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Document and Entity Information - shares	9 Months Ended
Document and Entity Information - shares	Sep. 30, 2018	Nov. 14, 2018
Entity Registrant Name	PetIQ, Inc.
Entity Central Index Key	0001668673
Document Type	10-Q
Document Period End Date	Sep. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Class A common stock
Entity Common Stock, Shares Outstanding		21,308,788
Class B common stock
Entity Common Stock, Shares Outstanding		6,857,876

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Current assets
Cash and cash equivalents	$ 4,482	$ 37,896
Accounts receivable, net	53,594	21,759
Inventories	76,576	44,056
Supplier prepayments	19	3,173
Other current assets	1,594	1,991
Total current assets	136,265	108,875
Property, plant and equipment, net	25,036	15,000
Deferred tax assets	41,101	5,994
Other non-current assets	3,188	2,646
Intangible assets, net	85,431	3,266
Goodwill	118,408	5,064
Total assets	409,429	140,845
Current liabilities
Accounts payable	46,306	14,234
Accrued wages payable	3,952	1,811
Accrued interest payable	1,023	115
Other accrued expenses	1,072	1,880
Current portion of long-term debt and capital leases	1,973	151
Total current liabilities	54,326	18,191
Non-current liabilities
Long-term debt	107,642	17,183
Capital leases, less current installments	1,376	389
Contingent notes	7,150
Other non-current liabilities	417	238
Total non-current liabilities	116,585	17,810
Commitments and contingencies
Equity
Additional paid-in capital	189,880	70,873
Accumulated deficit	(976)	(3,493)
Accumulated other comprehensive loss	(1,049)	(687)
Total stockholders' equity	187,881	66,714
Non-controlling interest	50,637	38,130
Total equity	238,518	104,844
Total liabilities and equity	409,429	140,845
Class A common stock
Equity
Common stock value	19	13
Class B common stock
Equity
Common stock value	$ 7	$ 8

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2018	Dec. 31, 2017
Common stock, shares outstanding	19,172,303	13,222,583
Class A common stock
Common stock, par value	$ 0.001	$ 0.001
Common stock authorized	125,000,000	125,000,000
Common Stock, Shares, Issued	19,172,303	13,222,583
Common stock, shares outstanding	19,172,303	13,222,583
Class B common stock
Common stock, par value	$ 0.001	$ 0.001
Common stock authorized	100,000,000	100,000,000
Common Stock, Shares, Issued	6,594,364	8,268,188
Common stock, shares outstanding	6,594,364	8,268,188

Condensed Consolidated Statements of Income (loss) - USD ($)
$ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2018

Sep. 30, 2017

Sep. 30, 2018

Sep. 30, 2017

Total net sales

$ 131,382

$ 60,554

$ 417,590

$ 214,761

Total cost of sales

107,200

48,037

351,207

174,093

Gross profit

24,182

12,517

66,383

40,668

Operating expenses

General and administrative expenses

17,621

10,739

53,532

27,421

Operating income

6,561

1,778

12,851

13,247

Interest expense, net

(2,159)

(352)

(6,140)

(1,351)

Foreign currency (loss) gain , net

(50)

(31)

(152)

Other income (expense), net

351

(622)

Total other expense, net

(1,858)

(369)

(6,754)

(1,489)

Pretax net income

4,703

1,409

6,097

11,758

Income tax (expense) benefit

(801)

(550)

(754)

(550)

Net income

3,902

859

5,343

11,208

Net income attributable to non-controlling interest

1,681

1,085

2,651

11,434

Net income (loss) attributable to PetIQ, Inc.

$ 2,221

$ (226)

$ 2,692

$ (226)

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

Basic

^[1]

$ 0.13

$ (0.02)

$ 0.17

$ (0.02)

Diluted

^[1]

$ 0.13

$ (0.02)

$ 0.17

$ (0.02)

Weighted average shares of Class A common stock outstanding

Basic

^[1]

16,943,630

13,222,583

15,842,104

13,222,583

Diluted

^[1]

17,238,918

13,222,583

15,965,647

13,222,583

Product

Total net sales

$ 108,524

$ 60,554

$ 355,088

$ 214,761

Total cost of sales

90,155

$ 48,037

302,324

$ 174,093

Services

Total net sales

22,858

62,502

Total cost of sales

$ 17,045

$ 48,883

[1]	Basic and Diluted earnings per share is applicable only for periods after the Company’s IPO. See Note 8 - Earnings Per Share.

Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Comprehensive Income
Net income	$ 3,902	$ 859	$ 5,343	$ 11,208
Foreign currency translation adjustment	(11)	314	(300)	829
Comprehensive income	3,891	1,173	5,043	12,037
Comprehensive income attributable to non-controlling interest	1,670	1,206	2,571	12,070
Comprehensive income attributable to PetIQ	$ 2,221	$ (33)	$ 2,472	$ (33)

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Cash flows from operating activities
Net income	$ 5,343	$ 11,208
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Depreciation and amortization of intangible assets and loan fees	8,927	2,725
Foreign exchange (gain) loss on liabilities	16	204
Loss on disposition of property, plant, and equipment	(41)	14
Stock based compensation expense	2,678	246
Deferred tax adjustment	761	351
Other non-cash activity	(84)
Changes in assets and liabilities
Accounts receivable	(23,299)	(7,257)
Inventories	(24,745)	(316)
Prepaid expenses and other assets	3,681	1,137
Accounts payable	9,727	1,797
Accrued wages payable	942	570
Other accrued expenses	1,291	287
Net cash (used in) provided by operating activities	(14,803)	10,966
Cash flows from investing activities
Proceeds from disposition of property, plant, and equipment	108
Purchase of property, plant, and equipment	(6,128)	(3,558)
Business acquisition (net of cash acquired)	(92,083)
Net cash used in investing activities	(98,103)	(3,558)
Cash flows from financing activities
Proceeds from issuance of long-term debt	427,778	206,020
Principal payments on long-term debt	(346,137)	(213,522)
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 deposits		50
Purchase of LLC units from Continuing LLC Owners		(2,133)
Principal payments on capital lease obligations	(861)	(86)
Payment of deferred financing fees and debt discount	(2,675)	(42)
Exercise of options to purchase common stock	1,429
Net cash provided by (used in) financing activities	79,534	38,337
Net change in cash and cash equivalents	(33,372)	45,745
Effect of exchange rate changes on cash and cash equivalents	(42)	24
Cash and cash equivalents, beginning of period	37,896	767
Cash and cash equivalents, end of period	4,482	46,536
Supplemental cash flow information
Interest paid	5,129	1,116
Property, plant, and equipment acquired through accounts payable	25	(53)
Capital lease additions	34	17
Issuance of preference notes for LLC Interests		55,960
Net change of deferred tax asset from step-up in basis	35,621	9,814
Income taxes paid	491	$ 709
Accrued tax distribution	844
Non cash consideration - Contingent notes	6,900
Non cash consideration - Guarantee note	10,000
Non cash consideration - Issuance of Class B common stock and LLC Interests	$ 90,031

