PetIQ, Inc. Reports Fourth Quarter and Full Year 2022 Financial Results
Full Year 2022 Net Sales and Adjusted EBITDA In-Line with Company Guidance
Updates Adjusted EBITDA Methodology
Reports Record Annual Cash from Operations of $48.0 Million
Completes Complementary, Margin Accretive Acquisition of Rocco & Roxie
Provides First Quarter 2023 and Full Year 2023 Outlook
Full Year 2022 Highlights Compared to Prior Year
- Net sales of
$921.5 million , in-line with the Company's guidance of$920 million to$940 million , consisting of Product segment net sales of$800.3 million and Services segment net revenues of$121.2 million - Net sales for PetIQ’s manufactured products increased to 29.3% of Product segment net sales compared to 27.7%
- Gross margin increased 280 basis points to 22.8%
- Net loss of
$48.2 million , or a loss per share of$1.65 , including a$47.3 million non-cash goodwill impairment charge recorded in the third quarter of 2022, compared to a net loss of$16.0 million , or a loss per share of$0.57 - Adjusted net income of
$17.7 million , or adjusted EPS of$0.61 , an increase of 103.3% compared to adjusted net income of$8.3 million , or adjusted EPS of$0.30 - EBITDA of
$59.8 million , compared to EBITDA of$48.9 million , an increase of 22.4% - As previously disclosed in the Company’s third quarter of 2022 earnings release, beginning in the fourth quarter of 2022,
PetIQ changed its methodology of calculating Adjusted EBITDA to no longer add back non-same store sales, cost of sales and expenses and has recast prior year periods to conform to the new presentation - Based on this new methodology, Adjusted EBITDA was
$77.7 million , compared to$69.7 million , an increase of 11.4% - Solely to allow investors to compare the Company's performance to the previously provided Adjusted EBITDA guidance, using its prior methodology, the Company would have reported Adjusted EBITDA of
$94.1 million , compared to$92.9 million , an increase of 1.3% and in-line with the Company’s previously provided guidance of$93.0 million to$95.0 million for 2022 - Aggregate net loss related to the Services segment wellness centers with less than six full quarters of operating results and pre-opening expenses, which we refer to as “non-same store operating results” of
$16.4 million and$23.2 million for the full year endedDecember 31, 2022 , and 2021, respectively - Record cash from operations of
$48.0 million and free cash flow of$36.1 million for the year endedDecember 31, 2022
Fourth Quarter 2022 Highlights Compared to Prior Year Period
- Net sales of
$184.1 million , consisting of Product segment net sales of$157.3 million and Services segment net revenues of$26.8 million - Net sales for PetIQ’s manufactured products remained relatively consistent at 30.7% of Product segment net sales compared to 30.8%
- Gross margin increased 250 basis points to 21.3%
- Net loss of
$6.8 million , or a loss per share of$0.24 , compared to a net loss of$14.0 million , or a loss per share of$0.49 - Adjusted net loss of
$3.0 million , or adjusted loss per share of$0.10 , compared to adjusted net loss of$6.5 million , or adjusted loss per share of$0.23 - EBITDA of
$9.9 million , compared to EBITDA of$4.8 million , an increase of 104.9% - Based on the Company's new methodology, Adjusted EBITDA was
$12.9 million , compared to$9.1 million , an increase of 41.9% - Non-same store operating results of
$2.8 million and$6.2 million for the fourth quarter of 2022 and 2021, respectively
Fourth Quarter 2022 Financial Results
Net sales were
Fourth quarter 2022 gross profit was
Selling, general and administrative expenses (“SG&A”) was
Net loss was
EBITDA was
Adjusted SG&A, adjusted net income (loss), adjusted earnings (loss) per share, adjusted EBITDA, adjusted EBITDA margin and free cash flow are non-GAAP financial measures. The Company believes these non-GAAP financial measures provide investors with additional insight into the way management views the business. See “Non-GAAP Financial Measures” for a definition of these measures and the financial tables that accompany this release for a reconciliation of each non-GAAP financial measure to the most comparable GAAP measure.
