PetIQ, Inc. Reports Record First Quarter 2022 Financial Results
Reports First Quarter
Company Provides Second Quarter 2022 Guidance and Reiterates Full Year 2022 Outlook
First Quarter 2022 Highlights Compared to Prior Year Period
- Record net sales of
$275.7 million compared to$254.3 million , an increase of 8.4%; for comparative purposes, net sales increased 17.8%, excluding$20.2 million of sales related to loss of distribution rights for certain animal health manufacturing products, previously communicated - Product segment net sales of
$247.8 million compared to$230.0 million , an increase of 7.7%; Product segment net sales increased 18.1% excluding the aforementioned item - PetIQ’s manufactured products increased to 26.6% of Product segment net sales compared to 22.4%
- Services segment net revenues of
$27.9 million compared to$24.3 million , an increase of 14.9% - Gross margin increased 210 basis points to 20.9%; adjusted gross margin increased 270 basis points to 23.6%
- Net income increased 32.4% to
$3.2 million , or earnings per diluted share of$0.11 , compared to$2.4 million , or earnings per diluted share of$0.08 - Adjusted net income increased 66.0% to
$18.3 million , or earnings per diluted share of$0.62 , compared to$11.0 million , or earnings per diluted share of$0.41 , an increase of 51.2% - Adjusted EBITDA of
$31.6 million compared to$26.9 million , an increase of 17.6% - Adjusted EBITDA margin increased 90 basis points to 11.5%
- Four new wellness center openings in the first quarter of 2022
First Quarter 2022 Financial Results
Record net sales of
First quarter 2022 gross profit was
Selling, general and administrative expenses (“SG&A”) was
Net income was
First quarter adjusted EBITDA was
Adjusted gross profit, adjusted gross margin, adjusted SG&A, adjusted net income, Non-GAAP adjusted EPS, adjusted EBITDA, and adjusted EBITDA margin 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. See “Non-GAAP Financial 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
Product:
For the first quarter of 2022, Product segment net sales increased 7.7% to
Product segment adjusted EBITDA increased 23.5% to
Services:
For the first quarter of 2022, Services segment net revenues were
Cash Flow and Balance Sheet
As of
Outlook
The Company is reiterating its annual outlook and providing second quarter 2022 guidance.
For the full year 2022 the Company expects:
- Net sales of approximately
$985 million representing an increase of 5.6% compared to 2021. For comparative purposes, the Company expects net sales to increase approximately 10.0% excluding$36.1 million of sales related to loss of distribution rights for certain animal health manufacturing products, previously communicated the last few quarters. - Adjusted EBITDA of approximately
$100 million representing an increase of 7.6% compared to 2021. For comparative purposes, the Company expects adjusted EBITDA to increase approximately 10.0%, excluding$1.8 million in adjusted EBITDA related to loss of distribution rights for certain animal health manufacturing products, previously communicated the last few quarters.
The Company’s annual adjusted EBITDA outlook continues to assume adjusted SG&A will increase approximately 100 basis points to 17.3% in 2022 compared to 16.3% in 2021 as a result of an incremental
The Company is updating its expectations for 2022 net sales seasonality. As a result of a shift in timing of
For the second quarter of 2022 the Company expects:
- Net sales of approximately
$260 million compared to$271 million of net sales in the second quarter of 2021. For comparative purposes, the Company expects net sales to be flat to second quarter of 2021 when excluding$11.8 million of sales related to loss of distribution rights for certain animal health manufacturing products, previously communicated the last few quarters. As noted above there is also a shift in timing of$5.0 million in orders and sales to the first quarter of 2022 from the second quarter of 2022, and the noted slower start than normal in the month of April of the flea and tick season. - Adjusted EBITDA of approximately
$28 million compared to$34.8 million in the second quarter of 2021. The Company’s second quarter of 2022 adjusted EBITDA outlook assumes adjusted SG&A as a percent of net sales to be 340 basis points higher than the second quarter of 2021 at 17.5%, due to an incremental$7.0 million , or approximately 260 basis points of expense, to support two of its significant new manufactured brand introductions and continued marketing investments to help accelerate growth of its manufactured brand product portfolio.
Announces Executive Leadership Team Changes
In a separate press release today, the Company announced that
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 today 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
Contact: Investor.relations@petiq.com or 208.513.1513
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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; 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 ability 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” section 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, integration costs and costs of discontinued clinics, non-same-store revenue, non-same-store costs, litigation costs, stock-based compensation expense, and COVID-19 related costs. Adjusted net income is utilized by management to evaluate the effectiveness of our business strategies. Non-GAAP adjusted earnings per share is defined as non-GAAP adjusted net income divided by the weighted average number of shares of common stock outstanding during the period.