Condensed Consolidated Statements of Stockholders’ Equity - 9 months ended Sep. 30, 2018 - USD ($) $ in Thousands	Class A common stock Common Stock [Member]	Class B common stock Common Stock [Member]	(Accumulated Deficit)	Accumulated Other Comprehensive (Loss) Income	Additional Paid-In Capital	Non-controlling Interest	Total
Beginning Balance at Dec. 31, 2017	$ 13	$ 8	$ (3,493)	$ (687)	$ 70,873	$ 38,130	$ 104,844
Beginning Balance (in shares) at Dec. 31, 2017	13,222,583	8,268,188
Increase (Decrease) in Stockholders' Equity
Issuance of equity for business combination		$ 4		112	36,280	53,635	90,031
Issuance of equity for business combination (in shares)		4,200,000
Exchange of LLC Interests held by Continuing LLC Owners	$ 6	$ (6)		(254)	43,920	(43,666)
Exchange of LLC Interests held by Continuing LLC Owners (in shares)	5,873,825	(5,873,825)
Net increase in deferred tax asset from LLC Interest transactions					35,621		35,621
Accrued tax distributions						(844)	(844)
Other comprehensive income				(220)		(80)	(300)
Stock based compensation expense					1,757	921	2,678
Exercise of Options to purchase Common Stock	$ 0				1,429		$ 1,429
Exercise of Options to purchase Common Stock (in shares)	75,895						75,895
Net income			2,692			2,651	$ 5,343
Ending Balance at Sep. 30, 2018	$ 19	$ 7	(976)	$ (1,049)	$ 189,880	50,637	238,518
Ending Balance (in shares) at Sep. 30, 2018	19,172,303	6,594,363
Increase (Decrease) in Stockholders' Equity
ASC 606 adoption, net of tax			$ (175)			$ (110)	$ (285)

Principal Business Activity and Significant Accounting Policies

9 Months Ended

Sep. 30, 2018

Principal Business Activity and Significant Accounting Policies

Principal Business Activity and Significant Accounting Policies

Note 1 – Principal Business Activity and Significant Accounting Policies

Principal Business Activity and Principles of Consolidation

PetIQ, Inc. (the “Company”, or “PetIQ”) was formed as a Delaware corporation on February 29, 2016 for the purpose of completing a public offering and related transactions in order to carry on the business of PetIQ, LLC, an Idaho limited liability company (“Opco”). The Company is the sole managing member of PetIQ Holdings, LLC (“Holdco”), a Delaware limited liability company, which is the sole member of Opco and, through Holdco, will operate and control all of the business and affairs of Opco and continue to conduct the business now conducted by Opco and its subsidiaries.

The Company’s principal asset is the Holdco LLC Interests that it holds. As the sole managing member of Holdco, the Company operates and controls all of the business and affairs of Holdco and, through Holdco and its subsidiaries, conducts the Company’s business. In addition, the Company controls the management of, and has a controlling interest in, Holdco and, therefore, is the primary beneficiary of Holdco. As a result, the Company consolidates the financial results of Holdco pursuant to the variable-interest entity (“VIE”) accounting model, and a portion of the Company’s net income (loss) will be allocated to the non-controlling interest to reflect the entitlement of LLC Owners (defined as all owners of Holdco other than PetIQ) to a portion of Holdco’s net (loss) income. Holdco’s assets may be used only to settle Holdco’s obligations and Holdco’s beneficial interest holders have no recourse to the general credit to the Company. Through Holdco and its subsidiaries, the Company is a manufacturer and wholesale distributor of over-the-counter and prescription pet medications and pet wellness products to various retail customers and distributors throughout the United States and Europe. The Company also provides veterinary services to retail consumers through a network of community clinics and wellness centers. The Company is headquartered in Eagle, Idaho and manufactures and distributes products from facilities in Florida, Texas, Utah, and Europe. The Company provides veterinary services in the United States through a network of 34 district offices.

PetIQ, Inc. consolidates Holdco and Opco; Opco is considered to be the predecessor to PetIQ, Inc. for accounting and reporting purposes. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, all majority-owned subsidiaries and certain veterinary medical groups to which we provide services. The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these interim financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All intercompany transactions and balances have been eliminated in consolidation.

The condensed consolidated financial statements as of September 30, 2018 and December 31, 2017 and for the three and nine months ended September 30, 2018 and 2017 are unaudited. The condensed consolidated balance sheet as of December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the disclosures required by U.S. GAAP. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2017 and related notes thereto included in most recent annual report and filed with the Securities and Exchange Commission (“SEC”) on Form 10-K on March 13, 2018. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include the useful lives of property, plant, and equipment and intangible assets; the valuation of property, plant, and equipment, intangible assets and goodwill, the valuation of assets and liabilities in connection with acquisitions, the valuation of deferred tax assets and liabilities, the valuation of inventories, and reserves for legal contingencies.

Foreign Currencies

The Company operates subsidiaries in foreign countries who use the local currency as the functional currency. The Company translates its foreign subsidiaries’ assets and liabilities denominated in foreign currencies into U.S. dollars at current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income. The Company records gains and losses from changes in exchange rates on transactions denominated in currencies other than each reporting location's functional currency in net income for each period.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The carrying amounts of the Company’s financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, are at cost, which approximates fair value due to their relatively short maturities. The guarantee note is carried at cost, which approximates fair value due to the recent issuance of the note. Our term loan and revolving credit facility bear interest at a variable interest rate plus an applicable margin and, therefore, carrying amounts approximate fair value.

The following table presents liabilities measured at fair value on a recurring basis:


$'s in 000's		September 30, 2018		December 31, 2017
Liabilities:
Contingent notes	$	7,150	$	—

In connection with the acquisition of Community Veterinary Clinics, LLC d/b/a VIP Petcare (“VIP” and such acquisition, the “VIP Acquisition”) a portion of the purchase price is structured in the form of Contingent Notes (the “Contingent Notes”) that vest based on the combined Company EBITDA targets for the years ending December 31, 2018 and 2019 (“Measurement Dates”). See Note 2 – “Business Combinations” for more information regarding the VIP Acquisition. The Company is required to reassess the fair value of the Contingent Notes at each reporting period.

A Monte Carlo simulation method was utilized in estimating the fair value (Level 3) of the Contingent Notes. The simulation model is a numerical algorithm that generates thousands of scenarios for the future EBITDA in order to assess the probability of achieving the EBITDA hurdles. The valuation model simulates the last twelve months EBITDA from the Valuation Date to the end of each Measurement Date in one 'jump'. The Contingent Notes were valued within a risk-neutral option pricing framework with the real growth rate adjusted for the market price of EBITDA risk. The Company used the WACC less risk-free rate as a proxy for the EBITDA risk premium.

Although the Company believes its estimates and assumptions are reasonable, different assumptions, including those regarding the operating results of the Company, or changes in the future may result in different estimated amounts.

The contingent consideration is included in Contingent Notes in the accompanying condensed consolidated balance sheets. The Company will satisfy this obligation with a cash payment to the sellers due in July 2023 upon the achievement of the respective milestones discussed above. The Contingent Notes will bear interest at a fixed rate of 6.75%, beginning upon the achievement of the respective milestones discussed above.