Cash Flow and Balance Sheet
The Company ended the quarter with total cash and cash equivalents of
Completes Acquisition of Rocco & Roxie
On
Outlook
For the full year 2023 the Company expects:
- Net sales of
$970 million to$1,030 million , an increase of approximately 9.0% compared to 2022 based on the mid-point of the guidance - Adjusted EBITDA of
$86 million to$92 million , an increase of approximately 15.0% compared to 2022 based on the mid-point of the guidance using the Company's new methodology
For the first quarter of 2023 the Company expects:
- Net sales of
$270 million to$290 million , an increase of approximately 2.0% compared to the prior year period based on the mid-point of the guidance - Adjusted EBITDA of
$27 million to$29 million , an increase of approximately 15.0% compared to the prior year period based on the mid-point of the guidance using the Company's new methodology
The Company does not provide guidance for net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA, and similarly cannot provide a reconciliation between its forecasted adjusted EBITDA and net income (loss) without unreasonable effort due to the unavailability of reliable estimates for certain components of net income and the respective reconciliations. These forecasted items are not within the Company’s control, may vary greatly between periods and could significantly impact future financial results for the first quarter ending
Conference Call and Webcast
The Company will host a conference call with members of the executive management team to discuss these results. The conference call is scheduled to begin today at
In addition, the call will be broadcast live over the Internet hosted at the “Investors” section of the Company's website at www.PetIQ.com. A telephonic playback will be available through
About
Contact: [email protected] or 208.513.1513
Forward Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 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: changes in general economic or market conditions, including inflation, that could affect overall consumer spending or our industry; the impact of COVID-19 on our business and the global economy; our ability to successfully grow our business through acquisitions and our ability to integrate acquisitions, including Rocco & Roxie; our dependence on a limited number of customers; our ability to implement our growth strategy effectively; 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 ability to protect our intellectual property; costs associated with governmental regulation; our ability to keep and retain key employees; our ability to achieve or sustain profitability; and the risks set forth under the “Risk Factors” section of our Annual Report on Form 10-K for the year ended
Non-GAAP Financial Measures
In addition to financial results reported in accordance with
Adjusted net income (loss) consists of net income (loss) adjusted for tax expense, non-cash goodwill impairment charge, acquisition expenses, integration costs, loss on debt extinguishment and related costs, litigation costs, and stock-based compensation expense. Adjusted net income (loss) is utilized by management to evaluate the effectiveness of our business strategies. Non-GAAP adjusted earnings (loss) per share is defined as non-GAAP adjusted net income (loss) divided by the weighted average number of shares of common stock outstanding during the period.
Adjusted SG&A consists of SG&A adjusted for acquisition expenses, stock-based compensation expense, loss on debt extinguishment and related costs, integration costs, CFO Transition costs, and litigation expense.
EBITDA represents net income before interest, income taxes, depreciation and amortization and a non-cash goodwill impairment charge. Adjusted EBITDA represents EBITDA plus adjustments for transactions that management does not believe are representative of our core ongoing business including acquisition costs, loss on extinguishment of debt, stock-based compensation expense, CFO Transition costs, integration costs and litigation expenses. Adjusted EBITDA margin is adjusted EBITDA stated as a percentage of net sales.
Adjusted EBITDA is utilized by management: as a factor in evaluating management's performance when determining incentive compensation and to evaluate the effectiveness of our business strategies. The Company presents EBITDA because it is a necessary component for computing adjusted EBITDA.
Free cash flow consists of cash provided by operations less capital expenditures.
We believe that the use of these non-GAAP measures provides additional tools for investors to use in evaluating ongoing operating results and trends. In addition, you should be aware when evaluating these non-GAAP measures 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 non-GAAP measures may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate these non-GAAP measures in the same manner. Our management does not, and you should not, consider the non-GAAP financial measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements. See a reconciliation of each non-GAAP measure to the most comparable GAAP measure, in the financial tables that accompany this release.
