petq_Current_Folio_10Q_Taxonomy2019

Table of Contents 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to              

Commission File Number: 001-38163

 

 

 

 

PetIQ,  Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

35‑2554312

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

 

923 S. Bridgeway Pl.

83616

Eagle, Idaho

(Zip Code)

(Address of principal executive offices)

 

208‑939‑8900

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes   ☒    No   ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☒

 

 

Non-accelerated filer ☐   

Smaller reporting company☐

 

 

Emerging growth company  ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). ☐ Yes    No

Securities registered pursuant to Section 12(b) of the Act:

 

 

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Class A Common Stock, $0.001 par value

PETQ

The Nasdaq Global Select Market

 

As of August 8, 2019, we had 22,976,976 shares of Class A common stock and 5,246,252 shares of Class B common stock outstanding.

 

 

 

Table of Contents 

PetIQ, Inc.

 

Table of Contents

 

 

 

 

 

 

 

 

    

 

    

Page

 

 

 

 

 

Part I. 

 

Financial Information

 

3

 

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

 

 

 

 

 

PetIQ, Inc. Condensed Consolidated Balance Sheets 

 

3

 

 

 

PetIQ, Inc. Condensed Consolidated Statements of Income

 

4

 

 

 

PetIQ, Inc. Condensed Consolidated Statements of Comprehensive Income

 

5

 

 

 

PetIQ, Inc. Condensed Consolidated Statements of Cash Flows

 

6

 

 

 

PetIQ, Inc. Condensed Consolidated Statements of Equity

 

8

 

 

 

PetIQ, Inc. Notes to Condensed Consolidated Financial Statements

 

10

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

Item 4.

Controls and Procedures

 

39

 

 

Item 5

Other information

 

41

 

 

 

 

 

Part II. 

 

Other Information

 

 

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

41

 

 

Item 1A.

Risk Factors

 

41

 

 

Item 6.

Exhibits

 

41

 

 

 

 

 

Signatures 

 

43

 

 

 

 

2

Table of Contents 

PetIQ, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in 000’s except for per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

June 30, 2019

    

December 31, 2018

    

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

36,564

 

$

66,360

 

Accounts receivable, net

 

 

85,129

 

 

45,007

 

Inventories

 

 

98,433

 

 

92,142

 

Other current assets

 

 

2,874

 

 

4,212

 

Total current assets

 

 

223,000

 

 

207,721

 

Property, plant and equipment, net

 

 

26,303

 

 

27,335

 

Operating lease right of use assets

 

 

11,990

 

 

 —

 

Deferred tax assets

 

 

48,620

 

 

43,946

 

Other non-current assets

 

 

2,896

 

 

2,857

 

Intangible assets, net

 

 

85,995

 

 

88,546

 

Goodwill

 

 

125,040

 

 

125,029

 

Total assets

 

$

523,844

 

$

495,434

 

Liabilities and equity

 

 

  

 

 

  

 

Current liabilities

 

 

  

 

 

  

 

Accounts payable

 

$

61,234

 

$

54,768

 

Accrued wages payable

 

 

6,725

 

 

5,295

 

Accrued interest payable

 

 

547

 

 

728

 

Other accrued expenses

 

 

877

 

 

1,154

 

Current portion of operating leases

 

 

3,306

 

 

 —

 

Current portion of long-term debt and finance leases

 

 

2,338

 

 

2,251

 

Total current liabilities

 

 

75,027

 

 

64,196

 

Operating leases, less current installments

 

 

8,895

 

 

 —

 

Long-term debt, less current installments

 

 

99,723

 

 

107,418

 

Finance leases, less current installments

 

 

1,768

 

 

2,319

 

Other non-current liabilities

 

 

254

 

 

524

 

Total non-current liabilities

 

 

110,640

 

 

110,261

 

Commitments and contingencies

 

 

  

 

 

  

 

Equity

 

 

  

 

 

  

 

Additional paid-in capital

 

 

282,343

 

 

262,219

 

Class A common stock, par value $0.001 per share, 125,000 shares authorized; 22,750 and 21,620 shares issued and outstanding, respectively

 

 

22

 

 

22

 

Class B common stock, par value $0.001 per share, 100,000 shares authorized; 5,462 and 6,547 shares issued and outstanding, respectively

 

 

 7

 

 

 7

 

Retained Earnings (Accumulated deficit)

 

 

976

 

 

(4,450)

 

Accumulated other comprehensive loss

 

 

(1,327)

 

 

(1,316)

 

Total stockholders' equity

 

 

282,020

 

 

256,481

 

Non-controlling interest

 

 

56,157

 

 

64,496

 

Total equity

 

 

338,177

 

 

320,977

 

Total liabilities and equity

 

$

523,844

 

$

495,434

 

 

 

See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents 

PetIQ, Inc.