The following table summarizes the Level 3 activity related to the contingent consideration:


	Three months ended				Nine months ended
$'s in 000's	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Balance at beginning of the period	$	7,500	$	—	$	—	$	—
Fair value of contingent consideration at VIP Acquisition date		—		—		6,900		—
Change in fair value of contingent consideration		(350)		—		250		—
Balance at the end of the period	$	7,150	$	—	$	7,150	$	—

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with an original maturity of three months or less at the date of acquisition. The Company maintains its cash accounts in various deposit accounts, the balances of which at times exceeded federal deposit insurance limits during the periods presented.

Receivables and Credit Policy

Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms generally requiring payment within 45 days from the invoice date. Accounts receivable are stated at the amount billed to the customer, net of discounts and estimated deductions. The Company does not have a policy for charging interest on overdue customer account balances. The Company provides an allowance for doubtful accounts equal to estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review of the current status of trade accounts receivable. Payments of trade receivables are allocated to the specific invoices identified on the customer's remittance advice.

Other receivables consists of various receivables due from vendors, banking partners, and notes receivable from suppliers. Non-current portions of these other receivables are included in other non-current assets on the consolidated balance sheets.

Accounts receivable consists of the following as of:


$'s in 000's	September 30, 2018		December 31, 2017
Trade receivables	$	50,646	$	22,189
Other receivables		3,432		297
		54,078		22,486
Less: Allowance for doubtful accounts		(383)		(343)
Non-current portion of receivables		(101)		(384)
Total accounts receivable, net	$	53,594	$	21,759

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is typically determined using the first-in first-out (“FIFO”) method. The Company maintains reserves for estimated obsolete or unmarketable inventory based on the difference between the cost of inventory and its estimated net realizable value. In estimating the reserves, management considers factors such as excess or slow-moving inventories, product expiration dating, and market conditions. Changes in these conditions may result in additional reserves. Major components of inventories consist of the following as of:


$'s in 000's	September 30, 2018		December 31, 2017
Raw materials and work in progress	$	4,470	$	4,004
Finished goods		72,106		40,052
Total inventories	$	76,576	$	44,056

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Expenditures for improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Depreciation and amortization is provided using the straight-line method, based on useful lives of the assets, except for leasehold improvements and capital leased assets which are depreciated over the shorter of the expected useful life or the lease term. Depreciation and amortization expense is recorded in cost of sales and general and administrative expenses in the condensed consolidated statements of operations, depending on the use of the asset. The estimated useful lives of property, plant, and equipment are as follows:


Computer equipment and software			3 years
Vehicle and vehicle accessories			3-5 years
Buildings			33 years
Equipment			3-15 years
Leasehold improvements			3-15 years
Furniture and fixtures			5-10 years

Deferred Acquisition Liability

The Company had a deferred acquisition liability related to an acquisition that occurred in 2013. The liability is denominated in Euros and requires annual payments based on a percentage of gross profit from the sales of certain products, and any amounts not repaid by the annual payments was due in 2018. The note was fully repaid in July 2018. The balance recorded as of December 31, 2017 was $1,575 thousand, and was included in other accrued expenses on the condensed consolidated balance sheets.

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”) using the modified retrospective method as described under Adopted Accounting Standard Updates below. As a result of the adoption of Topic 606, we have updated our accounting policy for revenue recognition as follows:

When Performance Obligations Are Satisfied

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account for revenue recognition. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The Company’s performance obligations are product sales and the delivery of veterinary services.

Revenue is recognized for product sales on a point in time basis when product control is transferred to the customer. In general, control transfers to the customer when the product is shipped or delivered to the customer based upon applicable shipping terms, as the customer can direct the use and obtain substantially all of the remaining benefits from the asset at this point in time.

Revenue is recognized for services over time when the service is delivered.

Customer contracts generally do not include more than one performance obligation. When a contract does contain more than one performance obligation, we allocate the contract’s transaction price to each performance obligation based on its relative standalone selling price. The standalone selling price for each distinct good is generally determined by directly observable data.

The performance obligations in our contracts are satisfied within one year. As such, we have not disclosed the transaction price allocated to remaining performance obligations as of September 30, 2018.

Significant Payment Terms

Our customer contracts identify the product, quantity, price, payment and final delivery terms. Payment terms usually include early pay discounts. We grant payment terms consistent with industry standards. Although some payment terms may be more extended, no terms beyond one year are granted at contract inception. As a result, we do not adjust the promised amount of consideration for the effects of a significant financing component because the period between our transfer of a promised good or service to a customer and the customer’s payment for that good or service will be one year or less.

Shipping

All shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in the cost of sales. This includes shipping and handling costs after control over a product has transferred to a customer.

Variable Consideration

In addition to fixed contract consideration, most contracts include some form of variable consideration. The most common forms of variable consideration include discounts, rebates, and sales returns and allowances. Variable consideration is treated as a reduction in revenue when product revenue is recognized. Depending on the specific type of variable consideration, we use either the expected value or most likely amount method to determine the variable consideration. We believe there will not be significant changes to our estimates of variable consideration when any related uncertainties are resolved with our customers. The Company reviews and updates its estimates and related accruals of variable consideration each period based on the terms of the agreements, historical experience, and any recent changes in the market. Any uncertainties in the ultimate resolution of variable consideration due to factors outside of the Company’s influence are typically resolved within a short timeframe therefore not requiring any additional constraint on the variable consideration.

Trade marketing expense, consisting primarily of customer pricing allowances and merchandising funds are offered through various programs to customers and are designed to promote our products. They include the cost of in-store product displays, feature pricing in retailers' advertisements and other temporary price reductions. These programs are offered to our customers both in fixed and variable (rate per case) amounts. The ultimate cost of these programs depends on retailer performance and is subject to management estimates.

Certain retailers require the payment of product introductory fees in order to obtain space for the Company's products on the retailer's store shelves. This cost is typically a lump sum and is determined using the expected value based on the contract between the two parties.

Both trade marketing expense and product introductory fees are recognized as reductions of revenue at the time the transfer of control of the associated products occurs. Accruals for expected payouts, or amounts paid in advance, under these programs are included as other current assets or accounts payable in the Condensed Consolidated Balance Sheet.

Warranties & Returns

PetIQ provides all customers with a standard or assurance type warranty. Either stated or implied, the Company provides assurance the related products will comply with all agreed-upon specifications and other warranties provided under the law. No significant services beyond an assurance warranty are provided to customers.

The Company does not grant a general right of return. However, customers may return defective or non-conforming products. Customer remedies may include either a cash refund or an exchange of the product. As a result, the right of return and related refund liability is estimated and recorded as a reduction in revenue. This return estimate is reviewed and updated each period and is based on historical sales and return experience.

Contract balances

Contract asset and liability balances as of September 30, 2018 are immaterial. The Company does not have significant deferred revenue or unbilled receivable balances because of transactions with customers.

