PetIQ, Inc. Reports Fourth Quarter and Full Year 2017 Financial Results
Fourth Quarter 2017 Highlights Compared to Prior Year Period
- Net sales were
$51.9 million , an increase of 15.6% year-over-year - Net loss was
$3.4 million - Adjusted net income increased
$3.7 million to $2.6 million - Adjusted EBITDA increased
$2.0 million to $3.6 million , an increase of 132% year-over-year
Full Year 2017 Highlights Compared to Prior Year
- Net sales were
$266.7 million , an increase of 33.2% year-over-year - Net income increased
$11.2 million to $7.8 million - Adjusted net income increased
$18.1 million to $16.9 million - Adjusted EBITDA increased
$11.7 million to $22.3 million , an increase of 110% year-over-year
Cord Christensen, PetIQ’s Chairman and Chief Executive Officer commented, “We are pleased with our record year of growth and profitability.
Fourth Quarter 2017 Financial Results
Net sales increased 15.6% to
Gross profit was
Net loss was
Adjusted EBITDA increased
Adjusted net income (loss), 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.
Full Year 2017 Financial Results
Net sales increased
Gross profit increased
Net income was
Adjusted EBITDA increased
Cash and Debt
As of
VIP Petcare Acquisition
On
Adoption of New Revenue Recognition Standard
In the first quarter of 2018, the Company will be adopting the new revenue recognition standard (“ASC 606”) using the modified retrospective adoption method. The cumulative effect of adopting this guidance will result in an adjustment to opening accumulated deficit of approximately
2018 Outlook
- Consolidated net sales of
$450 million to $500 million , an increase of 69% to 87% year-over-year; - Adjusted EBITDA of
$40 million to $45 million , an increase of 79% to 102% year-over-year; - The VIP acquisition is expected to further diversify PetIQ’s current net sales mix, with the veterinarian products business representing approximately 75% of net sales and the veterinarian services business representing approximately 25% of net sales;
- Incremental annual interest expense of
$5.7 million associated with the financing of the transaction; - Combined federal and state tax rates, and excluding any non-controlling interest impact, for the consolidated Company of approximately 25%.
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.
Clinic Opening Announcement
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,
A replay of the conference call will be archived on the Company’s website and telephonic playback will be available from
About
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 grow our business through acquisitions; our ability to integrate, manage and expand VIP’s business; 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; 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; 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
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,
Adjusted net income (loss) consists of GAAP Net income adjusted for tax expense, costs to become a public company, acquisitions expenses, and stock based compensation expense. Adjusted Net Income (loss) 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.
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, acquisition expenses, 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 (loss), 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 Sheets (dollars in thousands, except per share amounts) (Unaudited) |
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December 31, 2017 | December 31, 2016 | |||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 37,896 | $ | 767 | ||||
Accounts receivable, net of allowance for doubtful accounts | 21,759 | 17,195 | ||||||
Inventories | 44,056 | 34,232 | ||||||
Supplier prepayments | 3,173 | 2,985 | ||||||
Other current assets | 1,991 | 1,358 | ||||||
Total current assets | 108,875 | 56,537 | ||||||
Property, plant and equipment, net | 15,000 | 13,044 | ||||||
Restricted deposits | 200 | 250 | ||||||
Deferred tax assets | 5,994 | — | ||||||
Other non-current assets | 2,446 | 2,826 | ||||||