Adjusted gross profit consists of gross profit adjusted for gross (profit) loss on veterinarian clinics and wellness centers that are not part of same store sales. Adjusted gross profit is utilized by management to evaluate the effectiveness of our business strategies.
Adjusted SG&A consists of SG&A adjusted for acquisition expenses, stock-based compensation expense, non-same store adjustment, integration costs and costs of discontinued clinics, and litigation expense.
EBITDA, Adjusted EBITDA and Adjusted EBITDA margin 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, Non-GAAP adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted selling, general and administrative expenses (Adjusted SG&A), 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 SG&A, adjusted EBITDA (and accordingly, non-GAAP adjusted earnings per share 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 gross margin, adjusted SG&A, 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 SG&A, 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 gross margin, adjusted SG&A, 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 gross margin, adjusted SG&A, 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 clinic – A mobile 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 clinics, these clinics are grouped as part of geographic regions.
- Wellness center – A wellness center is a physical fixed service location within the existing footprint of one of our retail partners. These wellness centers operate under a variety of brands based on the needs of our partner locations.
Condensed Consolidated Balance Sheets
(Unaudited, in 000’s except for per share amounts)
| Current assets | ||||||||
| Cash and cash equivalents | $ | 51,104 | $ | 79,406 | ||||
| Accounts receivable, net | 179,058 | 113,947 | ||||||
| Inventories | 167,714 | 96,440 | ||||||
| Other current assets | 10,148 | 8,896 | ||||||
| Total current assets | 408,024 | 298,689 | ||||||
| Property, plant and equipment, net | 78,194 | 76,613 | ||||||
| Operating lease right of use assets | 19,162 | 20,489 | ||||||
| Other non-current assets | 1,970 | 2,024 | ||||||
| Intangible assets, net | 186,111 | 190,662 | ||||||
| 230,973 | 231,110 | |||||||
| Total assets | $ | 924,434 | $ | 819,587 | ||||
| Liabilities and equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 128,913 | $ | 55,057 | ||||
| Accrued wages payable | 11,236 | 12,704 | ||||||
| Accrued interest payable | 5,099 | 3,811 | ||||||
| Other accrued expenses | 13,709 | 11,680 | ||||||
| Current portion of operating leases | 6,047 | 6,500 | ||||||
| Current portion of long-term debt and finance leases | 8,411 | 8,350 | ||||||
| Total current liabilities | 173,415 | 98,102 | ||||||
| Operating leases, less current installments | 14,300 | 14,843 | ||||||
| Long-term debt, less current installments | 472,945 | 448,470 | ||||||
| Finance leases, less current installments | 2,164 | 2,493 | ||||||
| Other non-current liabilities | 451 | 459 | ||||||
| Total non-current liabilities | 489,860 | 466,265 | ||||||
| Equity | ||||||||
| Additional paid-in capital | 371,398 | 368,006 | ||||||
| Class A common stock, par value |
29 | 29 | ||||||
| Class B common stock, par value |
— | — | ||||||
| Accumulated deficit | (111,394 | ) | (114,525 | ) | ||||
| Accumulated other comprehensive loss | (1,136 | ) | (684 | ) | ||||
| Total stockholders' equity | 258,897 | 252,826 | ||||||
| Non-controlling interest | 2,262 | 2,394 | ||||||
| Total equity | 261,159 | 255,220 | ||||||
| Total liabilities and equity | $ | 924,434 | $ | 819,587 | ||||
Condensed Consolidated Statements of Operations
(Unaudited, in 000’s, except for per share amounts)
| For the Three Months Ended | ||||||||
| Product sales | $ | 247,750 | $ | 230,034 | ||||
| Services revenue | 27,945 | 24,313 | ||||||
| Total net sales | 275,695 | 254,347 | ||||||
| Cost of products sold | 190,851 | 182,827 | ||||||
| Cost of services | 27,209 | 23,721 | ||||||
| Total cost of sales | 218,060 | 206,548 | ||||||
| Gross profit | 57,635 | 47,799 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative expenses | 48,236 | 40,672 | ||||||