Consolidated Balance Sheets
(Unaudited, in 000’s except for per share amounts)
Current assets | ||||||||
Cash and cash equivalents | $ | 101,265 | $ | 79,406 | ||||
Accounts receivable, net | 118,004 | 113,947 | ||||||
Inventories | 142,605 | 96,440 | ||||||
Other current assets | 8,238 | 8,896 | ||||||
Total current assets | 370,112 | 298,689 | ||||||
Property, plant and equipment, net | 73,395 | 76,613 | ||||||
Operating lease right of use assets | 18,231 | 20,489 | ||||||
Other non-current assets | 1,373 | 2,024 | ||||||
Intangible assets, net | 172,479 | 190,662 | ||||||
183,306 | 231,110 | |||||||
Total assets | $ | 818,896 | $ | 819,587 | ||||
Liabilities and equity | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 112,995 | $ | 55,057 | ||||
Accrued wages payable | 11,512 | 12,704 | ||||||
Accrued interest payable | 1,912 | 3,811 | ||||||
Other accrued expenses | 7,725 | 11,680 | ||||||
Current portion of operating leases | 6,595 | 6,500 | ||||||
Current portion of long-term debt and finance leases | 8,751 | 8,350 | ||||||
Total current liabilities | 149,490 | 98,102 | ||||||
Operating leases, less current installments | 12,405 | 14,843 | ||||||
Long-term debt, less current installments | 443,276 | 448,470 | ||||||
Finance leases, less current installments | 907 | 2,493 | ||||||
Other non-current liabilities | 1,025 | 459 | ||||||
Total non-current liabilities | 457,613 | 466,265 | ||||||
Equity | ||||||||
Additional paid-in capital | 378,709 | 368,006 | ||||||
Class A common stock, par value |
29 | 29 | ||||||
Class B common stock, par value |
— | — | ||||||
Class A treasury stock, at cost, 373 and 0 shares, respectively | (3,857 | ) | — | |||||
Accumulated deficit | (162,733 | ) | (114,525 | ) | ||||
Accumulated other comprehensive loss | (2,224 | ) | (684 | ) | ||||
Total stockholders' equity | 209,924 | 252,826 | ||||||
Non-controlling interest | 1,869 | 2,394 | ||||||
Total equity | 211,793 | 255,220 | ||||||
Total liabilities and equity | $ | 818,896 | $ | 819,587 |
Consolidated Statements of Operations
(Unaudited, in 000’s, except for per share amounts)
For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
Product sales | $ | 157,324 | $ | 170,947 | $ | 800,305 | $ | 825,395 | ||||||||
Services revenue | 26,755 | 25,689 | 121,208 | 107,133 | ||||||||||||
Total net sales | 184,079 | 196,636 | 921,513 | 932,528 | ||||||||||||
Cost of products sold | 120,715 | $ | 135,729 | 606,548 | 646,402 | |||||||||||
Cost of services | 24,080 | $ | 24,013 | 105,302 | 99,733 | |||||||||||
Total cost of sales | 144,795 | 159,742 | 711,850 | 746,135 | ||||||||||||
Gross profit | 39,284 | 36,894 | 209,663 | 186,393 | ||||||||||||
Operating expenses | ||||||||||||||||
Selling, general and administrative expenses | 37,747 | 41,455 | 182,561 | 170,521 | ||||||||||||
— | — | 47,264 | — | |||||||||||||
Operating income (loss) | 1,537 | (4,561 | ) | (20,162 | ) | 15,872 | ||||||||||
Interest expense, net | 7,678 | 6,003 | 27,374 | 24,696 | ||||||||||||
Loss on debt extinguishment | — | — | — | 5,453 | ||||||||||||
Other expense (income), net | (98 | ) | 229 | (130 | ) | (1,763 | ) | |||||||||
Total other expense, net | 7,580 | 6,232 | 27,244 | 28,386 | ||||||||||||
Pretax net loss | (6,043 | ) | (10,793 | ) | (47,406 | ) | (12,514 | ) | ||||||||
Income tax expense | (845 | ) | (3,682 | ) | (1,214 | ) | (3,869 | ) | ||||||||
Net loss | (6,888 | ) | (14,475 | ) | (48,620 | ) | (16,383 | ) | ||||||||
Net loss attributable to non-controlling interest | (52 | ) | (426 | ) | (412 | ) | (416 | ) | ||||||||
Net loss attributable to |
$ | (6,836 | ) | $ | (14,049 | ) | $ | (48,208 | ) | $ | (15,967 | ) | ||||
Net loss per share attributable to |