Cost of Services

Cost of Services are comprised of all service and product costs related to the delivery of veterinary services, including but not limited to, salaries of veterinarians, technicians and other clinic based personnel, transportation and delivery costs, rent, occupancy costs, supply costs, depreciation and amortization of clinic assets, certain marketing and promotional expenses and costs of goods sold.

Research and Development and Advertising Costs

Research and development and advertising costs are expensed as incurred and are included in general and administrative expenses. Research and development costs amounted to $33 thousand and $114 thousand for the three months ended September 30, 2018 and 2017, respectively, and $131 thousand and $427 thousand for the nine months ended September 30, 2018 and 2017, respectively. Advertising costs were $532 thousand and $436 thousand for the three months ended September 30, 2018 and 2017, respectively, and $2,545 thousand and $2,028 thousand for the nine months ended September 30, 2018 and 2017, respectively. Advertising costs do not include trade marketing programs which are part of net sales.

Income taxes

The Company records a tax provision for the anticipated tax consequences of the reported results of operations. The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company may record a valuation allowance, if conditions are applicable, to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

Non-controlling interest

The non-controlling interests on the condensed consolidated statements of income represents the portion of earnings or loss attributable to the economic interest in the Company’s subsidiary, Holdco, held by the non-controlling LLC Owners. Non-controlling interests on the condensed consolidated balance sheet represents the portion of net assets of the Company attributable to the non-controlling LLC Owners, based on the portion of the LLC Interests owned by such LLC interest holders. All operations were considered owned by non-controlling interest for the period prior to the IPO on July 20, 2017 because the Company operated as Opco during those periods. As of September 30, 2018 and December 31, 2017 the non-controlling interest was approximately 25.6% and 38.5%, respectively.

Litigation

The Company is subject to various legal proceedings, claims, litigation, investigations and contingencies arising out of the ordinary course of business. If the likelihood of an adverse legal outcome is determined to be probable and the amount of loss is estimable, then a liability is accrued in accordance with accounting guidance for contingencies. The company consults with both internal and external legal counsel related to litigation.

Adopted Accounting Standard Updates

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

On January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach. Under the modified retrospective approach, the Company is required to recognize the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of retained earnings as of January 1, 2018, the date of initial application. The cumulative effect of initially applying Topic 606 was immaterial to the Condensed Consolidated Financial Statements.

In conjunction with adoption of Topic 606, the Company updated its significant accounting policy related to revenue recognition. The Company’s previous revenue recognition policy was disclosed in Note 1 “Summary of Significant Accounting Policies” of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Results for the three and nine month periods ended September 30, 2018 is presented under Topic 606. Prior periods are not adjusted and will continue to be reported in accordance with ASC 605 Revenue Recognition (“ASC 605”). The following tables summarize the impacts of adopting Topic 606 on the Company’s Condensed Consolidated Financial Statements as of and for the three and nine month periods ended September 30, 2018.

Condensed Consolidated Statements of Income for the three months ended September 30, 2018


						Balance Without
$'s in 000's		As Reported		Adjustments		Adoption of Topic 606
Revenues	$	131,382	$	(5,442)	$	125,940
Cost of sales		107,200		(4,476)		102,724
General and Administrative expenses		17,621		426		18,047
(Provision) benefit for income taxes		(801)		(223)		(1,024)
Net Income		3,902		(1,615)		2,287

Condensed Consolidated Statements of Income for the nine months ended September 30, 2018


						Balance Without
$'s in 000's	As Reported		Adjustments			Adoption of Topic 606
Revenues	$	417,590	$	765	$	418,355
Cost of sales		351,207		(743)		350,464
General and Administrative expenses		53,532		870		54,402
(Provision) benefit for income taxes		(754)		(102)		(856)
Net Income		5,343		536		5,879

Condensed Consolidated Balance Sheets


						Balance Without
$'s in 000's		As Reported		Adjustments		Adoption of Topic 606
Assets
Accounts receivable	$	53,594	$	486	$	54,080
Inventories		76,576		(486)		76,090
Other current assets		1,594		—		1,594

Liabilities and Stockholders' Equity
Accounts payable		46,306		(1,202)		45,104
Accumulated deficit		(976)		1,216		240

The following tables represent the disaggregation of revenue by contract type for each of our reportable segments:


		Three months ended September 30, 2018
$'s in 000's		U.S.		Foreign		Total
Product sales	$	106,969	$	1,555	$	108,524
Service revenue		22,858		—		22,858
Total net sales	$	129,827	$	1,555	$	131,382

		Three months ended September 30, 2017
$'s in 000's		U.S.		Foreign		Total
Product sales	$	59,328	$	1,226	$	60,554
Service revenue		—		—		—
Total net sales	$	59,328	$	1,226	$	60,554


		Nine months ended September 30, 2018
$'s in 000's		U.S.		Foreign		Total
Product sales	$	350,503	$	4,585	$	355,088
Service revenue		62,502		—		62,502
Total net sales	$	413,005	$	4,585	$	417,590

		Nine months ended September 30, 2017
$'s in 000's		U.S.		Foreign		Total
Product sales	$	211,095	$	3,666	$	214,761
Service revenue		—		—		—
Total net sales	$	211,095	$	3,666	$	214,761

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU is a comprehensive new lease standard that was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This standard requires adoption based upon a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with optional practical expedients. Based on a preliminary assessment, the Company expects that its operating lease commitments will be subject to the new guidance and recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in a material increase in the assets and liabilities on our consolidated balance sheet. The Company is continuing its assessment, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures.

In March 2018, the FASB issued ASU No. 2018-05, Income Taxes (Topic 740), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. The amendments add various SEC paragraphs pursuant to the issuance of SEC Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“Act”) (“SAB 118”). The SEC issued SAB 118 to address concerns about reporting entities’ ability to timely comply with the accounting requirements to recognize all of the effects of the Act in the period of enactment. SAB 118 allows disclosure that timely determination of some or all of the income tax effects from the Act are incomplete by the due date of the financial statements and if possible to provide a reasonable estimate. See Note 7 – Income Taxes, for the Company’s assessment of the income tax affects of the Act.

Business Combination

9 Months Ended

Sep. 30, 2018

Business Combination

Business Combination

Note 2 – Business Combination

On January 17, 2018 PetIQ, Inc. completed the acquisition of VIP from VIP Holdings, LLC (“VIPH” or the “Sellers”). VIP is a provider of veterinary wellness and pet preventive services as well as a distributor of pet wellness products and medications. The total purchase price was approximately $198 million, net of cash acquired and the effective settlement of pre-existing payables between the Company and VIP at cost which approximates fair value, and was funded through a combination of cash on hand, borrowings under a new $75 million term loan, a $10 million note payable, two $10 million contingent notes, payable upon the achievement of certain combined Company EBITDA targets, and equity consideration consisting of 4.2 million LLC Interests and 4.2 million shares of Class B common stock of the Company.

