UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): November 7, 2019

 

PETIQ, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

(208) 939-8900

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



☒ Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act (17 CFR 240.12b-2)

 

☒  Indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act (17 CFR 240.13(a)-1)

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

 

 

 

 

 

Item 2.02 Results of Operations and Financial Condition.*

 

On November 7, 2019,  PetIQ, Inc. (“the Company”) issued a press release announcing certain financial results for its three and nine months ended September 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1.

 

Item 9.01 Financial Statements and Exhibits.

 

 

 

*The information furnished under Items 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

PetIQ, Inc. Reports Record Third Quarter 2019 Financial Results

Third Quarter 2019 Net Sales Increased 42% Year-Over-Year to $186 Million

Reiterates Full Year 2019 Outlook

On Track to Open 80 Planned Wellness Centers in 2019

EAGLE, Idaho – November 7, 2019 – PetIQ, Inc. (“PetIQ” or the “Company”) (Nasdaq: PETQ), a leading pet medication and wellness company, today reported financial results for the third quarter and nine months ended September  30, 2019.

Third Quarter 2019 Highlights Compared to Prior Year Period

“Our record quarterly net sales demonstrates the strength of our diversified pet health and wellness business,” commented Cord Christensen, PetIQ’s Chairman and Chief Executive Officer.  “The Products segment delivered another quarter of outstanding growth as we benefited from the distribution relationships we have with our animal health pharmaceutical partners, an acceleration in our manufactured brands and an increasing number of pet parents transitioning their pet health care needs to PetIQ’s affordable and convenient offerings.  In the Services segment, we remain on track with our growth initiatives and our team continues to execute on our plan to open 80 wellness centers in 2019.  We are experiencing an accelerated ramp to profitability in the pop-up community clinics that we have converted into permanent wellness centers, which further reinforces our conviction that the Services segment can drive sustainable long-term growth.”

Christensen continued, “Since completing the Perrigo Animal Health acquisition in July, our team has made a tremendous amount of progress on the integration and we remain on-track to achieve our stated synergies with continued growth in this business expected for 2020.  PetIQ remains uniquely positioned through our complementary veterinarian products and services offering, which is anchored in our mission of providing Smarter Pet Health as we capitalize on the robust consumer and animal health industry tailwinds for many years to come.”

Third Quarter 2019 Financial Results

Net sales increased 42% to $186.0 million for the third quarter of 2019, compared to $131.4 million for the same period in the prior year. Excluding contribution from Perrigo Animal Health, net sales increased 29%.  Product segment net sales were $161.5 million and Services segment revenues were $24.5 million in the third quarter of 2019. The increase in consolidated net sales primarily reflects growth in existing

retail partners and sales contribution from the recent Perrigo Animal Health acquisition. The business is being driven by an increase in the number of pet parents moving their pet health care needs to PetIQ’s products and services, expanded item placement and marketing programs at existing customers, as well as a continued increase in pet count within the Services segment.

 

Gross profit was $27.3 million, an increase of 13%, compared to $24.2 million in the same period last year. Gross margin for the quarter was 14.7%. Adjusted gross profit was $39.0 million and adjusted gross margin increased 80 basis points to  21.0% for the third quarter 2019.  The GAAP gross margin to adjusted gross margin difference of 630 basis points is a result of the exclusion of non-same-store Services segment revenue contribution and related costs of sales.  

 

Net loss was $8.8 million, including $12.0 million of non-recurring costs related to the acquisition of Perrigo Animal Health, integration expenses including SKU rationalization, and an inventory purchase accounting adjustment.  Excluding these non-recurring expenses in the current year and $0.2 million in the prior year period, third quarter pre-tax net income would have been $3.3 million as compared to $4.1 million in prior year period. Adjusted net income was $9.3 million for the third quarter of 2019, compared to $8.2 million in the prior year period.  Additionally, interest expense was $3.6 million higher in third quarter 2019 versus the prior year due to the financing of the Perrigo Animal Health acquisition that closed at the beginning of July. Third quarter 2019 adjusted net income excludes additional items such as stock-based compensation expense, tax expense, fair value adjustment to contingent note, clinic launch expense, and operating losses associated with the 34 veterinary wellness centers, one new host partner, and seven regional offices that have been open less than six trailing quarters in our Services segment.