Condensed Consolidated Statements of Income

(Unaudited, in 000’s except for per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

    

June 30, 2019

    

June 30, 2018

    

June 30, 2019

    

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

194,606

 

$

148,713

 

$

320,690

 

$

246,564

Services revenue

 

 

26,028

 

 

22,429

 

 

48,380

 

 

39,644

Total net sales

 

 

220,634

 

 

171,142

 

 

369,070

 

 

286,208

Cost of products sold

 

 

167,845

 

 

127,583

 

 

275,909

 

 

212,169

Cost of services

 

 

17,889

 

 

17,241

 

 

33,531

 

 

31,838

Total cost of sales

 

 

185,734

 

 

144,824

 

 

309,440

 

 

244,007

Gross profit

 

 

34,900

 

 

26,318

 

 

59,630

 

 

42,201

Operating expenses

 

 

 

 

 

  

 

 

  

 

 

  

General and administrative expenses

 

 

24,450

 

 

16,943

 

 

44,988

 

 

35,911

Contingent note revaluations loss

 

 

1,460

 

 

459

 

 

780

 

 

600

Operating income

 

 

8,990

 

 

8,916

 

 

13,862

 

 

5,690

Interest expense, net

 

 

(2,242)

 

 

(2,216)

 

 

(4,179)

 

 

(3,981)

Foreign currency gain (loss), net

 

 

49

 

 

136

 

 

(73)

 

 

58

  Other income (expense), net

 

 

 2

 

 

(418)

 

 

15

 

 

(373)

Total other expense, net

 

 

(2,191)

 

 

(2,498)

 

 

(4,237)

 

 

(4,296)

Pretax net income

 

 

6,799

 

 

6,418

 

 

9,625

 

 

1,394

Income tax (expense) benefit

 

 

(881)

 

 

(1,020)

 

 

(1,381)

 

 

47

Net income

 

 

5,918

 

 

5,398

 

 

8,244

 

 

1,441

Net income attributable to non-controlling interest

 

 

2,103

 

 

2,899

 

 

2,818

 

 

970

Net income attributable to PetIQ, Inc.

 

$

3,815

 

$

2,499

 

$

5,426

 

$

471

Net income per share attributable to PetIQ, Inc. Class A common stock

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.17

 

$

0.16

 

$

0.25

 

$

0.03

Diluted

 

$

0.17

 

$

0.16

 

$

0.24

 

$

0.03

Weighted Average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,365

 

 

15,980

 

 

22,087

 

 

15,285

Diluted

 

 

22,597

 

 

16,008

 

 

22,284

 

 

15,329

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

4

Table of Contents 

PetIQ, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited, in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

June 30, 2019

    

June 30, 2018

 

June 30, 2019

 

June 30, 2018

Net income

 

$

5,918

 

$

5,398

 

$

8,244

 

$

1,441

Foreign currency translation adjustment

 

 

(526)

 

 

(725)

 

 

(27)

 

 

(289)

Comprehensive income

 

 

5,392

 

 

4,673

 

 

8,217

 

 

1,152

Comprehensive income attributable to non-controlling interest

 

 

1,998

 

 

2,668

 

 

2,806

 

 

901

Comprehensive income attributable to PetIQ

 

$

3,394

 

$

2,005

 

$

5,411

 

$

251

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 

5

Table of Contents 

PetIQ, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in 000’s)

 

 

 

 

 

 

 

 

    

For the Six Months Ended June 30, 

 

 

2019

 

2018

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

8,244

 

$

1,441

Adjustments to reconcile net income to net cash used in operating activities

 

 

  

 

 

  

Depreciation and amortization of intangible assets and loan fees

 

 

6,056

 

 