The estimate of fair value and purchase price allocation were based on information available at the time of closing the VIP Acquisition. The Company is in process of finalizing the net working capital adjustment. Accordingly, these preliminary estimates are subject to retrospective adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed as of the date of closing the VIP Acquisition. The preliminary estimated fair value of the consideration is summarized as follows:



$'s in 000's		Preliminary Estimated Fair Value		Adjustments		As Retrospectively Adjusted
Current assets	$	15,755	$	—	$	15,755
Property, plant, and equipment		8,857		—		8,857
Other assets, net		295		—		295
Intangible assets - Customer relationships (20 year useful life)		80,200		(3,900)		76,300
Intangible assets - Brand names (10 year useful life)		9,600		—		9,600
Goodwill		112,109		1,371		113,480
Total assets		226,816		(2,529)		224,287

Current liabilities		22,886		146		23,032
Capital lease obligations		3,032		—		3,032
Total liabilities		25,918		146		26,064

Estimated purchase price	$	200,898	$	(2,675)	$	198,223

Cash paid, net of cash acquired	$	91,987	$	96	$	92,083
LLC Interests and shares of Class B common stock		90,031		—		90,031
Guarantee note		10,000		—		10,000
Contingent notes		9,500		(2,600)		6,900
Preliminary post-closing working capital adjustment		(620)		(171)		(791)

Estimated fair value of total consideration transferred	$	200,898	$	(2,675)	$	198,223

During the three and nine months ended September 30, 2018, we adjusted purchase price allocation as a result of receiving certain information, which existed as of the date of acquisition. This information impacted our working capital adjustment as well as the projected operating results used in estimating the fair value of intangible assets and contingent notes. We are currently waiting for a final valuation report and other information needed to finalize our purchase price allocation. Additionally, we are waiting for information needed to finalize our working capital adjustment which could affect the recorded purchase consideration and goodwill.

The definite-lived intangibles primarily relate to customer relationships and brand names. The $85.9 million represents the fair value and will be amortized over the estimated useful lives of the assets through January 2038. Amortization expense for these definite-lived intangible assets for the three and nine months ended September 30, 2018 was $1.2 million and $3.3 million, respectively. The estimated future amortization expense is approximately $1.2 million for the remainder of 2018, and $4.8 million annually thereafter.

Goodwill represents the future economic benefits that do not qualify for separate recognition and primarily includes the assembled workforce and other non-contractual relationships, as well as expected future synergies. Approximately $54 million of the $113.5 million of goodwill will not be tax deductible, and the remaining balance is expected to be deductible for tax purposes. Goodwill was allocated to the Products and Services segments and as shown in Note 4.

Pro Forma Combined Statements of Operations (Unaudited)

The following unaudited pro forma combined statements of operations presents the Company's operations as if the VIP Acquisition and related financing activities had occurred on January 1, 2017. The pro forma information includes the following adjustments (i) amortization of acquired definite-lived intangible assets; (ii) depreciation based on the fair value of acquired property and equipment; (iii) costs of goods sold based on the fair value of acquired inventory; (iv) interest expense incurred in connection with the term loan and guaranteed note borrowings used to finance the acquisition; (v) inclusion of equity-based compensation expense associated with equity awards granted to certain VIP employees in connection with the acquisition; (vi) elimination of acquisition expenses; and (vii) VIP’s operations for the periods from January 1, 2017 to September 30, 2017 and January 1, 2018 to January 16, 2018. Additionally the share count utilized and Net Income do not account for non-controlling interests. The pro forma combined statements of operations are not necessarily indicative of the results of operations as they would have been had the VIP Acquisition been effected on the assumed date and are not intended to be a projection of future results:


		Three months ended September 30,				Nine months ended September 30,
($'s in 000's, except per share data)		2018		2017		2018		2017
Net sales	$	131,382	$	92,143	$	420,687	$	332,757
Net income	$	3,902	$	(443)	$	7,193	$	12,684

Earnings per share:
Basic(1)	$	0.15	$	(0.02)	$	0.30	$	0.53
Diluted(1)	$	0.15	$	(0.02)	$	0.30	$	0.52

Property, Plant, and equipment

9 Months Ended

Sep. 30, 2018

Property, Plant, and Equipment

Property, Plant, and Equipment

Note 3 – Property, Plant, and Equipment

Property, plant, and equipment consists of the following at:


$'s in 000's		September 30, 2018		December 31, 2017
Leasehold improvements	$	10,797	$	6,616
Equipment		12,115		10,665
Vehicles and accessories		3,683		—
Computer equipment and software		5,649		927
Buildings		2,492		771
Furniture and fixtures		1,448		407
Land		660		660
Construction in progress		259		2,344
		37,103		22,390
Less accumulated depreciation		(12,067)		(7,390)
Total property, plant, and equipment	$	25,036	$	15,000

Depreciation expense related to these assets was $1.8 million and $0.7 million for the three months ended September 30, 2018, and 2017, respectively, and $4.8 million and $1.8 million for the nine months ended September 30, 2018 and 2017, respectively.

Intangible Assets and Goodwill

9 Months Ended

Sep. 30, 2018

Intangible Assets and Goodwill

Intangible Assets and Goodwill

Note 4 – Intangible Assets and Goodwilll

Intangible assets consist of the following at:


$'s in 000's	Useful Lives	September 30, 2018		December 31, 2017
Amortizable intangibles
Distribution agreement	2 years	$	3,021	$	3,021
Certification	7 years		350		350
Customer relationships	12-20 years		77,459		1,191
Patents and processes	10 years		1,958		1,998
Brand names	10-15 years		10,497		923
Total amortizable intangibles			93,285		7,483
Less accumulated amortization			(8,370)		(4,733)
Total net amortizable intangibles			84,915		2,750
Non-amortizable intangibles
Trademarks and other			516		516
Intangible assets, net of accumulated amortization		$	85,431	$	3,266

Certain intangible assets are denominated in currencies other than the U.S. Dollar; therefore, their gross and net carrying values are subject foreign currency movements. Amortization expense for three months ended September 30, 2018, and 2017, was $1.3 million and $0.3 million, respectively, and $3.7 million and $0.8 million for the nine months ended September 30, 2018 and 2017, respectively.

Estimated future amortization expense for each of the following years is as follows:


Years ending December 31, ($'s in 000's)
Remainder of 2018	$	1,293
2019		5,174
2020		5,174
2021		5,173
2022		5,169
Thereafter		62,932

The following is a summary of the changes in the carrying value of goodwill for the period from January 1, 2018 to September 30, 2018:


		Reporting Unit
($'s in 000's)		Products		Services		Total
Goodwill as of January 1, 2018	$	5,064	$	—	$	5,064
Foreign currency translation		(136)		—		(136)
Acquisition		65,190		48,290		113,480
Goodwill as of September 30, 2018	$	70,118	$	48,290	$	118,408

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References + Details

Debt

9 Months Ended

Sep. 30, 2018

Debt

Debt

Note 5 – Debt

A&R Credit Agreement

In connection with the VIP Acquisition, the Company amended and restated its existing revolving credit agreement (the “A&R Credit Agreement”) on January 17, 2018, which was subsequently amended in August 2018. The A&R Credit Agreement provides for a secured revolving credit facility of $75 million in the aggregate, at either LIBOR or Base (prime) interest rates plus an applicable margin. The A&R Credit Agreement matures on January 17, 2023.