 

Third quarter adjusted EBITDA increased 44% to $19.3 million, representing an adjusted EBITDA margin of 10.4%, compared to $13.4 million, representing a 10.2% margin, for the same period in the prior year.  The increase in adjusted EBITDA was a result of higher net sales resulting in increased adjusted gross profit.

 

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 the CODM 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.

 

First Nine Months of Fiscal 2019 Highlights Compared to Prior Year Period

 

Net sales increased 33% to $555.1 million for the first nine months of 2019, compared to $417.6 million for the same period in the prior year. Excluding contribution from Perrigo Animal Health, net sales increased 29%. Product segment sales were $482.2 million and the Services segment net revenues were $72.9 million for the first nine months of 2019.

 

Gross profit was $86.9 million, an increase of 30.9%, as compared to $66.4 million in the same period last year. Gross margin for the first nine months of 2019 was 15.7%. Adjusted gross profit was $102.2 million and adjusted gross margin increased 120 basis points to 18.4% for the nine months ended September 30, 2019.  The GAAP gross margin to adjusted gross margin difference of 270 basis points was the result of the exclusion of non-same-store Services segment revenue contribution and related costs of sales and SKU rationalization and purchase accounting adjustments related to the Perrigo Animal Health Acquisition.

 

Year-to-date net loss was $0.6 million and includes non-recurring acquisition costs of $16.6 million in the current year and $5.8 million in the prior year period,  related to the Perrigo Animal Health acquisition,  HBH and VIP Petcare acquisitions, such as integration expenses, SKU rationalization costs and an inventory purchase accounting adjustment.  Excluding these non-recurring expenses in both periods, year-to-date pre-tax net income would have been $16.1 million as compared to $11.1 million in prior year period. Adjusted net income was $31.1 million for the first nine months of 2019,  an increase of 52% compared to $20.4 million in the prior year period. Additionally, interest expense was $3.8 million higher versus the prior year period which was nearly entirely due to funding of the Perrigo Animal Health acquisition that closed at the beginning of July. Adjusted net income excludes acquisition costs, stock-based compensation expense, tax expense, fair value adjustment to contingent note, integration costs, SKU rationalization and operating losses associated with the 34 non-comparable newly opened veterinary wellness centers, one new host partner, and seven regional offices that have been open less than six trailing quarters in the Services segment.

 

For the first nine months of 2019 adjusted EBITDA increased 45% to  $51.0 million, representing an adjusted EBITDA margin of 9.2%, compared to $35.1 million, representing an 8.4% margin, for the same period in the prior year. 

 

Adjusted gross profit, adjusted net income, and adjusted EBITDA are Non-GAAP financial measures.  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 third quarter of 2019, the Product segment net sales increased 49% to $161.5 million and, excluding contribution from Perrigo Animal Health, Product segment net sales increased 34%.  Product Adjusted EBITDA increased 40% to $20.5 million.  This compares to Product segment sales and adjusted EBITDA of $108.5 million and $14.6 million, respectively, for the third quarter of 2018.  Year-to-date, Product segment net sales increased 36% to $482.2 million and Product adjusted EBITDA increased 36% to $56.0 million. Product segment net sales and Adjusted EBITDA were driven by ongoing strength of the Company’s prescription drug programs within retail partner pharmacies both in-store and online, the acquisition of Perrigo Animal Health and related operations, as well as greater SKU penetration within existing accounts.

 

Services: For the third quarter of 2019, Services segment net revenues increased 7% to $24.5 million and Services adjusted EBITDA increased 37% to $7.0 million.  This compares to Services segment net revenues and adjusted EBITDA of $22.9 million and $5.2 million, respectively, for the third quarter of 2018. Year-to-date, Services segment net sales increased 17% to $72.9 million and Services adjusted EBITDA increased 48% to $18.2 million. Services segment growth was achieved from increases in all substantive metrics including total pets, pets per clinic, revenue per pet and revenue per clinic, as well as contribution from new wellness centers.  

