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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2021

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.)

230 E. Riverside Dr.

83616

Eagle, Idaho

(Zip Code)

(Address of principal executive offices)

208-939-8900

(Registrant’s telephone number, including area code)

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

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 has filed a report on and attestation of its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

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

As of August 5, 2021, we had 28,919,941 shares of Class A common stock and 415,829 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 Operations

4

PetIQ, Inc. Condensed Consolidated Statements of Comprehensive Income (Loss)

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

45

Item 4.

Controls and Procedures

45

Part II.

Other Information

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 6.

Exhibits

47

Signatures

48

2

Table of Contents

PetIQ, Inc.

Condensed Consolidated Balance Sheets

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

As adjusted (Note1)

June 30, 2021

    

December 31, 2020

    

Current assets

Cash and cash equivalents

$

27,163

$

33,456

Accounts receivable, net

159,800

102,755

Inventories

118,389

97,773

Other current assets

11,893

8,312

Total current assets

317,245

242,296

Property, plant and equipment, net

72,225

63,146

Operating lease right of use assets

20,231

20,122

Other non-current assets

2,181

1,870

Intangible assets, net

200,006

213,000

Goodwill

231,367

231,158

Total assets

$

843,255

$

771,592

Liabilities and equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

61,653

$

68,131

Accrued wages payable

10,045

10,540

Accrued interest payable

3,798

903

Other accrued expenses

9,105

8,815

Current portion of operating leases

5,431

4,915

Current portion of long-term debt and finance leases

9,143

7,763

Total current liabilities

99,175

101,067

Operating leases, less current installments

15,595

15,789

Long-term debt, less current installments

454,588

403,591

Finance leases, less current installments

2,555

3,338

Other non-current liabilities

1,718

1,397

Total non-current liabilities

474,456

424,115

Commitments and contingencies (Note 13)

  

  

Equity

  

  

Additional paid-in capital

358,506

319,642

Class A common stock, par value $0.001 per share, 125,000 shares authorized; 28,909 and 25,711 shares issued and outstanding, respectively

29

26

Class B common stock, par value $0.001 per share, 100,000 shares authorized; 425 and 3,040 shares issued and outstanding, respectively

3

Accumulated deficit

(92,499)

(98,558)

Accumulated other comprehensive loss

(126)

(686)

Total stockholders' equity

265,910

220,427

Non-controlling interest

3,714

25,983

Total equity

269,624

246,410

Total liabilities and equity

$

843,255

$

771,592

See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents

PetIQ, Inc.

Condensed Consolidated Statements of Operations

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

As adjusted (Note1)

As adjusted (Note1)

For the Three Months Ended

For the Six Months Ended

    

June 30, 2021

    

June 30, 2020

    

June 30, 2021

    

June 30, 2020

Product sales

$

242,857

$

264,307

$

472,891

$

430,587

Services revenue

28,154

2,675

52,467

23,173

Total net sales

271,011

266,982

525,358

453,760

Cost of products sold

 

185,837

 

217,469

 

368,664

 

352,248

Cost of services

25,546

7,329

49,267

27,174

Total cost of sales

211,383

224,798

417,931

379,422

Gross profit

 

59,628

 

42,184

 

107,427

 

74,338

Operating expenses

 

  

 

  

 

  

 

  

General and administrative expenses

 

43,142

 

38,492

 

83,814

 

70,182

Operating income

 

16,486

 

3,692

 

23,613

 

4,156

Interest expense, net

 

(7,655)

 

(5,329)

 

(12,525)

 

(10,033)

Foreign currency (loss) income, net

 

9

 

52

 

(104)

 

125

Loss on debt extinguishment

 

(5,453)

 

 

(5,453)

 

Other income, net

 

442

 

324

 

759

 

689

Total other expense, net

 

(12,657)

 

(4,953)

 

(17,323)

 

(9,219)

Pretax net income (loss)

3,829

(1,261)

6,290

(5,063)

Income tax (expense) benefit

205

(188)

130

981

Net income (loss)

 

4,034

 

(1,449)

 

6,420

 

(4,082)

Net income (loss) attributable to non-controlling interest

8

27

361

(503)

Net income (loss) attributable to PetIQ, Inc.

$

4,026

$

(1,476)

$

6,059

$

(3,579)

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

Basic

$

0.14

$

(0.06)

$

0.22

$

(0.15)

Diluted

$

0.14

$

(0.06)

$

0.22

$

(0.15)

Weighted Average shares of Class A common stock outstanding

Basic

28,491

24,425

27,444

24,077

Diluted

29,156

24,425

28,059

24,077

See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

PetIQ, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited, in 000’s)

For the Three Months Ended

For the Six Months Ended

June 30, 2021

    

June 30, 2020

June 30, 2021

June 30, 2020

Net income (loss)

$

4,034

$

(1,449)

$

6,420

$

(4,082)

Foreign currency translation adjustment

 

363

 

(104)

504

(678)

Comprehensive income (loss)

 

4,397

 

(1,553)

6,924

 

(4,760)

Comprehensive income (loss) attributable to non-controlling interest

 

10

 

25

368

(598)

Comprehensive income (loss) attributable to PetIQ

$

4,387

$

(1,578)

$

6,556

$

(4,162)

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, 

As adjusted (Note1)

2021

2020

Cash flows from operating activities

 