All obligations under the A&R Credit Agreement are unconditionally guaranteed by Holdco and each of its domestic wholly-owned subsidiaries and, subject to certain exceptions, each of its material current and future domestic wholly-owned subsidiaries. All obligations under the A&R Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of each borrower and guarantor under the A&R Credit Agreement, subject to certain exceptions.

Also in connection with the closing of the VIP Acquisition, the Company entered into a term loan credit agreement (the “Term Loan Credit Agreement”). The Term Loan Credit Agreement provides for a secured term loan credit facility of $75 million in aggregate at either LIBOR or Base (prime) interest rates plus an applicable margin. The Term Loan Credit Agreement requires quarterly principal payments, with the full balance due on January 17, 2023.

As of September 30, 2018, the Company had $23.8 million outstanding under the A&R Credit Agreement and $74.8 million under the Term Loan Credit Agreement. The interest rate on the A&R Credit Agreement was 5.25% as a Base Rate loan, the interest rate on the Term Loan Credit Agreement was 7.35% as a LIBOR rate loan. Additionally the Company pays between 0.375% and 0.50% as an unused facility fee, depending on the amount borrowed. The A&R Credit Agreement contains a lockbox mechanism.

The A&R Credit Agreement and Term Loan Credit Agreement contain certain covenants and restrictions including a fixed charge coverage ratio and a minimum EBITDA target and is secured by collateral consisting of a percentage of eligible accounts receivable, inventories, and machinery and equipment. As of September 30, 2018, the Company was in compliance with these covenants.

Prior Credit Agreement

The Company entered into a previous credit agreement (“Prior Credit Agreement”) on December 21, 2016. The Prior Credit Agreement provided for secured financing of $50.0 million in aggregate at either LIBOR or Base (prime) interest rates plus an applicable margin, consisting of:

(i) $45.0 million revolving credit facility (“Prior Revolver”) maturing on December 16, 2019; and

(ii) $5.0 million term loan (“Prior Term Loans”), requiring equal amortizing payments for 24 months.

As of December 31, 2017, the Company had fully repaid the Prior Term Loans and had $15.3 million outstanding under the Prior Revolver. The interest rate on the Prior Revolver was 5.00% as a Base Rate loan. All amounts outstanding under the Prior Revolver were repaid in connection with the A&R Credit Agreement.

Other Debt

The Company entered into a mortgage with a local bank to finance $1.9 million of the purchase price of a commercial building in Eagle, Idaho, in July 2017. The mortgage bears interest at a fixed rate of 4.35% and utilizes a 25 year amortization schedule with a 10 year balloon payment of the balance due at that time.

In connection with the VIP Acquisition, the Company entered into a guarantee note which requires the Company to pay $10.0 million on July 17, 2023. The note bears interest at a fixed 6.75% and requires quarterly interest payments.

The following represents the Company’s long-term debt as of:


$'s in 000's	September 30, 2018		December 31, 2017
Term loans	$	74,813	$	—
Revolving credit facility		23,774		15,325
Mortgage		1,872		1,902
Guaranteed note		10,000		—
Net discount on debt and deferred financing fees		(2,022)		—
	$	108,437	$	17,227
Less current maturities of long-term debt		(795)		(44)
Total long-term debt	$	107,642	$	17,183

Future maturities of long-term debt, excluding the net discount on debt and deferred financing fees, as of September 30, 2018, are as follows:


($'s in 000's)
Remainder of 2018	$	199
2019		796
2020		798
2021		800
2022		802
Thereafter		107,064

The Company incurred debt issuance costs of $0.1 million and $0.3 million related to the A&R Credit Agreement and zero and $2.4 million related to the Term Loan during the three and nine months ended September 30, 2018, respectively.

Leases

9 Months Ended

Sep. 30, 2018

Leases

Leases

Note 6 – Leases

The Company leases certain real estate for commercial, production, and retail purposes, as well as equipment from third parties. Lease expiration dates are between 2018 and 2025. A portion of capital leases are denominated in foreign currencies. Many of these leases include renewal options and in some cases options to purchase.

Annual future commitments under non-cancelable leases as of September 30, 2018, consist of the following:


	Lease Obligations
$'s in 000's	Operating Leases		Capital Leases
Remainder of 2018	$	884	$	360
2019		2,196		1,235
2020		1,523		815
2021		699		188
2022		536		78
Thereafter		244		12
Total minimum future obligations	$	6,082	$	2,688
Less interest				(133)
Present value of net future minimum obligations				2,555
Less current capital lease obligations				(1,179)
Long-term capital lease obligations			$	1,376

The net book value of assets under capital lease was $3.9 million and $0.9 million as of September 30, 2018 and December 31, 2017, respectively. Total operating lease expense for the three months ended September 30, 2018 and 2017 totaled $1.1 million and $0.5 million, respectively, and $2.8 million and $1.4 million for the nine months ended September 30, 2018 and 2017, respectively.

Income Taxes	9 Months Ended
Income Taxes	Sep. 30, 2018
Income Taxes
Income Taxes	Note 7 – Income Tax As a result of the IPO and related reorganization transactions completed in July 2017, the Company held a majority of the economic interest in Holdco and consolidates the financial position and results of Holdco. The remaining ownership of Holdco not held by the Company is considered a non-controlling interest. Holdco is treated as a partnership for income tax reporting. Holdco’s members, including the Company, are liable for federal, state, and local income taxes based on their share of Holdco’s taxable income. On December 22, 2017, Tax Cuts and Jobs Act (“TCJA”) was signed into law. The TCJA includes a number of provisions, including (1) the lowering of the U.S. corporate tax rate from 35 percent to 21 percent; (2) elimination of the corporate alternative minimum tax (AMT); (3) a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; (4) a new provision designed to tax global intangible low-taxed income (GILTI), which allows for the possibility of using foreign tax credits (FTCs) and a deduction of up to 50 percent to offset the income tax liability (subject to some limitations); (5) a new limitation on deductible interest expense; (6) the repeal of the domestic production activity deduction; and (7) limitations on the deductibility of certain executive compensation. Our effective tax rate (ETR) from continuing operations was 17.0% and 12.4% for the three and nine months ended September 30, 2018, respectively, and 39% and 4.7% for the quarter and nine months ended September 30, 2017, respectively. Income tax expense for the nine months of 2018 was different than the U.S federal statutory income tax rate of 21% primarily due to the impact of the non-controlling interest income that is not taxable. In 2017, the income expense was different than the U.S Federal statutory income tax rate of 35% due to Holdco being a partnership and not being taxed for a portion of the year and the impact of the non-controlling interest income that is not taxable. As noted at year-end, the Company was able to reasonably estimate certain TCJA effects and recorded a provisional tax expense for the deemed repatriation tax of $0.2 million, and the remeasurement of deferred taxes of $3.4 million. As of September 30, 2018, our accounting for the TCJA is complete and the previously disclosed provisional amounts (transition tax and remeasurement of deferred taxes) are now final. The measurement-period adjustments include a net tax benefit of $55 thousand for the Company’s allocated share of the one-time transition tax on unrepatriated earnings of foreign subsidiaries and a net expense of $70 thousand due to the remeasurement of deferred tax assets associated with the corporate tax rate reduction. Due to the complexity of the new Global Intangible Low Taxed Income (“GILTI”) tax rules, the Company is continuing to evaluate this provision of the TCJA and the application of ASC 740. Under U.S. GAAP, we are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our selection of an accounting policy related to the new GILTI tax rules will depend on a number of different aspects of the estimated long-term effects of this provision under the TCJA. Therefore, we have not recorded any potential deferred tax effects related to GILTI in our financial statements and have not made a policy decision regarding whether to record deferred taxes on GILTI or use the period cost method. We have, however, included an estimate of the estimated 2018 current GILTI impact in our average effective tax rate for 2018. HoldCo makes cash distributions to members to pay taxes attributable to the income earned. In the three and nine months ended September 30, 2018, the Company made cash distributions of $141 thousand and $1,467 thousand, respectively. In the three and nine months ended September 30, 2017, the Company did not make cash distributions.

