2020 Highlights Compared to Prior Year Period
- Record first quarter net sales of
$186.8 million , an increase of 25.8% - Net loss of
$2.6 million , compared to net income of$2.3 million , included$2.8 million of incremental interest expense, and$2.4 million of additional net non-same store loss contribution - Adjusted net income of
$4.6 million compared to adjusted net income of$6.0 million - Adjusted EBITDA of
$14.5 million , an increase of 33.1% - Cash and cash equivalents of
$28.1 million with total liquidity of$53.8 million , plus another$15 million of availability if the Company exercises the accordion feature of its revolving credit facility - 27 veterinary wellness centers were scheduled to open in first quarter; all openings were postponed due to COVID-19
- Announced definitive agreement to acquire Capstar® in
January 2020
COVID-19 Summary
- Product business fully operational with manufacturing and distribution capabilities that are meeting peak seasonal needs and uptick in demand from channel shift.
- Service locations have been temporarily closed nationally since
March 20 ; the reopening of certain wellness centers will startFriday, May 8, 2020 with the balance of the wellness centers and clinics to open in accordance with guidance from retail partners as well as local and state governments. - The significant variable costs within the service organization has minimized the impact from the closures. The Company continues to pay its W-2 employees two-thirds of their normal wage until re-opening. The Company is not currently incurring any expense related to its 1099 veterinarians and percentage rent paid to host retail partners, which are the main contributors to the services segment variable expense structure.
- Reduced capital expenditures; new wellness center buildouts have ceased until visibility on the operating environment improves.
- Ample liquidity to meet working capital needs.
First Quarter 2020 Financial Results
Net sales increased 25.8% to
Gross profit was
Net loss was
Adjusted net income was
First quarter adjusted EBITDA increased 33.0% to
Adjusted gross profit, adjusted net income and adjusted EBITDA are non-GAAP financial measures. The Company believes these non-GAAP financial measures provide investors with additional insight into the way management views reportable segment operations in light of changes in the Company’s operations, including the increase of manufacturing operations as a result of the Perrigo Animal Health Acquisition in the Products segment and the growth of the Company’s wellness centers, host partners, and regions within the Services segment. See “Non-GAAP Measures” for a definition of these measures and the financial tables that accompany this release for a reconciliation to the most comparable GAAP measure.
Segment Results
Products:
For the first quarter of 2020, Product segment net sales increased 31.9% to
The Company immediately implemented its pandemic response protocols across the organization and as a result has minimized any plant shut-downs. In fact, all manufacturing and distribution facilities are fully operational and have maintained production and fill rates in excess of 99% since the onset of COVID-19. The Company has paid incentives to its manufacturing and distribution work force and designed and implemented safety and cleaning protocols in all facilities to minimize exposure and protect team members.
Services:
For the first quarter of 2020, Services segment net revenues decreased 8.3% to
Services same store revenue decreased 12.6% in the first quarter ended
Prior to COVID-19, the Company was experiencing double-digit growth in pet counts and average ticket at all wellness centers and clinics. The estimated first quarter Services segment impact from COVID-19 was in excess of
The Company was on track to grand open 27 veterinary wellness centers in the first quarter of 2020. However, those wellness center openings are now postponed due to the COVID-19 outbreak and subsequent decision to suspend service operations. In support of its veterinarian wellness center expansion, the Company operated 37 regional offices as of
Balance Sheet
As of
From a working capital perspective, accounts receivable increased
COVID-19 Update & Full Year Guidance
The Company previously provided its full year 2020 guidance on
Capstar® Acquisition
As previously announced, on
Conference Call and Webcast
The Company will host a conference call with members of the executive management team to discuss these results with additional comments and details. The conference call is scheduled to begin at
In addition, the call will be broadcast live over the Internet hosted at the “Investors” section of the Company's website at www.PetIQ.com. A telephonic playback will be available through
About
Forward Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could" and similar expressions. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, the impact of COVID-19 on our business and the global economy; our ability to successfully grow our business through acquisitions; our dependency on a limited number of customers; our ability to implement our growth strategy effectively; disruptions in our manufacturing and distribution chains; competition from veterinarians and others in our industry; reputational damage to our brands; economic trends and spending on pets; the effectiveness of our marketing and trade promotion programs; recalls or withdrawals of our products or product liability claims; our ability to manage our manufacturing and supply chain effectively; disruptions in our manufacturing and distribution chains; our ability to introduce new products and improve existing products; our failure to protect our intellectual property; costs associated with governmental regulation; our ability to keep and retain key employees; our ability to sustain profitability; and the risks set forth under the “Risk Factors” of our Annual Report on Form 10-K for the year ended
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with
Adjusted net income consists of net income adjusted for tax expense, acquisition expenses, purchase accounting adjustments, integration costs and costs of discontinued clinics, new clinic launch expense, and stock based compensation expense. Adjusted net Income is utilized by management: (i) to compare operations of the Company prior to our initial public offering and (ii) to evaluate the effectiveness of our business strategies.
