News Release

PetIQ, Inc. Reports Third Quarter Fiscal 2017 Financial Results

November 6, 2017 at 4:11 PM EST
PDF Version

EAGLE, Idaho, Nov. 06, 2017 (GLOBE NEWSWIRE) -- PetIQ, Inc. (“PetIQ” or the “Company”) (NASDAQ:PETQ), a leading pet medication and wellness company, today reported financial results for its third quarter and nine months ended September 30, 2017.

Third Quarter Fiscal 2017 Highlights

  • Net sales were $60.6 million, an increase of 45.3% year-over-year
  • Net income increased $3.4 million to $0.9 million
  • Adjusted net income increased $4.4 million to $3.9 million
  • Adjusted EBITDA increased $4.2 million to $5.4 million

First Nine Months of Fiscal 2017 Highlights

  • Net sales were $214.8 million, an increase of 38.3% year-over-year
  • Net income increased $13.4 million to $11.2 million
  • Adjusted net income increased $14.5 million to $14.3 million
  • Adjusted EBITDA increased $9.7 million to $18.8 million

(All comparisons above to the three and nine months ended September 30, 2016)

“We are pleased with our broad-based success in all sales channels which fueled our 45% increase in net sales and significant increase in profitability,” said Cord Christensen, PetIQ’s Chairman and Chief Executive Officer.  “Our third quarter results reflect the successful execution of our strategic growth initiatives and our ability to generate greater expense leverage across business. Importantly, our results are on pace with what we expected, and they represent our strongest third quarter in the Company’s history. We believe we are well positioned for future growth and our mission to improve pet health by providing consumers convenient access and affordable choices to a broad portfolio of health and wellness products is increasingly resonating with customers.”

Third Quarter 2017 Financial Results

Net sales increased 45.3% to $60.6 million for the third quarter of 2017 compared to $41.7 million for the same period in the prior year. 

Gross profit was $12.5 million, or 20.7% as a percentage of net sales, compared to $6.2 million, or 14.8% as a percentage of net sales, in the same period last year. The increase in gross profit was primarily due to the significant sales growth which created improved economies of scale as well as improved sales mix of more profitable categories and continuous procurement improvements.

Operating income was $1.8 million, or 2.9% as a percentage of net sales, in the third quarter of 2017, compared to an operating loss of $1.8 million for the third quarter of 2016.

Net income was $0.9 million for the third quarter of 2017 compared to a net loss of $2.5 million for the prior year period. Adjusted net income was $3.9 million in the third quarter of 2017 which compares to an adjusted net loss of $0.5 million in the prior year period. Reported net income includes $2.3 million of expenses related to the Company’s initial public offering which closed during the third quarter.  Additionally, third quarter net income includes a $0.6 million tax provision for the quarter as the Company transitioned to a taxpayer status.

Adjusted EBITDA increased $4.2 million to $5.4 million for the third quarter of 2017 compared to $1.2 million in the third quarter 2016.  Adjusted EBITDA margin increased 600 basis points to 8.9% compared to 2.9% for the third quarter of 2016.

Adjusted net income, EBITDA and adjusted EBITDA are Non-GAAP financial measures defined under “Non-GAAP Measures,” and are reconciled to net income in the financial tables that accompany this release.

First Nine Months of 2017 Financial Results

Net sales increased 38.3% to $214.8 million for the first nine months of 2017, compared to the same period in the prior year. 

Operating income was $13.2 million, or 6.2% of net sales for the first nine months of 2017, representing an increase of 580 basis points compared to operating income of $0.6 million, or 0.4% of net sales in the same period of 2016. 

Net Income was $11.2 million for the first nine months of 2017 compared to a net loss of $2.2 million for the prior year period.  Adjusted net income was $14.3 million for the nine month period ended September 2017 which compares to an adjusted net loss of $0.2 million in the prior year period.

Adjusted EBITDA increased $9.7 million to $18.8 million for the first nine months of 2017 compared to $9.1 million in the comparable period of 2016.  Adjusted EBITDA margin increased 290 basis points to 8.7% compared to 5.9% for the first nine months of 2017.

Balance Sheet

As of September 30, 2017, the Company had cash and cash equivalents of $46.5 million, compared to $0.8 million at December 31, 2017.  The outstanding balance on our revolving credit facility and term loan as of September 30, 2017 was $18.1 million, compared to $27.5 million at year end.  The increase in cash is primarily due to the receipt of $44.4 million in net proceeds associated with the Company’s IPO which closed on July 26, 2017.  The reduction of debt is due to cash generated by operations being used to pay down debt.