 

Services same store revenue increased by 2% and 12% for the three and nine months ended September 30, 2019, respectively.  The lower same store growth rate is a result of planned conversion of high-pet-

count weekly Community Clinics into Wellness Centers.  Non-same store revenue increased 75.5% and 125.4% to $2.6 million and $6.3 million for the three and nine months ended September 30, 2019, respectively.  Non-same store growth is a result of opening additional wellness centers, as well as wellness centers opened in the prior year maturing, before moving into the same-store sales base.

 

The Company remains on track to open 80 Wellness Centers in 2019. The Company has opened 26 locations year-to-date, for a total of 67 units in operation. There are 54 locations currently under construction, or contracted to start construction with 34 locations opening in November and 20 in December.  In support of its veterinarian wellness center expansion, the Company operated 36 regional offices as of September 30, 2019.

 

Balance Sheet

 

As of September 30, 2019, the Company had cash and cash equivalents of $10.5 million, plus availability on its revolving credit facility of $92.5 million, equating to $102.9 million, which the Company defines as total liquidity. The Company’s long-term debt balance, which is largely comprised of its revolving credit facility and term loan, was $254.7 million as of September 30, 2019.  PetIQ is committed to reducing its balance sheet leverage. From a working capital perspective, accounts receivable increased $53.8 million compared to December 31, 2018, in line with the Company’s strong sales growth. Inventory increased $5.8 million compared to the prior year end as a result the Perrigo Animal Health acquisition, offset by SKU rationalization and seasonality as September 30, 2019 is nearing a low point of inventory for the year.

 

Outlook

 

For full year 2019, based on the combination of PetIQ and Perrigo Animal Health, the Company is reiterating the following outlook:

 

 

The Company intends to update its initial full year 2020 outlook, which was provided in connection with the announcement of the Perrigo Animal Health acquisition, in conjunction with its 2019 full year earnings release.  The Company remains confident in its long-term 2023 growth objectives on a stand-alone basis, including:

 

 

*The Company does not provide guidance for the most directly comparable GAAP measure, net income, and similarly cannot provide a reconciliation between its forecasted adjusted EBITDA and net income metrics without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control and may vary greatly between periods and could significantly impact future financial results.

 

Conference Call and Webcast

 

The Company will host a conference call and webcast where members of the executive management team will discuss these results with additional comments and details today, November 7, 2019, at 4:30 p.m. ET. The conference call and supplemental investor presentation will be available live over the Internet

through the “Investors” section of the Company’s website at www.PetIQ.com.  To participate on the live call listeners in North America may dial 877-300-8521 and international listeners may dial 412-317-6026.  

 

A replay of the conference call will be archived on the Company’s website and telephonic playback will be available through November 28, 2019. North American listeners may dial 844-512-2921 and international listeners may dial 412-317-6671 the passcode is 10136413.

 

About PetIQ

 

PetIQ is a leading pet medication and wellness company delivering a smarter way for pet parents to help their pets live their best lives through convenient access to affordable veterinary products and services.  The company engages with customers through more than 60,000 points of distribution across retail and e-commerce channels with its branded distributed medications, which is further supported by its own world-class medications manufacturing facility in Omaha, Nebraska.  The company’s national service platform, VIP Petcare, operates in over 3,400 retail partner locations in 41 states providing cost effective and convenient veterinary wellness services.  PetIQ believes that pets are an important part of the family and deserve the best products and care we can give them.

 

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, 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 December 31, 2018 and other reports filed time to time with the Securities and Exchange Commission.

 

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 U.S. GAAP, PetIQ uses the following non-GAAP financial measures: Adjusted net income, Adjusted gross profit, Adjusted EBITDA, and Adjusted EBITDA Margin.

 

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 represents net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA represents EBITDA plus acquisition costs, stock based compensation expense, purchase accounting inventory adjustment, fair value adjustment to contingent consideration, new clinic launch expenses, integration and costs of discontinued clinics, and operations of non-same-store operations as defined below. Adjusted EBITDA margin is adjusted EBITDA stated  as a percentage of adjusted 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 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 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.

 

The Company considers its same-store portfolio to consist of only those retail service regional offices, mobile community clinics provided within host partners, and wellness centers that have been operating for at least six trailing quarters.

 

Definitions

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PetIQ, Inc.

Condensed Consolidated Balance Sheets

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PetIQ, Inc.

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