Earnings per Share

9 Months Ended

Sep. 30, 2018

Earnings per Share

Earnings per share

Note 8 – Earnings per Share

Basic and Diluted Earnings per Share

Basic earnings per share of Class A common stock is computed by dividing net income available to PetIQ, Inc. by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted earnings per share of Class A common stock is computed by dividing net income available to PetIQ, Inc. by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

As described in Note 10 — Stockholders’ Equity, on July 20, 2017, the Holdco LLC Agreement (“LLC Agreement”) was amended and restated to, among other things, (i) provide for a new single class of common membership interests, the LLC Interests of Holdco, and (ii) exchange all of the then-existing membership interests of the Continuing LLC Owners for common units of Holdco. This recapitalization changed the relative membership rights of the Continuing LLC Owners such that retroactive application of the recapitalization to periods prior to the IPO for the purposes of calculating earnings per share would not be appropriate.

Prior to the IPO, the Holdco membership structure included several different types of LLC interests including ownership interests and profits interests. The Company analyzed the calculation of earnings per unit for periods prior to the IPO using the two-class method and determined that it resulted in values that would not be meaningful to the users of these consolidated financial statements. Therefore, earnings per share information has not been presented for periods prior to the IPO on July 20, 2017, and income attributable to Holdco prior to the IPO is included in income attributable to non-controlling interests.

The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock:


	Three months ended				Nine months ended
(in 000's, except for per share amounts)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Numerator:
Net income	$	3,902	$	859	$	5,343	$	11,208
Less: net income attributable to non-controlling interests		(1,681)		(1,085)		(2,651)		(11,434)
Net income attributable to PetIQ, Inc. — basic and diluted		2,221		(226)		2,692		(226)
Denominator:
Weighted-average shares of Class A common stock outstanding -- basic		16,944		13,223		15,842		13,223
Dilutive effects of stock options that are convertible into Class A common stock		291		—		122		—
Dilutive effect of RSUs		4		—		1		—
Weighted-average shares of Class A common stock outstanding -- diluted		17,239		13,223		15,966		13,223

Earnings per share of Class A common stock — basic	$	0.13	$	(0.02)	$	0.17	$	(0.02)
Earnings per share of Class A common stock — diluted	$	0.13	$	(0.02)	$	0.17	$	(0.02)

Shares of the Company’s Class B common stock do not share in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

For the three and nine months ended September 30, 2018 and 2017, all shares of the Company’s Class B common stock have not been included in the diluted earnings per share calculation as they have been determined to be anti-dilutive under the if-converted method.

Additionally, 974,435 and 345,660 weighted average stock options and restricted stock units have not been included in the diluted earnings per share calculation for the three and nine months ended September 30, 2018, respectively, as they have been determined to be anti-dilutive under the treasury stock method. All options outstanding for the three and nine months ended September 30, 2017 have not been included in the diluted earnings per share calculation as they have been determined to be anti-dilutive under the treasury stock method.

Stock Based Compensation

9 Months Ended

Sep. 30, 2018

Stock Based Compensation

Stock Based Compensation

Note 9 – Stock Based Compensation

PetIQ, Inc. Omnibus Incentive Plan

The PetIQ, Inc. Omnibus Incentive Plan (the “Plan”) provides for the grant of various equity-based incentive awards to directors of the Company, employees, and consultants. The types of equity-based awards that may be granted under the Plan include: stock options, stock appreciation rights (SARs), restricted stock, restricted stock units (RSUs), and other stock-based awards. The Company initially reserved 1,914,047 registered shares of Class A common stock for issuance under the Plan. As of September 30, 2018, 838,805 shares were available for issuance under the Plan. All awards issued under the Plan may only be settled in shares of Class A common stock.

PetIQ, Inc. 2018 Inducement and Retention Stock Plan for CVC Employees

The PetIQ, Inc. 2018 Inducement and Retention Stock Plan for CVC Employees (the “Inducement Plan”) provides for the grant of stock options to employees hired in connection with the VIP Acquisition as employment inducement awards pursuant to NASDAQ Listing Rule 5635(c)(4). The Inducement Plan reserved 800,000 shares of Class A Common Stock of the Company. As of September 30, 2018, 570,000 shares were available for issuance under the Inducement Plan. All awards issued under the Plan may only be settled in shares of Class A common stock.

Stock Options

The Company awards stock options to certain employees and directors under the Plan and the Inducement Plan, which are subject to time-based vesting conditions, typically 25% on each anniversary of the grant date until fully vested. Upon a termination of service relationship by the Company, all unvested options will be forfeited and the shares of common stock underlying such awards will become available for issuance under the Plan. The maximum contractual term for stock options is 10 years.

The fair value of these equity awards is amortized to equity based compensation expense over the vesting period, which totaled $1,224 thousand and $2,678 thousand for the three and nine months ended September 30, 2018. Total compensation expense of these equity awards recognized for the three and nine months ended September 30, 2017 was $246 thousand. All stock based compensation expense is included in general and administrative expenses based on the role of recipients. The fair value of the stock option awards were determined on the grant dates using the Black-Scholes valuation model based on the following weighted-average assumptions for the periods ended September 30, 2018 and 2017:


	2018			2017
Expected term (years) (1)		6.25			6.25
Expected volatility (2)		35.00	%		35.00	%
Risk-free interest rate (3)		2.53	%		1.98	%
Dividend yield (4)		0.00	%		0.00	%

⁽¹⁾

The Company utilized the simplified method to determine the expected term of the stock options since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

⁽²⁾

The expected volatility assumption was calculated based on a peer group analysis of stock price volatility with a look back period consistent with the expected option term.

⁽³⁾

The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds to the expected term of the stock options.