Intangible assets, net of accumulated amortization | 3,266 | 4,054 | ||||||
Goodwill | 5,064 | 4,619 | ||||||
Total assets | $ | 140,845 | $ | 81,330 | ||||
Liabilities and member's equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 14,234 | $ | 9,333 | ||||
Accrued wages payable | 1,811 | 1,100 | ||||||
Accrued interest payable | 115 | 44 | ||||||
Other accrued expenses | 305 | 27 | ||||||
Current portion of deferred acquisition liability | 1,575 | 250 | ||||||
Current portion of long-term debt and capital leases | 151 | 2,321 | ||||||
Total current liabilities | 18,191 | 13,075 | ||||||
Non-current liabilities | ||||||||
Long-term debt | 17,183 | 25,158 | ||||||
Obligations under capital leases, less current installments | 389 | 434 | ||||||
Deferred acquisition liability | — | 1,303 | ||||||
Other non-current liabilities | 238 | 378 | ||||||
Total non-current liabilities | 17,810 | 27,273 | ||||||
Commitments and contingencies | ||||||||
Equity | ||||||||
Members equity | — | 42,941 | ||||||
Additional Paid-in capital | 70,873 | — | ||||||
Class A common stock, par value $.001 per share, 125,000,000 shares authorized, 13,222,583 shares issued and outstanding December 31, 2017 | 13 | — | ||||||
Class B common stock, par value $.001 per share, 8,401,521 shares authorized, 8,268,188 shares issued and outstanding at December 31, 2017 | 8 | — | ||||||
Accumulated deficit | (3,493 | ) | — | |||||
Accumulated other comprehensive loss | (687 | ) | (1,940 | ) | ||||
Total stockholders' / member's equity | 66,714 | 41,001 | ||||||
Non-controlling interest | 38,130 | (19 | ) | |||||
Total equity | 104,844 | 40,982 | ||||||
Total liabilities and equity | $ | 140,845 | $ | 81,330 |
PetIQ, Inc. Statement of Operations (dollars in thousands, except per share amounts) (Unaudited) |
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Three months ended | Year ended | ||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | ||||||||||||
Net sales | $ | 51,926 | $ | 44,913 | $ | 266,687 | $ | 200,162 | |||||||
Cost of sales | 41,400 | 37,259 | 215,493 | 167,615 | |||||||||||
Gross profit | 10,526 | 7,654 | 51,194 | 32,547 | |||||||||||
Operating expenses | |||||||||||||||
General and administrative expenses | 10,484 | 7,538 | 37,905 | 31,845 | |||||||||||
Operating income (loss) | 42 | 116 | 13,289 | 702 | |||||||||||
Interest expense, net | (212 | ) | (669 | ) | (1,563 | ) | (3,058 | ) | |||||||
Foreign currency gain/(loss), net | 12 | 59 | (140 | ) | (24 | ) | |||||||||
Loss on debt extinguishment | — | (688 | ) | — | (1,681 | ) | |||||||||
Other income, net | 187 | 5 | 201 | 666 | |||||||||||
Total other expense, net | (13 | ) | (1,293 | ) | (1,502 | ) | (4,097 | ) | |||||||
Pretax net income (loss) | 29 | (1,177 | ) | 11,787 | (3,395 | ) | |||||||||
Income tax expense | (3,420 | ) | — | (3,970 | ) | — | |||||||||
Net income (loss) | (3,391 | ) | (1,177 | ) | 7,817 | (3,395 | ) | ||||||||
Net income (loss) attributable to noncontrolling interest | (124 | ) | (1,177 | ) | 11,310 | (3,395 | ) | ||||||||
Net loss attributable to PetIQ | $ | (3,267 | ) | $ | — | $ | (3,493 | ) | $ | — | |||||
Net loss per share attributable to PetIQ, Inc. Class A common stock(1) | |||||||||||||||
-Basic | $ | (0.25 | ) | — | $ | (0.26 | ) | — | |||||||
-Diluted | $ | (0.25 | ) | — | $ | (0.26 | ) | — | |||||||
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, Inc. Statement of Cash Flows (dollars in thousands) (Unaudited) |
||||||||
For the year ended December 31, | ||||||||
2017 |
2016 | |||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 7,817 | $ | (3,395 | ) | |||
Adjustments to reconcile net income to net cash used for operating activities | ||||||||
Depreciation and amortization of intangible assets and loan fees | 3,614 | 4,074 | ||||||
Loss on disposition of property | 20 | 42 | ||||||
Foreign exchange (gain) loss on liabilities | 228 | (28 | ) | |||||
Stock based compensation expense | 447 | — | ||||||
Deferred tax adjustment | 3,690 | — | ||||||
Warranty settlement gain | — | (645 | ) | |||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (4,313 | ) | (2,216 | ) | ||||