||||||||||||||||
Basic | $ | (0.24 | ) | $ | (0.49 | ) | $ | (1.65 | ) | $ | (0.57 | ) | ||||
Diluted | $ | (0.24 | ) | $ | (0.49 | ) | $ | (1.65 | ) | $ | (0.57 | ) | ||||
Weighted Average shares of Class A common stock outstanding | ||||||||||||||||
Basic | 28,967 | 28,940 | 29,159 | 28,242 | ||||||||||||
Diluted | 28,967 | 28,940 | 29,159 | 28,242 |
Consolidated Statements of Cash Flows
(Unaudited, in 000’s)
Year Ended |
||||||||
2022 | 2021 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (48,620 | ) | $ | (16,383 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||
Depreciation, amortization of intangible assets and loan fees | 35,468 | 39,300 | ||||||
47,264 | — | |||||||
Loss on debt extinguishment | — | 5,453 | ||||||
Loss (gain) on disposition of property, plant, and equipment | 438 | (1,183 | ) | |||||
Stock based compensation expense | 11,363 | 9,428 | ||||||
Deferred tax adjustment | 599 | 3,487 | ||||||
Other non-cash activity | (385 | ) | 233 | |||||
Changes in assets and liabilities | ||||||||
Accounts receivable | (4,137 | ) | (11,197 | ) | ||||
Inventories | (46,297 | ) | 1,283 | |||||
Other assets | 1,093 | (1,380 | ) | |||||
Accounts payable | 58,546 | (12,131 | ) | |||||
Accrued wages payable | (1,225 | ) | 2,194 | |||||
Other accrued expenses | (6,083 | ) | 4,663 | |||||
Net cash provided by operating activities | 48,024 | 23,767 | ||||||
Cash flows from investing activities | ||||||||
Proceeds from disposition of property, plant, and equipment | — | 5,132 | ||||||
Purchase of property, plant, and equipment | (11,973 | ) | (31,270 | ) | ||||
Net cash used in investing activities | (11,973 | ) | (26,138 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of long-term debt | 59,000 | 642,568 | ||||||
Principal payments on long-term debt | (66,600 | ) | (597,071 | ) | ||||
Tax distributions to LLC Owners | — | (70 | ) | |||||
Principal payments on finance lease obligations | (1,493 | ) | (1,926 | ) | ||||
Payment of deferred financing fees and debt discount | — | (7,656 | ) | |||||
Tax withholding payments on Restricted Stock Units | (875 | ) | (937 | ) | ||||
Stock repurchase | (3,857 | ) | — | |||||
Exercise of options to purchase class A common stock | 115 | 13,426 | ||||||
Net cash (used in) provided by financing activities | (13,710 | ) | 48,334 | |||||
Net change in cash and cash equivalents | 22,341 | 45,963 | ||||||
Effect of exchange rate changes on cash and cash equivalents | (482 | ) | (13 | ) | ||||
Cash and cash equivalents, beginning of period | 79,406 | 33,456 | ||||||
Cash and cash equivalents, end of period | $ | 101,265 | $ | 79,406 |
Summary Segment Results
(Unaudited, in 000’s)
For the Three Months Ended | For the Twelve Months Ended | |||||||||||
$'s in 000's | ||||||||||||
Products segment sales | $ | 157,324 | $ | 170,947 | $ | 800,305 | $ | 825,395 | ||||
Services segment revenue: | ||||||||||||
Same-store sales | 23,846 | 18,133 | 102,426 | 81,955 | ||||||||
Non same-store sales | 2,909 | 7,556 | 18,782 | 25,178 | ||||||||
Total services segment revenue | $ | 26,755 | $ | 25,689 | $ | 121,208 | $ | 107,133 | ||||
Total net sales | $ | 184,079 | $ | 196,636 | $ | 921,513 | $ | 932,528 |
Reconciliation between Selling, General & Administrative (“SG&A”) and Adjusted SG&A
(Unaudited, in 000’s, Except for Percentages)
For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
$'s in 000's | ||||||||||||||||
SG&A | $ | 37,747 | $ | 41,455 | $ | 182,561 | $ | 170,521 | ||||||||
Less: | ||||||||||||||||
Acquisition costs(2) | 273 | — | 1,464 | 92 | ||||||||||||
Loss on debt extinguishment and related costs(3) | — | — | — | 985 | ||||||||||||
Stock based compensation expense | 2,459 | 2,240 | 11,363 | 9,428 | ||||||||||||