Net income (loss)

 

$

6,420

$

(4,082)

Adjustments to reconcile net income (loss) to net cash used in operating activities

 

  

  

Depreciation and amortization of intangible assets and loan fees

 

20,405

11,159

Loss on debt extinguishment

 

5,453

Loss (gain) on disposition of property, plant, and equipment

 

167

(369)

Stock based compensation expense

4,561

4,402

Deferred tax adjustment

(982)

Other non-cash activity

 

176

65

Changes in assets and liabilities

 

Accounts receivable

 

(57,011)

(74,138)

Inventories

 

(20,580)

(31,627)

Other assets

 

(2,166)

(1,073)

Accounts payable

 

(6,632)

39,528

Accrued wages payable

 

(482)

1,847

Other accrued expenses

 

3,493

12,766

Net cash used in operating activities

 

(46,196)

(42,504)

Cash flows from investing activities

 

  

  

Proceeds from disposition of property, plant, and equipment

350

429

Purchase of property, plant, and equipment

 

(18,302)

(10,425)

Net cash used in investing activities

 

(17,952)

(9,996)

Cash flows from financing activities

 

  

  

Proceeds from issuance of convertible notes

143,750

Payment for Capped Call options

(14,821)

Proceeds from issuance of long-term debt

 

630,568

457,200

Principal payments on long-term debt

 

(576,843)

(438,874)

Payment of financing fees on Convertible Notes

(5,819)

Tax distributions to LLC Owners

(72)

(46)

Principal payments on finance lease obligations

 

(1,226)

(761)

Payment of deferred financing fees and debt discount

 

(6,360)

(275)

Tax withholding payments on Restricted Stock Units

(852)

(186)

Exercise of options to purchase class A common stock

12,588

2,171

Net cash provided by financing activities

 

57,803

142,339

Net change in cash and cash equivalents

 

(6,345)

89,839

Effect of exchange rate changes on cash and cash equivalents

 

52

(88)

Cash and cash equivalents, beginning of period

 

33,456

27,272

Cash and cash equivalents, end of period

$

27,163

$

117,023

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

2021

2020

Interest paid

$

8,051

$

8,106

Net change in property, plant, and equipment acquired through accounts payable

(358)

(160)

Finance lease additions

141

381

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

5,786

Income taxes paid, net of refunds

214

(46)

Accrued tax distribution

7

310

See accompanying notes to the consolidated financial statements.

7

Table of Contents

PetIQ, Inc.

Condensed Consolidated Statements of Equity

(Unaudited, in 000’s)

Three months ended June 30, 2021

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, 2021

$

(96,525)

$

(500)

28,102

$

28

941

$

1

$

345,386

$

8,298

$

256,688

Exchange of LLC Interests held by LLC Owners

13

516

1

(516)

(1)

4,793

(4,806)

Accrued tax distributions

141

141

Other comprehensive income

361

2

363

Stock based compensation expense

2,369

70

2,439

Exercise of Options to purchase Common Stock

289

6,008

6,008

Issuance of stock vesting of RSU's, net of tax withholdings

2

(50)

(50)

Net income

4,026

8

4,034

Balance - June 30, 2021

$

(92,499)

$

(126)

28,909

$

29

425

$

$

358,506

$

3,714

$

269,624

Six months ended June 30, 2021

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 - January 1, 2021 As adjusted (Note 1)

$

(98,558)

$

(686)

25,711

$

26

3,040

$

3

$

319,642

$

25,983

$

246,410

Exchange of LLC Interests held by LLC Owners

63

2,615

3

(2,615)

(3)

22,824

(22,887)

Accrued tax distributions

(7)

(7)

Other comprehensive income

497

7

504

Stock based compensation expense

4,304

257

4,561

Exercise of Options to purchase Common Stock

531

12,588

12,588

Issuance of stock vesting of RSU's, net of tax withholdings

52

(852)

(852)

Net income

6,059

361

6,420

Balance - June 30, 2021

$

(92,499)

$

(126)

28,909

$

29

425

$

$

358,506

$

3,714

$

269,624

Three months ended June 30, 2020

Accumulated

Other

Additional

Accumulated

Comprehensive

Class A Common

Class B Common

Paid-in

Non-controlling

Total

Deficit

Loss

Shares

Dollars

Shares

Dollars

Capital

Interest

Equity

Balance - March 31, 2020

$

(18,006)

$

(1,655)

24,318

$

24

4,049

$

4

$

312,874

$

38,262

$

331,503

Exchange of LLC Interests held by Continuing LLC Owners

(17)

279

(279)

2,067

(2,050)

Payment for capped call share options

(12,580)

(2,241)

(14,821)

Net increase in deferred tax asset from LLC Interest transactions

2,585

2,585

Accrued tax distributions

(206)

(206)

Other comprehensive loss

(102)

(2)

(104)

Stock based compensation expense

1,594

250

1,844

Exercise of Options to purchase Common Stock

54

1,169

1,169

Issuance of stock for vesting of RSU's

7

(37)

(37)

Net loss

(1,476)

27

(1,449)

Adjusted Balance - June 30, 2020

$

(19,482)

$

(1,774)

24,658

$

24

3,770

$

4

$

307,672

$

34,041

$

320,484

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Table of Contents

Six months ended June 30, 2020

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 - January 1, 2020

$

(15,903)

$

(1,131)