Adjusted gross profit consists of gross profit adjusted for purchase accounting adjustments, gross profit (loss) on veterinarian clinics and wellness centers that are not part of same store sales, and new clinic launch expense. Adjusted gross profit is utilized by management to evaluate the effectiveness of our business strategies.
EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA represents net income before interest, income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA plus adjustments for transactions that management does not believe are representative of our core ongoing business. Adjusted EBITDA margin is adjusted EBITDA stated as a percentage of net sales. Adjusted EBITDA is utilized by management: (i) as a factor in evaluating management's performance when determining incentive compensation, (ii) to evaluate the effectiveness of our business strategies and (iii) allow for improved comparability over prior periods due to significant growth in the Company’s new wellness centers. The Company presents EBITDA because it is a necessary component for computing adjusted EBITDA.
We believe that the use of adjusted net income, adjusted gross profit, adjusted EBITDA, and adjusted EBITDA margin provide additional tools for investors to use in evaluating ongoing operating results and trends. In addition, you should be aware when evaluating adjusted net income, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin, that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by these or other unusual or non-recurring items. Our computation of adjusted net income, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate adjusted net income, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin in the same manner. Our management does not, and you should not, consider adjusted net income, adjusted gross profit, adjusted EBITDA margin, or adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of adjusted net income, adjusted gross profit, adjusted EBITDA margin, and adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. See a reconciliation of Non-GAAP measures to the most comparable GAAP measure, in the financial tables that accompany this release.
Definitions
- Mobile community clinic – A mobile community clinic is defined as an event, or a visit to a retail host partner location, by the Company’s veterinary staff utilizing the Company’s mobile service vehicles. Clinic locations and schedules vary by location and seasonally. Due to the non-standardization of the Company’s mobile community clinics, these clinics are grouped as part of geographic regions. New regions and host partners are excluded from the same store sale calculation until they have six full consecutive quarters of operations.
- Veterinarian Wellness center – A veterinarian wellness center is a physical fixed service location within the existing footprint of one of our retail partners. These veterinarian wellness centers operate under a variety of brands based on the needs of our partner locations.
- Regional offices – Regional offices support the operations of the Company’s services segment which include its mobile veterinarian community clinics and wellness centers. These offices are staffed with field management and other operational staff.
CONTACT:
Investor Relations Contact: | Media Relations Contact: |
ICR 646-277-1263 jeff.sonnek@icrinc.com |
ICR 646-277-1232 cory.ziskind@icrinc.com |
Condensed Consolidated Balance Sheets | ||||||||
(Unaudited, in 000’s except for per share amounts) | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 28,108 | $ | 27,272 | ||||
Accounts receivable, net | 131,541 | 71,377 | ||||||
Inventories | 118,738 | 79,703 | ||||||
Other current assets | 8,043 | 7,071 | ||||||
Total current assets | 286,430 | 185,423 | ||||||
Property, plant and equipment, net | 54,240 | 52,525 | ||||||
Operating lease right of use assets | 20,582 | 20,785 | ||||||
Deferred tax assets | 64,149 | 59,780 | ||||||
Other non-current assets | 3,268 | 3,214 | ||||||
Intangible assets, net | 117,621 | 119,956 | ||||||
230,702 | 231,045 | |||||||
Total assets | $ | 776,992 | $ | 672,728 | ||||
Liabilities and equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 78,733 | $ | 51,538 | ||||
Accrued wages payable | 6,536 | 9,082 | ||||||
Accrued interest payable | 643 | 83 | ||||||
Other accrued expenses | 5,968 | 3,871 | ||||||
Current portion of operating leases | 4,770 | 4,619 | ||||||
Current portion of long-term debt and finance leases | 3,841 | 3,821 | ||||||