Executive Retirement

The Company is also announcing today that Scott Adcock has retired as Co-Founder, President and Director for health reasons, effective October 31, 2017. 

“Scott has been an incredible partner and his contributions to our mission have been invaluable as we transformed a vision into reality with the growth of PetIQ,” said Mr. Christensen. “I am very proud of what we have achieved together as we set out to build a strong corporate and financial foundation that would support our culture of growth and innovation.  This is a critical time for Scott to focus completely on his health and well-being and we will greatly miss his leadership and the passion and enthusiasm he brought to PetIQ.”

Mr. Adcock commented, “It has been an honor to partner with Cord and work with the entire PetIQ team over the last several years. With a heavy heart, I have reached the conclusion that retirement is necessary to improve my health, but I am comforted by the strengths of my colleagues who have contributed so significantly to PetIQ’s success. I am confident that the clarity of the Company’s strategic goals will ensure that it continues to thrive and achieve its fullest potential.”

Mr. Christensen concluded, “Scott’s contributions to PetIQ cannot be overstated and he will always remain part of the PetIQ family. One of his many legacies is the strength of the organization that he helped build. We are fortunate to have such a capable team in place as we move forward. John Newland, our chief financial officer, and I will assume Scott’s responsibilities. The Board wishes Scott well and will assist our executive team in determining what the organization’s needs are as we enter PetIQ’s next phase of growth and continue to deliver great value to our stockholders.”

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 6, 2017, at 5:30 p.m. ET. The conference call 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 877-451-6152 and international listeners may dial 201-389-0879.

A replay of the conference call will be archived on the Company’s website and telephonic playback will be available from 8:30 p.m. ET, November 6, 2017, through November 27, 2017. North American listeners may dial 844-512-2921 and international listeners may dial 412-317-6671 the passcode is 13671993.

About PetIQ

PetIQ is a rapidly growing pet health and wellness company, with a mission to make pet lives better by educating pet parents on the importance of regular Veterinary care and Veterinary-recommended pet products.  PetIQ has given consumers convenient access and affordable choices to a broad portfolio of pet health and wellness products across a network of leading national retail stores in mass, club, grocery, pharmacy, and e-commerce channels.  PetIQ believes that pets are an important part of the family and deserve the best pet care we can give them.  For more information, visit www.PetIQ.com. For more information, visit www.PetIQ.com.  

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 dependency on a limited number of customers; our ability to implement our growth strategy effectively; our ability to achieve or sustain profitability; competition from veterinarians and others in our industry; failure of the Fairness to Pet Owners Act of 2017 to become law; 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 successfully grow our business through acquisitions; our ability to introduce new products and improve existing products; our failure to protect our intellectual property; costs associated with governmental regulation; risks related to our international operations; our ability to keep and retain key employees; and the risks set forth under the "Risk Factors' section of the final prospectus for PetIQ, Inc., dated July 20, 2017, and filed with the SEC on July 21, 2017. 

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, EBITDA and Adjusted EBITDA.

Adjusted Net Income consists of GAAP Net income adjusted for tax expense, costs to become a public company, and stock based compensation expense. 

EBITDA represents net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA represents EBITDA plus loss on debt extinguishment, management fees, stock based compensation expense, and litigation expenses. Adjusted EBITDA adjusts 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 and (ii) to evaluate the effectiveness of our business strategies.  The Company presents EBITDA because it is a necessary component for computing Adjusted EBITDA.

We believe that the use of Adjusted Net Income, EBITDA and Adjusted EBITDA 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, EBITDA and Adjusted EBITDA 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, EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted Net Income, EBITDA and Adjusted EBITDA in the same manner.  Our management does not, and you should not, consider Adjusted Net Income, EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted Net Income, EBITDA 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 net income, the most comparable GAAP measure, in the financial tables that accompany this release.

CONTACT:

   
Investor Relations Contact: Media Relations Contact:                                           
Katie Turner Cory Ziskind
ICR ICR
646-277-1228 646-277-1232
katie.turner@icrinc.com  cory.ziskind@icrinc.com 
   

PetIQ, Inc. Balance sheet
(unaudited, dollars in thousands)