Inventories | (9,718 | ) | (542 | ) | ||||
Prepaid expenses and other assets | (721 | ) | 2,037 | |||||
Accounts payable | 4,152 | 104 | ||||||
Accrued wages payable | 694 | (128 | ) | |||||
Other accrued expenses | (28 | ) | (229 | ) | ||||
Net cash provided by (used in) operating activities | 5,882 | (926 | ) | |||||
Cash flows from investing activities | ||||||||
Proceeds from disposition of property, plant, and equipment | — | 1 | ||||||
Purchase of property, plant, and equipment and intangibles | (4,131 | ) | (2,041 | ) | ||||
Net cash used in investing activities | (4,131 | ) | (2,040 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of long term debt | 260,020 | 238,252 | ||||||
Principal payments on long term debt | (270,458 | ) | (243,852 | ) | ||||
Proceeds from Initial Public Offering (IPO) of Class A Shares, net of underwriting discounts and offering costs | 104,010 | — | ||||||
Repayment of preference notes | (55,960 | ) | — | |||||
Change in restricted cash and deposits | 50 | — | ||||||
Purchase of LLC units from Continuing LLC Owners | (2,133 | ) | 6,894 | |||||
Principal payments on capital lease obligations | (116 | ) | (93 | ) | ||||
Payment of deferred financing fees and debt discount | (42 | ) | (509 | ) | ||||
Net cash provided by financing activities | 35,371 | 692 | ||||||
Net change in cash and cash equivalents | 37,122 | (2,274 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 7 | (209 | ) | |||||
Cash and cash equivalents, beginning of period | 767 | 3,250 | ||||||
Cash and cash equivalents, end of period | $ | 37,896 | $ | 767 | ||||
Reconciliation between Net Income (loss) and Adjusted EBITDA
(Unaudited)
Three months ended | Years ended | ||||||||||||||
$'s in 000's | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||
Net income (loss) | $ | (3,391 | ) | $ | (1,177 | ) | $ | 7,817 | $ | (3,395 | ) | ||||
Plus: | |||||||||||||||
Tax expense | 3,420 | - | 3,970 | - | |||||||||||
Depreciation | 553 | 565 | 2,348 | 1,915 | |||||||||||
Amortization | 270 | 259 | 1,052 | 1,067 | |||||||||||
Interest | 212 | 669 | 1,563 | 3,058 | |||||||||||
EBITDA | $ | 1,064 | $ | 316 | $ | 16,750 | $ | 2,645 | |||||||
Acquisition costs | 1,965 | - | 1,965 | - | |||||||||||
Loss on extinguishment and related costs(1) | - | 688 | - | 1,681 | |||||||||||
Management fees(2) | 66 | 356 | 610 | 864 | |||||||||||
Litigation expenses(3) | - | 36 | - | 3,262 | |||||||||||
Costs associated with becoming a public company | 435 | 138 | 2,710 | 2,180 | |||||||||||
Stock based compensation expense | 201 | - | 447 | - | |||||||||||
Supplier receivable write-off(4) | (175 | ) | - | (175 | ) | - | |||||||||
Adjusted EBITDA | $ | 3,556 | $ | 1,534 | $ | 22,307 | $ | 10,632 | |||||||
EBITDA margin | 6.8% | 3.4% | 8.4% | 5.3% |
(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 terminated in connection with an initial public offering.
(3) These litigation expenses relate to cases involving the Company that were favorably resolved in the second quarter of 2016.
(4) During 2015 the Company terminated its relationship with a supplier in accordance with a supply agreement, resulting in the Company writing off the full amount of cash advanced to the supplier as a supplier prepayment on the procurement of inventory. The Company collected a settlement on the matter in 2017.
PetIQ, Inc. Reconciliation between Net Income (loss) and Adjusted Net Income (loss) (Unaudited) |
|||||||||||||||
Three months ended | Year ended | ||||||||||||||
$'s in 000's | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||
Net income (loss) | $ | (3,391 | ) | $ | (1,177 | ) | $ | 7,817 | $ | (3,395 | ) | ||||
Plus: | |||||||||||||||
Acquisition costs | 1,965 | — | 1,965 | — | |||||||||||
Tax expense | 3,420 | — | 3,970 | — | |||||||||||
Stock based compensation expense | 201 | — | 447 | — | |||||||||||
Costs associated with becoming a public company | 435 | 138 | 2,710 | 2,180 | |||||||||||
Adjusted net income (loss) | $ | 2,630 | $ | (1,039 | ) | $ | 16,909 | $ | (1,215 | ) |