Total current liabilities | 100,491 | 73,014 | ||||||
Operating leases, less current installments | 16,283 | 16,580 | ||||||
Long-term debt, less current installments | 325,432 | 251,376 | ||||||
Finance leases, less current installments | 3,225 | 3,331 | ||||||
Other non-current liabilities | 58 | 117 | ||||||
Total non-current liabilities | 344,998 | 271,404 | ||||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Additional paid-in capital | 312,874 | 300,120 | ||||||
Class A common stock, par value |
24 | 23 | ||||||
Class B common stock, par value |
4 | 5 | ||||||
Accumulated deficit | (18,006 | ) | (15,903 | ) | ||||
Accumulated other comprehensive loss | (1,655 | ) | (1,131 | ) | ||||
Total stockholders' equity | 293,241 | 283,114 | ||||||
Non-controlling interest | 38,262 | 45,196 | ||||||
Total equity | 331,503 | 328,310 | ||||||
Total liabilities and equity | $ | 776,992 | $ | 672,728 |
Condensed Consolidated Statements of (Loss) Income | ||||||||
(Unaudited, in 000’s, except for per share amounts) | ||||||||
For the Three Months Ended | ||||||||
Product sales | $ | 166,280 | $ | 126,084 | ||||
Services revenue | 20,498 | 22,352 | ||||||
Total net sales | 186,778 | 148,436 | ||||||
Cost of products sold | 134,779 | 108,064 | ||||||
Cost of services | 19,845 | 15,642 | ||||||
Total cost of sales | 154,624 | 123,706 | ||||||
Gross profit | 32,154 | 24,730 | ||||||
Operating expenses | ||||||||
General and administrative expenses | 31,690 | 20,538 | ||||||
Contingent note revaluations gain | — | (680 | ) | |||||
Operating income | 464 | 4,872 | ||||||
Interest expense, net | (4,704 | ) | (1,937 | ) | ||||
Foreign currency gain (loss), net | 73 | (122 | ) | |||||
Other income, net | 365 | 13 | ||||||
Total other expense, net | (4,266 | ) | (2,046 | ) | ||||
Pretax net (loss) income | (3,802 | ) | 2,826 | |||||
Income tax benefit (expense) | 1,169 | (500 | ) | |||||
Net (loss) income | (2,633 | ) | 2,326 | |||||
Net (loss) income attributable to non-controlling interest | (530 | ) | 715 | |||||
Net (loss) income attributable to |
$ | (2,103 | ) | $ | 1,611 | |||
Net (loss) income per share attributable to |
||||||||
Basic | $ | (0.09 | ) | $ | 0.07 | |||
Diluted | $ | (0.09 | ) | $ | 0.07 | |||
Weighted Average shares of Class A common stock outstanding | ||||||||
Basic | 23,728 | 21,800 | ||||||
Diluted | 23,728 | 21,978 |
Condensed Consolidated Statements of Cash Flows | ||||||||
(Unaudited, in 000’s) | ||||||||
For the Three Months Ended |
||||||||
2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net (loss) income | $ | (2,633 | ) | $ | 2,326 | |||
Adjustments to reconcile net (loss) income to net cash used in operating activities | ||||||||
Depreciation and amortization of intangible assets and loan fees | 5,470 | 3,091 | ||||||
Gain on disposition of property, plant, and equipment | (375 | ) | (34 | ) | ||||
Stock based compensation expense | 2,558 | 1,544 | ||||||
Deferred tax adjustment | (1,169 | ) | 500 | |||||
Contingent note revaluation | — | (680 | ) | |||||
Other non-cash activity | 33 | 17 | ||||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (60,217 | ) | (20,444 | ) | ||||
Inventories | (39,069 | ) | (20,366 | ) | ||||
Other assets | (1,090 | ) | 21 | |||||
Accounts payable | 27,827 | 17,335 | ||||||
Accrued wages payable | (2,561 | ) | (1,150 | ) | ||||
Other accrued expenses | 2,620 | (359 | ) | |||||
Net cash used in operating activities | (68,606 | ) | (18,199 | ) | ||||
Cash flows from investing activities | ||||||||
Proceeds from disposition of property, plant, and equipment | 429 | 47 | ||||||
Purchase of property, plant, and equipment | (5,075 | ) | (897 | ) | ||||
Net cash used in investing activities | (4,646 | ) | (850 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of long-term debt | 239,600 | 134,134 | ||||||
Principal payments on long-term debt | (165,816 | ) | (125,717 | ) | ||||
Tax distributions to LLC Owners | (20 | ) | (1,378 | ) | ||||
Principal payments on finance lease obligations | (394 | ) | (371 | ) | ||||
Payment of deferred financing fees and debt discount | — | (50 | ) | |||||
Tax withholding payments on Restricted Stock Units | (149 | ) | — | |||||
Exercise of options to purchase class A common stock | 1,002 | 315 | ||||||
Net cash provided by financing activities | 74,223 | 6,933 | ||||||
Net change in cash and cash equivalents | 971 | (12,116 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (135 | ) | 123 | |||||
Cash and cash equivalents, beginning of period | 27,272 | 66,360 | ||||||