             
    September 30, 2017     December 31, 2016
Current assets            
Cash and cash equivalents   $  46,536     $  767  
Accounts receivable, net of allowance for doubtful accounts      24,841        17,195  
Inventories      34,654        34,232  
Supplier prepayments      2,251        2,985  
Other current assets      1,471        1,358  
Total current assets      109,753        56,537  
Property, plant and equipment, net      14,865        13,044  
Restricted deposits      200        250  
Deferred tax assets      9,707        —  
Other non-current assets      1,932        2,826  
Intangible assets, net of accumulated amortization      3,522        4,054  
Goodwill      5,063        4,619  
Total assets   $  145,042     $  81,330  
Liabilities and member's equity            
Current liabilities            
Accounts payable   $  11,860     $  9,333  
Accrued wages payable      1,691        1,100  
Accrued interest payable      112        44  
Other accrued expenses      2,137        277  
Current portion of long-term debt and capital leases      145        2,321  
Total current liabilities      15,945        13,075  
Non-current liabilities            
Long-term debt      19,928        25,158  
Obligations under capital leases, less current installments      403        434  
Deferred acquisition liability      —        1,303  
Other non-current liabilities      465        378  
Total non-current liabilities      20,796        27,273  
Commitments and contingencies            
Equity            
Members equity      —        42,941  
Additional Paid-in capital      71,192        —  
Class A common stock, par value $.001 per share, 125,000,000 shares authorized, 13,222,583 shares issued and outstanding September 30, 2017      13        —  
Class B common stock, par value $.001 per share, 8,401,000 shares authorized, 8,268,188 shares issued and outstanding at September 30, 2017      8        —  
Accumulated deficit      (226 )      —  
Accumulated other comprehensive loss      (684 )      (1,940 )
Total member's equity      70,303        41,001  
Non-controlling interest      37,998        (19 )
Total equity      108,301        40,982  
Total liabilities and equity   $  145,042     $  81,330  
 


PetIQ, Inc. Statement of Comprehensive Income
(unaudited, dollars in thousands)

                         
    Three months ended   Nine months ended
    September 30, 2017   September 30, 2016   September 30, 2017   September 30, 2016
                         
Net sales   $  60,554     $  41,671     $  214,761     $  155,249  
Cost of sales      48,037        35,511        174,093        130,356  
Gross profit      12,517        6,160        40,668        24,893  
Operating expenses                        
General and administrative expenses      10,739        7,942        27,421        24,307  
Operating income (loss)      1,778        (1,782 )      13,247        586  
Interest expense, net      (352 )      (737 )      (1,351 )      (2,389 )
Foreign currency gain/(loss), net      (31 )      2        (152 )      (83 )
Loss on debt extinguishment      —        —        —        (993 )
Other income, net      14        5        14        661  
Total other expense, net      (369 )      (730 )      (1,489 )      (2,804 )
Pretax net income (loss)      1,409        (2,512 )      11,758        (2,218 )
Income tax expense      (550 )      —        (550 )      —  
Net income (loss)      859        (2,512 )      11,208        (2,218 )
Net income (loss) attributable to noncontrolling interest      1,085        (2,512 )      11,434        (2,218 )
Net loss attributable to PetIQ   $  (226 )   $  —     $  (226 )   $  —  
Comprehensive income/(loss)                        
Net income (loss)   $  859     $  (2,512 )   $  11,208     $  (2,218 )
Foreign currency translation adjustment      314        (351 )      829        (1,407 )
Comprehensive income/(loss)      1,173        (2,863 )      12,037        (3,625 )
Comprehensive income attributable to noncontrolling interest      1,206        (2,863 )      12,070        (3,625 )
Comprehensive loss attributable to member/PetIQ   $  (33 )   $  —     $  (33 )   $  —  
Net loss per share attributable to PetIQ, Inc. Class A common stock(1)                        
-Basic   $  (0.02 )      —     $  (0.02 )      —  
-Diluted   $  (0.02 )      —     $  (0.02 )      —  
Weighted Average shares of Class A common stock outstanding                        
-Basic      13,222,583        —        13,222,583        —  
-Diluted      13,222,583        —        13,222,583        —  
 
(1)    Basic and Diluted earnings per share is applicable only for periods after the Company’s IPO. 
 


PetIQ, LLC. Statement of Cash Flows
(unaudited, dollars in thousands)