CFO Transition | — | 597 | — | 928 | ||||||||||||
Integration costs(4) | 228 | 212 | 1,171 | (142 | ) | |||||||||||
Litigation expenses | 60 | 1,219 | 3,862 | 4,105 | ||||||||||||
Adjusted SG&A(5) | $ | 34,727 | $ | 37,187 | $ | 164,701 | $ | 155,125 | ||||||||
% of Total |
20.5 | % | 21.1 | % | 19.8 | % | 18.3 | % |
Reconciliation between Net Loss and Adjusted EBITDA
(Unaudited, in 000’s)
For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
$'s in 000's | ||||||||||||||||
Net loss | $ | (6,888 | ) | $ | (14,475 | ) | $ | (48,620 | ) | $ | (16,383 | ) | ||||
Plus: | ||||||||||||||||
Tax expense | 845 | 3,682 | 1,214 | 3,869 | ||||||||||||
Depreciation | 3,747 | 4,947 | 14,520 | 14,366 | ||||||||||||
Amortization | 4,477 | 4,654 | 18,079 | 22,336 | ||||||||||||
— | — | 47,264 | — | |||||||||||||
Interest expense, net | 7,678 | 6,003 | 27,374 | 24,696 | ||||||||||||
EBITDA | $ | 9,860 | $ | 4,811 | $ | 59,831 | $ | 48,884 | ||||||||
Acquisition costs(2) | 273 | — | 1,464 | 92 | ||||||||||||
Loss on debt extinguishment and related costs(3) | — | — | — | 6,438 | ||||||||||||
Stock based compensation expense | 2,459 | 2,240 | 11,363 | 9,428 | ||||||||||||
Integration costs(4) | 228 | 212 | 1,171 | (142 | ) | |||||||||||
Litigation expenses | 60 | 1,219 | 3,862 | 4,105 | ||||||||||||
CFO Transition | — | 597 | — | 928 | ||||||||||||
Adjusted EBITDA(5) | $ | 12,879 | $ | 9,079 | $ | 77,691 | $ | 69,733 | ||||||||
Adjusted EBITDA Margin | 7.0 | % | 4.6 | % | 8.4 | % | 7.5 | % |
Reconciliation between Net Loss and Adjusted Net (Loss) Income
(Unaudited, in 000’s, except for per share amounts)
For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||
$'s in 000's | ||||||||||||||||
Net loss | $ | (6,888 | ) | $ | (14,475 | ) | $ | (48,620 | ) | $ | (16,383 | ) | ||||
Plus: | ||||||||||||||||
Tax expense | 845 | 3,682 | 1,214 | 3,869 | ||||||||||||
— | — | 47,264 | — | |||||||||||||
Acquisition costs(2) | 273 | — | 1,464 | 92 | ||||||||||||
Loss on debt extinguishment and related costs(3) | — | — | — | 6,438 | ||||||||||||
Stock based compensation expense | 2,459 | 2,240 | 11,363 | 9,428 | ||||||||||||
Integration costs(4) | 228 | 212 | 1,171 | (142 | ) | |||||||||||
Litigation expenses | 60 | 1,219 | 3,862 | 4,105 | ||||||||||||
CFO Transition | — | 597 | — | 928 | ||||||||||||
Adjusted Net (loss) income(5) | $ | (3,023 | ) | $ | (6,525 | ) | $ | 17,718 | $ | 8,335 | ||||||
Non-GAAP adjusted EPS | ||||||||||||||||
Basic | $ | (0.10 | ) | $ | (0.23 | ) | $ | 0.61 | $ | 0.30 | ||||||
Diluted | $ | (0.10 | ) | $ | (0.23 | ) | $ | 0.61 | $ | 0.30 | ||||||
Weighted Average shares of Class A common stock outstanding used to compute non-GAAP adjusted EPS | ||||||||||||||||
Basic | 28,967 | 28,940 | 29,159 | 28,242 | ||||||||||||
Diluted | 28,967 | 28,940 | 29,159 | 28,242 |
(1) Non-cash goodwill impairment due to a significant decline in the Company’s market capitalization, driven primarily by rising interest rates and macroeconomic conditions. Additionally, the Company made the strategic decision to slow expansion plans for the Services business this year.
(2) Acquisition costs include legal, accounting, banking, consulting, diligence, and other costs related to completed and contemplated acquisitions.
(3) Loss on debt extinguishment and related costs are related to our entering into two new credit facilities, including the write off of deferred financing costs and related costs.
(4) Integration costs represent costs related to integrating the acquired businesses including personnel costs such as severance and signing bonuses, consulting costs, contract termination, and IT conversion costs. The costs are primarily within the Products segment.