| Operating income | 9,399 | 7,127 | ||||||
| Interest expense, net | 6,121 | 4,870 | ||||||
| Other income, net | (3 | ) | (204 | ) | ||||
| Total other expense, net | 6,118 | 4,666 | ||||||
| Pretax net income | 3,281 | 2,461 | ||||||
| Income tax expense | (121 | ) | (75 | ) | ||||
| Net income | 3,160 | 2,386 | ||||||
| Net income attributable to non-controlling interest | 29 | 353 | ||||||
| Net income attributable to |
$ | 3,131 | $ | 2,033 | ||||
| Net income per share attributable to |
||||||||
| Basic | $ | 0.11 | $ | 0.08 | ||||
| Diluted | $ | 0.11 | $ | 0.08 | ||||
| Weighted Average shares of Class A common stock outstanding | ||||||||
| Basic | 29,164 | 26,386 | ||||||
| Diluted | 29,290 | 27,004 | ||||||
Condensed Consolidated Statements of Cash Flows
(Unaudited, in 000’s)
| For the Three Months Ended |
||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net income | $ | 3,160 | $ | 2,386 | ||||
| Adjustments to reconcile net income to net cash used in operating activities | ||||||||
| Depreciation, amortization of intangible assets and loan fees | 8,966 | 12,351 | ||||||
| Loss on disposition of property, plant, and equipment | 148 | 30 | ||||||
| Stock based compensation expense | 3,823 | 2,122 | ||||||
| Other non-cash activity | 316 | 145 | ||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | (65,026 | ) | (72,423 | ) | ||||
| Inventories | (71,417 | ) | (32,767 | ) | ||||
| Other assets | (1,273 | ) | (726 | ) | ||||
| Accounts payable | 74,094 | 32,182 | ||||||
| Accrued wages payable | (1,496 | ) | (2,184 | ) | ||||
| Other accrued expenses | 3,325 | 1,531 | ||||||
| Net cash used in operating activities | (45,380 | ) | (57,353 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of property, plant, and equipment | (5,678 | ) | (8,325 | ) | ||||
| Net cash used in investing activities | (5,678 | ) | (8,325 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from issuance of long-term debt | 40,000 | 242,500 | ||||||
| Principal payments on long-term debt | (16,150 | ) | (204,641 | ) | ||||
| Principal payments on finance lease obligations | (399 | ) | (468 | ) | ||||
| Tax withholding payments on Restricted Stock Units | (688 | ) | (802 | ) | ||||
| Exercise of options to purchase class A common stock | 100 | 6,580 | ||||||
| Net cash provided by financing activities | 22,863 | 43,169 | ||||||
| Net change in cash and cash equivalents | (28,195 | ) | (22,509 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (107 | ) | 117 | |||||
| Cash and cash equivalents, beginning of period | 79,406 | 33,456 | ||||||
| Cash and cash equivalents, end of period | $ | 51,104 | $ | 11,064 | ||||
Summary Segment Results
(Unaudited, in 000’s)
| For the three months ended | ||||||||
| $'s in 000's | ||||||||
| Products segment sales | $ | 247,750 | $ | 230,034 | ||||
| Services segment revenue: | ||||||||
| Same-store sales | 20,725 | 19,918 | ||||||
| Non same-store sales | 7,220 | 4,395 | ||||||
| Total services segment revenue | 27,945 | 24,313 | ||||||
| Total net sales | 275,695 | 254,347 | ||||||
| Adjusted EBITDA | ||||||||
| Products | 47,909 | 38,792 | ||||||
| Services | 3,084 | 2,096 | ||||||
| Unallocated Corporate | (19,398 | ) | (14,027 | ) | ||||
| Total Adjusted EBITDA | $ | 31,595 | $ | 26,861 | ||||
Reconciliation between gross profit and adjusted gross profit
(Unaudited, in 000’s)
| For the three months ended | ||||||||
| Gross profit | $ | 57,635 | $ | 47,799 | ||||
| Plus: | ||||||||
| Non same-store gross (profit) loss(2) | 5,709 | 4,539 | ||||||
| Adjusted gross profit | $ | 63,344 | $ | 52,338 | ||||
| Gross Margin % | 20.9 | % | 18.8 | % | ||||
| Adjusted gross margin % | 23.6 | % | 20.9 | % | ||||
Reconciliation between Selling, General &Administrative (“SG&A”) and Adjusted SG&A
(Unaudited, in 000’s)
| For the three months ended | ||||||||
| SG&A | $ | 48,236 | $ | 40,672 | ||||
| Less: | ||||||||
| Acquisition costs(1) | — | 6 | ||||||
| Stock based compensation expense | 3,823 | 2,122 | ||||||
| Non same-store adjustment(2) | 2,465 | 1,685 | ||||||