Cash and cash equivalents, end of period | $ | 28,108 | $ | 54,367 |
Summary Segment Results | ||||||||
(Unaudited, in 000’s) | ||||||||
For the three months ended | ||||||||
$'s in 000's | ||||||||
Services segment sales: | ||||||||
Same-store sales | $ | 18,216 | $ | 20,836 | ||||
Non same-store sales | 2,282 | 1,516 | ||||||
Net services segment sales | 20,498 | 22,352 | ||||||
Products segment sales | 166,280 | 126,084 | ||||||
Total net sales | 186,778 | 148,436 | ||||||
Adjusted EBITDA | ||||||||
Products | 24,279 | 13,556 | ||||||
Services | 1,989 | 5,277 | ||||||
Unallocated Corporate | (11,810 | ) | (7,961 | ) | ||||
Total Adjusted EBITDA | $ | 14,458 | $ | 10,872 |
Reconciliation between gross profit and adjusted gross profit | ||||||
(Unaudited, in 000’s) | ||||||
For the three months ended | ||||||
Gross profit | $ | 32,154 | $ | 24,730 | ||
Plus: | ||||||
Non same-store gross loss(5) | 3,441 | 1,434 | ||||
Adjusted gross profit | $ | 35,595 | $ | 26,164 |
Reconciliation between Net (Loss) Income and Adjusted EBITDA | ||||||||
(Unaudited, in 000’s) | ||||||||
For the three months ended | ||||||||
Net (loss) income | $ | (2,633 | ) | $ | 2,326 | |||
Plus: | ||||||||
Tax (benefit) expense | (1,169 | ) | 500 | |||||
Depreciation | 2,873 | 1,654 | ||||||
Amortization | 2,242 | 1,279 | ||||||
Interest | 4,704 | 1,937 | ||||||
EBITDA | $ | 6,017 | $ | 7,696 | ||||
Acquisition costs(1) | 586 | 576 | ||||||
Integration costs and costs of discontinued clinics(2) | 454 | — | ||||||
Stock based compensation expense | 2,558 | 1,544 | ||||||
Fair value adjustment of contingent note(3) | — | (680 | ) | |||||
Non same-store revenue(4) | (2,282 | ) | (1,516 | ) | ||||
Non same-store costs(4) | 6,400 | 3,252 | ||||||
Clinic launch expenses(5) | 676 | — | ||||||
Litigation expenses | 49 | — | ||||||
Adjusted EBITDA | $ | 14,458 | $ | 10,872 | ||||
Adjusted EBITDA Margin | 7.7% | 7.3% |
(1) | Acquisition costs include legal, accounting, banking, consulting, diligence, and other out-of-pocket costs related to completed and contemplated acquisitions. | |
(2) | Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses, such as personnel costs like severance and signing bonuses, consulting work, contract termination, and IT conversion costs. These costs are primarily in the Products segment and the corporate segment for personnel costs, legal and consulting expenses, and IT costs. | |
(3) | Fair value adjustment on the contingent note represents the non cash adjustment to mark the 2019 Contingent Note to fair value. | |
(4) | Non same-store revenue and costs relate to our Services segment and are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. | |
(5) | Clinic launch expenses relate to our Services segment and represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business. |
Reconciliation between net (loss) income and adjusted net income | ||||||||
(Unaudited, in 000’s) | ||||||||
Three Months Ended | ||||||||
Net (loss) income | $ | (2,633 | ) | $ | 2,326 | |||
Plus: | ||||||||
Tax expense (benefit) | (1,169 | ) | 500 | |||||
Acquisition costs(1) | 586 | 576 | ||||||
Integration costs and costs of discontinued clinics(2) | 454 | — | ||||||
Stock based compensation expense | 2,558 | 1,544 | ||||||
Fair value adjustment of contingent note(3) | — | (680 | ) | |||||
Non same-store revenue(4) | (2,282 | ) | (1,516 | ) | ||||
Non same-store costs(4) | 6,400 | 3,252 | ||||||
Clinic launch expenses(5) | 676 | — | ||||||
Litigation expenses | 49 | — | ||||||
Adjusted Net income | $ | 4,639 | $ | 6,002 |
(1) | Acquisition costs include legal, accounting, banking, consulting, diligence, and other out-of-pocket costs related to completed and contemplated acquisitions. | |
(2) | Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses, such as personnel costs like severance and signing bonuses, consulting work, contract termination, and IT conversion costs. These costs are primarily in the Products segment and the corporate segment for personnel costs, legal and consulting expenses, and IT costs. | |
(3) | Fair value adjustment on the contingent note represents the non cash adjustment to mark the 2019 Contingent Note to fair value. | |
(4) | Non same-store revenue and costs relate to our Services segment and are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. | |
(5) | Clinic launch expenses relate to our Services segment and represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business. |
Source: PetIQ, Inc.