5,714

Foreign exchange gain on liabilities

 

 

 —

 

 

(41)

Gain on disposition of property, plant, and equipment

 

 

(62)

 

 

(49)

Stock based compensation expense

 

 

3,146

 

 

1,454

Deferred tax adjustment

 

 

1,638

 

 

(47)

Contingent note revaluations

 

 

780

 

 

600

Other non-cash activity

 

 

56

 

 

(334)

Changes in assets and liabilities

 

 

 

 

 

 

Accounts receivable

 

 

(40,218)

 

 

(20,820)

Inventories

 

 

(6,294)

 

 

(29,384)

Other assets

 

 

1,250

 

 

2,654

Accounts payable

 

 

6,656

 

 

31,859

Accrued wages payable

 

 

1,407

 

 

410

Other accrued expenses

 

 

(717)

 

 

(2,304)

Net cash used in operating activities

 

 

(18,058)

 

 

(8,847)

Cash flows from investing activities

 

 

  

 

 

  

Proceeds from disposition of property, plant, and equipment

 

 

69

 

 

103

Purchase of property, plant, and equipment

 

 

(1,730)

 

 

(4,732)

Business acquisitions (net of cash acquired)

 

 

 —

 

 

(92,083)

Net cash used in investing activities

 

 

(1,661)

 

 

(96,712)

Cash flows from financing activities

 

 

  

 

 

  

Proceeds from issuance of long-term debt

 

 

323,144

 

 

299,078

Principal payments on long-term debt

 

 

(331,856)

 

 

(215,964)

Tax Distributions to LLC Owners

 

 

(1,378)

 

 

(574)

Principal payments on finance lease obligations

 

 

(737)

 

 

(561)

Payment of deferred financing fees and debt discount

 

 

(50)

 

 

(2,613)

Exercise of options to purchase common stock

 

 

798

 

 

 —

Net cash (used in) provided by financing activities

 

 

(10,079)

 

 

79,366

Net change in cash and cash equivalents

 

 

(29,798)

 

 

(26,193)

Effect of exchange rate changes on cash and cash equivalents

 

 

 2

 

 

(31)

Cash and cash equivalents, beginning of period

 

 

66,360

 

 

37,896

Cash and cash equivalents, end of period

 

$

36,564

 

$

11,672

 

 

 

 

 

 

 

 

See accompanying notes to the condensed consolidated financial statements.

6

Table of Contents 

PetIQ, Inc.

Condensed Consolidated Statements of Cash Flows, Continued

(Unaudited, in 000’s)

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 

Supplemental cash flow information

 

2019

 

2018

Interest paid

 

$

4,454

 

$

3,104

Property, plant, and equipment acquired through accounts payable

 

 

(164)

 

 

(433)

Finance lease additions

 

 

315

 

 

34

Net change of deferred tax asset from step-up in basis

 

 

6,093

 

 

12,505

Income taxes paid

 

 

197

 

 

400

Accrued tax distribution

 

 

1,054

 

 

693

Non cash consideration - Contingent notes

 

 

 —

 

 

6,900

Non cash consideration - Guarantee note

 

 

 —

 

 

10,000

Non cash consideration - Issuance of Class B common stock and LLC Interests

 

 

 —

 

 

90,031

 

 

 

 

 

 

7

Table of Contents

PetIQ, Inc.

Condensed Consolidated Statements of Equity

(Unaudited, in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2019

 

 

Retained

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings/

 

Other

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

(Accumulated

 

Comprehensive

 

 

 

 

 

 

 

 

 

Paid-in

 

Non-controlling

 

Total

 

 

Deficit)

 

Loss

 

Class A Common

 

Class B Common

 

Capital

 

Interest

 

Equity

 

 

 

 

 

 

Shares

 

Dollars

 

Shares

 

Dollars

 

 

 

 

 

 

Balance - March 31, 2019

 

$

(2,839)

 

$

(941)

 

 

22,157

 

$

22

 

 

6,028

 

$

 6

 

$

271,916

 

$

60,418

 

$

328,582

Exchange of LLC Interests held by  LLC Owners

 

 

 —

 

 

35

 

 

566

 

 

 —

 

 

(566)

 

 

 1

 

 

5,759

 

 

(5,794)

 

 