         
    September 30, 2017   September 30, 2016
Cash flows from operating activities            
Net income   $  11,208     $  (2,218 )
Adjustments to reconcile net income to net cash used for operating activities            
Depreciation and amortization of intangible assets and loan fees      2,725        2,885  
Loss on disposition of property      14        52  
Foreign exchange loss on liabilities      204        52  
Stock based compensation expense      246        —  
Deferred tax adjustment      351        —  
Warranty settlement gain      —        (645 )
Changes in assets and liabilities            
Accounts receivable      (7,257 )      (882 )
Inventories      (316 )      (2,015 )
Prepaid expenses and other assets      1,137        3,663  
Accounts payable      1,797        (1,125 )
Accrued wages payable      570        (940 )
Other accrued expenses      287        (163 )
Net cash provided by (used in) operating activities      10,966        (1,336 )
Cash flows from investing activities            
Purchase of property, plant, and equipment and intangibles      (3,558 )      (1,604 )
Net cash used in investing activities      (3,558 )      (1,604 )
Cash flows from financing activities:            
Proceeds from issuance of long term debt      206,020        167,052  
Principal payments on long term debt      (213,522 )      (172,785 )
Proceeds from Initial Public Offering (IPO) of Class A Shares      104,010        —  
Repayment of Preference notes      (55,960 )      —  
Change in restricted cash and deposits      50        6,894  
Purchase of LLC units from Continuing LLC Owners      (2,133 )      —  
Principal payments on capital lease obligations      (86 )      (62 )
Payment of deferred financing fees and debt discount      (42 )      (248 )
Net cash provided by financing activities      38,337        851  
Net change in cash and cash equivalents      45,745        (2,089 )
Effect of exchange rate changes on cash and cash equivalents      24        (206 )
Cash and cash equivalents, beginning of period      767        3,250  
Cash and cash equivalents, end of period   $  46,536     $  955  
Supplemental cash flow information            
Interest paid   $  1,116     $  2,150  
Property, plant, and equipment acquired through accounts payable      (53 )      (46 )
Capital lease additions      17        127  
Issuance of preference notes for LLC Interests      55,960        —  
Establishment of deferred tax asset from step-up in basis      9,823        —  
Accrued tax distribution      709        —  
 

PetIQ, Inc. 
Reconciliation between Net Income and Adjusted EBITDA
(Unaudited, Dollars in Thousands)

                         
    Three months ended   Nine months ended
$'s in 000's   September 30, 2017   September 30, 2016   September 30, 2017   September 30, 2016
Net income   $  859   $  (2,512 )   $  11,208   $  (2,218 )
Plus:                        
Tax expense      550      —        550      —  
Depreciation   $  684   $  375     $  1,795   $  1,350  
Amortization      261      264        782      808  
Interest      352      737        1,351      2,389  
EBITDA   $  2,706   $  (1,136 )   $  15,686   $  2,329  
Loss on extinguishment and related costs(1)      —      —        —      993  
Management fees(2)      158      208        545      508  
Litigation expenses(3)      —      41        —      3,226  
Costs associated with becoming a public company      2,275      2,042        2,275      2,042  
Stock based compensation expense      246      —        246      —  
Adjusted EBITDA   $  5,385   $  1,155     $  18,752   $  9,098  
 
(1)   Loss on debt extinguishment reflects costs relating to the refinancing of our prior credit facility, including a write-off of unamortized loan fees, legal fees and termination fees.
(2)  Represents annual fees paid pursuant to our management agreements with Eos, Highland and Labore. The management agreements will terminate in connection with an initial public offering; however, we will pay fees to members of our board of directors following the offering.
(3)  These litigation expenses relate to cases involving the Company that were favorably resolved in the second quarter of 2016.
 

PetIQ, Inc. 
Reconciliation between Net Income and Adjusted Net Income
(Unaudited, Dollars in Thousands)

                         
    Three months ended   Nine months ended
    September 30, 2017   September 30, 2016   September 30, 2017   September 30, 2016
Net income   $  859   $  (2,512 )   $  11,208   $  (2,218 )
Plus:                        
Tax expense      550      —       550      —  
Stock based compensation expense      246      —       246      —  
Costs associated with becoming a public company      2,275      2,042        2,275      2,042  
Adjusted Net income   $  3,930   $  (470 )   $  14,279   $  (176 )
                             

PetIQ, Inc. Segment Review
(Unaudited, Dollars in Thousands)

                           
    Three months ended   Nine months ended
    September 30, 2017   September 30, 2016   September 30, 2017   September 30, 2016
Net Sales                        
Domestic   $  59,328   $  40,513     $  211,095   $  151,792
International      1,226      1,158        3,666      3,457
 Net Sales      60,554      41,671        214,761      155,249
Gross Profit                        
Domestic   $  11,974   $  5,665     $  39,074   $  23,424
International      543      495        1,594      1,469
 Gross Profit      12,517      6,160        40,668      24,893
General and administrative expenses                        
Domestic   $  10,207   $  7,522     $  25,977   $  22,991
International      532      420        1,444      1,316
 General and administrative expenses      10,739      7,942        27,421      24,307
Operating income                        
Domestic   $  1,767   $  (1,857 )   $  13,097   $  433
International      11      75        150      153
 Operating income      1,778      (1,782 )      13,247      586
 

 

PetIQ, Inc.