| Integration costs and costs of discontinued clinics(3) | 339 | (48 | ) | |||||
| Litigation expenses | 2,661 | 243 | ||||||
| Adjusted SG&A | $ | 38,948 | $ | 36,664 | ||||
| % of Sales (GAAP) | 17.5 | % | 16.0 | % | ||||
| % of Sales (Adjusted) | 14.5 | % | 14.7 | % | ||||
Reconciliation between Net Income and Adjusted EBITDA
(Unaudited, in 000’s)
| For the three months ended | ||||||||
| Net income | $ | 3,160 | $ | 2,386 | ||||
| Plus: | ||||||||
| Tax expense | 121 | 75 | ||||||
| Depreciation | 3,682 | 3,131 | ||||||
| Amortization | 4,523 | 8,428 | ||||||
| Interest | 6,121 | 4,870 | ||||||
| EBITDA | $ | 17,607 | $ | 18,890 | ||||
| Acquisition costs(1) | — | 6 | ||||||
| Stock based compensation expense | 3,823 | 2,122 | ||||||
| Non same-store adjustment(2) | 7,165 | 5,648 | ||||||
| Integration costs and costs of discontinued clinics(3) | 339 | (48 | ) | |||||
| Litigation expenses | 2,661 | 243 | ||||||
| Adjusted EBITDA | $ | 31,595 | $ | 26,861 | ||||
| Adjusted EBITDA Margin | 11.5 | % | 10.6 | % | ||||
(1) Acquisition costs include legal, accounting, banking, consulting, diligence, and other costs related to completed and contemplated acquisitions.
(2) Non same-store adjustment includes revenue and costs, and associated gross profit, related to our Services segment wellness centers and host partners with less than six full quarters of operating results, and also include pre-opening expenses.
(3) Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses including personnel costs such as severance and signing bonuses, consulting costs, contract termination, and IT conversion costs. Depending on the type of costs, the costs are primarily in the Products segment and the corporate segment. Costs of discontinued clinics represent costs to close Service segment locations.
Reconciliation between Net Income and Adjusted Net Income
(Unaudited, in 000’s, except for per share amounts)
| Three Months Ended | |||||||
| Net income | $ | 3,160 | $ | 2,386 | |||
| Plus: | |||||||
| Tax expense | 121 | 75 | |||||
| Acquisition costs(1) | — | 6 | |||||
| Stock based compensation expense | 3,823 | 2,122 | |||||
| Non same-store adjustment(2) | 8,174 | 6,224 | |||||
| Integration costs and costs of discontinued clinics(3) | 339 | (48 | ) | ||||
| Litigation expenses | 2,661 | 243 | |||||
| Adjusted Net income | $ | 18,278 | $ | 11,009 | |||
| Non-GAAP adjusted EPS | |||||||
| Basic | $ | 0.63 | $ | 0.42 | |||
| Diluted | $ | 0.62 | $ | 0.41 | |||
| Weighted Average shares of Class A common stock outstanding used to compute non-GAAP adjusted EPS | |||||||
| Basic | 29,164 | 26,386 | |||||
| Diluted | 29,290 | 27,004 | |||||
(1) Acquisition costs include legal, accounting, banking, consulting, diligence, and other costs related to completed and contemplated acquisitions.
(2) Non same-store adjustment includes revenue and costs, and associated gross profit, related to our Services segment wellness centers and host partners with less than six full quarters of operating results, and also include pre-opening expenses.
(3) Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses including personnel costs such as severance and signing bonuses, consulting costs, contract termination, and IT conversion costs. Depending on the type of costs, the costs are primarily in the Products segment and the corporate segment. Costs of discontinued clinics represent costs to close Service segment locations.
Pro forma Impact of Loss of Distribution
(Unaudited, in 000’s)
| For the Three Months Ended | For the Year Ended | |||||||||||||
| Total net sales | $ | 254,347 | 271,011 | 210,534 | 196,636 | $ | 932,528 | |||||||
| Lost Distribution | (20,250 | ) | (11,830 | ) | (3,510 | ) | (480 | ) | (36,070 | ) | ||||
| Pro forma |
234,097 | 259,181 | 207,024 | 196,156 | 896,458 | |||||||||
| Total Adjusted EBITDA | 26,861 | 34,359 | 16,364 | 15,308 | 92,892 | |||||||||
| Lost Distribution | (1,012 | ) | (592 | ) | (175 | ) | (24 | ) | (1,803 | ) | ||||
| Pro forma Adjusted EBITDA | $ | 25,849 | 33,767 | 16,189 | 15,284 | $ | 91,089 | |||||||
Source: PetIQ, Inc.