(5) Effective
- Adjusted SG&A-
$0 ,$2.9 ,$5.7 , and$8.0 , million respectively - Adjusted net income-
$2.8 ,$6.2 ,$16.4 , and$23.2 , million respectively - Adjusted EBITDA-
$2.8 ,$6.2 ,$16.4 , and$23.2 , million respectively
Calculation of Net Leverage Ratio Under Term Loan B
(Unaudited, in 000’s, except for multiples)
Total debt | $ | 450,409 | |
Total Capital Leases | 2,525 | ||
Less Cash | (101,265 | ) | |
Net Debt | 351,669 | ||
LTM Term Loan B defined EBITDA | 94,114 | ||
Term Loan B net leverage(1) | 3.7x |
(1) Our Term Loan B documentation defines Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization and a non-cash goodwill impairment charge, as further adjusted for acquisition costs, loss on debt extinguishment and related costs, stock based compensation expense, integration costs, litigation expenses, CFO transition costs and non same-store net income (loss), which we refer to as “Term Loan B Adjusted EBITDA.” Term Loan B Adjusted EBITDA is not a non-GAAP measure and is presented solely for purposes of providing investors an understanding of the Company’s financial condition and liquidity and should not be relied upon for any purposes other than an understanding of the Company’s financial condition and liquidity as it relates to the Company’s Term Loan B.
Free Cash Flow
(Unaudited)
Year ended |
||||||||
$'s in 000's | 2022 | 2021 | ||||||
Net cash provided by (used in) operating activities | $ | 48,024 | $ | 23,767 | ||||
Less purchase of property, plant, and equipment | (11,973 | ) | (31,270 | ) | ||||
Free Cash Flow | 36,051 | (7,503 | ) | |||||
We utilize Segment Adjusted EBITDA as our segment performance measure. This segment performance measure is required to be disclosed by
Reconciliation of Segment Adjusted EBITDA to Net Loss
(Unaudited)
For the years ended | |||||||||||
$'s in 000's | |||||||||||
Segment Adjusted EBITDA: | |||||||||||
Product(1) | $ | 90,333 | $ | 88,982 | $ | 68,084 | |||||
Services(1) | 3,781 | 3,910 | (292 | ) | |||||||
Total | 94,114 | 92,892 | 67,792 | ||||||||
Adjustments: | |||||||||||
Depreciation | (14,520 | ) | (14,366 | ) | (12,082 | ) | |||||
Amortization | (18,079 | ) | (22,336 | ) | (12,815 | ) | |||||
Interest | (27,374 | ) | (24,696 | ) | (22,807 | ) | |||||
Loss on debt extinguishment and related costs(2) | — | (6,438 | ) | — | |||||||
Acquisition costs(3) | (1,464 | ) | (92 | ) | (2,620 | ) | |||||
Stock based compensation expense | (11,363 | ) | (9,428 | ) | (9,170 | ) | |||||
Non same-store adjustment(4) | (16,423 | ) | (23,159 | ) | (16,354 | ) | |||||
Integration costs(5) | (1,171 | ) | 142 | (9,776 | ) | ||||||
Litigation expenses | (3,862 | ) | (4,105 | ) | (1,006 | ) | |||||
COVID-19 related costs(6) | — | — | (6,476 | ) | |||||||
CFO Transition | — | (928 | ) | — | |||||||
(47,264 | ) | — | — | ||||||||
Pretax net loss | $ | (47,406 | ) | $ | (12,514 | ) | $ | (25,314 | ) | ||
Income tax expense | (1,214 | ) | (3,869 | ) | (60,413 | ) | |||||
Net loss | $ | (48,620 | ) | $ | (16,383 | ) | $ | (85,727 | ) |
(1) Beginning in the fourth quarter of 2022, the Company is allocating corporate expenses to each segment pro rata based on net sales for each segment. The presentation of Product Adjusted EBITDA and Segment Adjusted EBITDA for the years ended
(2) Loss on debt extinguishment and related costs are related to our entering into two new credit facilities, including the write off of deferred financing costs and related costs.
(3) Acquisition costs include legal, accounting, banking, consulting, diligence, and other costs related to completed and contemplated acquisitions.
(4) Non same-store revenue and costs relate to our Services segment and are from wellness centers with less than six full quarters of operating results. This includes clinic launch expenses.
(5) Integration costs represent costs related to integrating the acquired businesses including personnel costs such as severance and signing bonuses, consulting costs, contract termination, and IT conversion costs. The costs are primarily within the Products segment.
(6) Costs related to maintaining service segment infrastructure, staffing, and overhead related to clinics and wellness centers closed due to COVID-19 related health and safety initiatives. Product segment costs related to incremental wages paid to essential workers and sanitation costs due to COVID.
(7) Non-cash goodwill impairment due to a significant decline in the Company’s market capitalization, driven primarily by rising interest rates and macroeconomic conditions. Additionally, the Company made the strategic decision to slow expansion plans for the Services business.

Source: PetIQ, Inc.