 —

Net increase in deferred tax asset from LLC Interest transactions

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,955

 

 

 —

 

 

2,955

Accrued tax distributions

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(797)

 

 

(797)

Other comprehensive loss

 

 

 —

 

 

(421)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(105)

 

 

(526)

Stock based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,230

 

 

332

 

 

1,562

Exercise of Options to purchase Common Stock

 

 

 —

 

 

 —

 

 

22

 

 

 —

 

 

 —

 

 

 —

 

 

483

 

 

 —

 

 

483

Issuance of stock for vesting of RSU's

 

 

 —

 

 

 —

 

 

 5

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net Income

 

 

3,815

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,103

 

 

5,918

Balance - June 30, 2019

 

$

976

 

$

(1,327)

 

 

22,750

 

$

22

 

 

5,462

 

$

 7

 

$

282,343

 

$

56,157

 

$

338,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

Retained

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings/

 

Other

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

(Accumulated

 

Comprehensive

 

 

 

 

 

 

 

 

 

Paid-in

 

Non-controlling

 

Total

 

 

 

Deficit)

 

Loss

 

Class A Common

 

Class B Common

 

Capital

 

Interest

 

Equity

 

 

 

 

 

 

 

Shares

 

Dollars

 

Shares

 

Dollars

 

 

 

 

 

 

Balance - December 31, 2018

 

$

(4,450)

 

$

(1,316)

 

 

21,620

 

$

22

 

 

6,547

 

$

 7

 

$

262,219

 

$

64,496

 

$

320,977

Exchange of LLC Interests held by  LLC Owners

 

 

 —

 

 

 4

 

 

1,085

 

 

 —

 

 

(1,085)

 

 

 —

 

 

10,808

 

 

(10,812)

 

 

 —

Net increase in deferred tax asset from LLC Interest transactions

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

6,093

 

 

 —

 

 

6,093

Accrued tax distributions

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,054)

 

 

(1,054)

Other comprehensive loss

 

 

 —

 

 

(15)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(12)

 

 

(27)

Stock based compensation expense

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,425

 

 

721

 

 

3,146

Exercise of Options to purchase Common Stock

 

 

 —

 

 

 —

 

 

38

 

 

 —

 

 

 —

 

 

 —

 

 

798

 

 

 —

 

 

798

Issuance of stock for vesting of RSU's

 

 

 —

 

 

 —

 

 

 7

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Net Income

 

 

5,426

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,818

 

 

8,244

Balance - June 30, 2019

 

$

976

 

$

(1,327)

 

 

22,750

 

$

22

 

 

5,462

 

$

 7

 

$

282,343

 

$

56,157

 

$

338,177

Note that certain figures shown in the tables above may not recalculate due to rounding.

 

See accompanying notes to the condensed consolidated financial statements.

8

Table of Contents

 

PetIQ, Inc.

Condensed Consolidated Statements of Equity (continued)

(Unaudited, in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2018

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Accumulated

 

Comprehensive

 

 

 

 

 

 

 

 

 

Paid-in

 

Non-controlling

 

Total

 

 

 

Deficit

 

Loss

 

Class A Common

 

Class B Common

 

Capital

 

Interest

 

Equity

 

 

 

 

 

 

 

Shares

 

Dollars

 

Shares

 

Dollars

 

 

 

 

 

 

Balance - March 31, 2018

 

$

(5,696)

 

 

$

(427)

 

 

16,132

 

$

16

 

 

8,402

 

$

 8

 

$

137,916

 

$

68,497

 

$

200,314

ASC 606 adoption, net of tax

 

 

 -

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Issuance of equity for business combination

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

1,157

 

 

 1

 

 

(1)

 

 

 —

 

 

 —

Exchange of LLC Interests held by Continuing LLC Owners

 

 

 —

 

 

 

 8

 

 

516

 

 

 —

 

 

(516)

 

 

 —

 

 

4,132

 

 

(4,140)

 

 

 —

Net increase in deferred tax asset from LLC Interest transactions

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,524

 

 

 —

 

 

3,524

Accrued tax distributions

 

 

 —

 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(259)

 

 

(259)

Other comprehensive loss

 

 

 —

 

 

 

(494)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(231)

 

 

(725)

Stock based compensation expense

 

 

 —

 

 

 

 —