⁽⁴⁾

The Company has not paid and does not anticipate paying a cash dividend on our common stock

The following table summarizes the activity of the Company’s unvested stock options for the period ended September 30, 2018


							Weighted
							Average
			Weighted				Remaining
			Average		Aggregate		Contractual
	Stock		Exercise		Intrinsic		Life
	Options		Price		Value		(years)
Outstanding at December 31, 2017		598,647	$	16.00
Granted		1,211,837		22.58
Exercised		(75,895)		18.83
Forfeited		(195,000)		21.37
Cancelled		—
Outstanding at September 30, 2018		1,539,589	$	20.36	$	29,174		9.15
Options exercisable at September 30, 2018		128,778

The weighted average grant date fair value of stock options granted during the period ended September 30, 2018 was $10.10 per option. At September 30, 2018, total unrecognized compensation cost related to unvested stock options was $13.7 million and is expected to be recognized over a weighted-average period of 3.2 years.

Restricted Stock Units

The Company awards RSUs to certain employees and directors under the Plan, which are subject to time-based vesting conditions. Upon a termination of service relationship by the Company, all unvested RSUs will be forfeited and the shares of common stock underlying such awards will become available for issuance under the Plan. The fair value of RSUs are measured based on the closing fair market value of the Company’s common stock on the date of grant. At September 30, 2018, total unrecognized compensation cost related to unvested RSUs was $780 thousand and is to expected to vest over a weighted average 3.4 years.

The fair value of these equity awards is amortized to equity based compensation expense over the vesting period, which totaled $59 thousand and $78 thousand for the three and nine months ended September 30, 2018. All stock based compensation expense is included in general and administrative expenses based on the role of recipients.

The following table summarizes the activity of the Company’s RSUs for the period ended September 30, 2018.


			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Outstanding at December 31, 2017		—		—
Granted		29,758		30.33
Settled		—
Forfeited		—
Non-vested RSUs at September 30, 2018		29,758	$	30.33

There were no grants of RSUs for the three or nine months months ended September 30, 2017.

Stockholder's Equity	9 Months Ended
Stockholder's Equity	Sep. 30, 2018
Stockholder's Equity
Stockholder's Equity	Note 10 – Stockholders’ Equity Acquisition During the nine months ended September 30, 2018, Holdco issued 4,200,000 LLC Interests and Class B common shares as consideration for a business combination. Exchanges During the nine months ended September 30, 2018, LLC Owners exercised exchange rights and exchanged 5,873,825 Class B common shares and corresponding LLC Interests for newly issued Class A Common Stock. The LLC Agreement generally allows for conversions on the last day of each calendar month.

Non-Controlling Interests

9 Months Ended

Sep. 30, 2018

Non-Controlling Interests

Non-controlling interest

Note 11 – Non-Controlling Interests

The following table presents the outstanding LLC Interests and changes in LLC Interests for the periods presented.


	LLC Interests held					% of Total
		Continuing LLC				Continuing LLC
	Owners		PetIQ, Inc.		Total	Owners	PetIQ, Inc.
As of December 31, 2017		8,268,188		13,222,583	21,490,771	38.5%	61.5%
Issuance of LLC Interests for acquisition		4,200,000		—	4,200,000
Contribution of proceeds from stock option issuance		—		75,895	75,895
Exchange transactions		(5,873,825)		5,873,825	—
As of September 30, 2018		6,594,363		19,172,303	25,766,666	25.6%	74.4%

For the three and nine months ended September 30, 2018, the Company owned a weighted average of 65.6% and 65.9%, respectively, of Holdco.

Customer Concentration	9 Months Ended
Customer Concentration	Sep. 30, 2018
Customer Concentration
Customer Concentration	Note 12 – Customer Concentration The Company has significant exposure to customer concentration. During the three months ended September 30, 2018 one customer accounted for 22% of net sales. During the three months ended September 30, 2017, three customers individually accounted for more than 10% of sales, together comprising 61% of net sales. In total for the nine months ended September 30, 2018 two customers accounted for 30% of net sales and for the nine months ended September 30, 2017, three customers accounted for 61% of net sales. At September 30, 2018 two Product Segment customers individually accounted for more than 10% of outstanding trade receivables, and in aggregate accounted for 38% of outstanding trade receivaables, net. At December 31, 2017 three Product Segment customers, individually accounted for more than 10% of outstanding trade receivables, and in aggregate accounted for 48%, of outstanding trade receivables, net.

Commitments and Contingencies	9 Months Ended
Commitments and Contingencies	Sep. 30, 2018
Commitments and Contingencies
Commitments and Contingencies	Note 13 – Commitments and Contingencies Litigation Contingencies In May 2017, Bayer Healthcare LLC and its affiliates (collectively “Bayer”) filed suit in the United States District Court for the District of Delaware, against CAP IM Supply, Inc. (“CAP IM”), our supplier of Advecta 3 and PetLock MAX, which we began to sell in 2017 as our value-branded alternatives to Bayer’s K9 Advantix II. Bayer alleges that Advecta 3 and PetLock MAX infringe a patent relating to K9 Advantix II. Bayer seeks unspecified monetary damages and an injunction against future sales by CAP IM of Advecta 3 and PetLock MAX to the Company. Bayer sought, and was denied, a preliminary injunction. Although we have not been named in the suit, our license and supply agreement with CAP IM requires us to share with CAP IM the payment of defense and settlement costs of such litigation and allows us to control the defense of the proceeding. CAP IM intends to vigorously defend this case and we believe that CAP IM has meritorious defenses. However, because of the inherent uncertainties of litigation, we can provide no assurance of an outcome favorable to CAP IM and to us. The case has been stayed pending the outcome of settlement negotiations. In April 2018, Med Vets, Inc. and Bay Medical Solutions Inc., filed suit in the United States District Court for the Northern District of California against PetIQ, Inc. and VIP Petcare Holdings, Inc. for alleged unlawful merger and other antitrust violations. The plaintiffs’ sought unspecified monetary damages, and various injunctive relief, including an order to require PetIQ to divest its interests in VIP. We filed a Motion to Dismiss the Complaint for failure to state a claim upon which relief could be granted. On August 3, 2018 the Court granted our Motion to Dismiss the Complaint, but permitted the plaintiffs to attempt to plead a viable Complaint on or before October 5, 2018. On October 3, 2018, Plaintiffs filed a motion for pre-Complaint discovery. Although we believe the motion lacks merit, because of the inherent uncertainties of litigation, we can provide no assurance of a favorable outcome. The Company records a liability when a particular contingency is probable and estimable and provides disclosure for contingencies that are at least reasonably possible of resulting in a loss including an estimate which we currently cannot make. The Company has not accrued for any contingency at September 30, 2018 and December 31, 2017, as the Company does not consider any contingency to be probable or estimable. The Company expenses legal costs as incurred within general and administrative expenses on the consolidated condensed statements of operations.

Segments

9 Months Ended

Sep. 30, 2018

Segments

Segments

Note 14 – Segments

Prior to January 17, 2018, The Company had two operating segments, and thus two reportable segments, which were the procurement, packaging, and distribution of pet health and wellness products in the Domestic markets (U.S. and Canada) and in the International markets (primarily Europe). The determination of the operating segments was based on the level at which the Chief Operating Decision Maker reviews discrete financial information to assess performance and make resource allocation decisions, which was done based on these two geographic areas.

In connection with the VIP Acquisition, the Company reorganized operations to correspond with the structure of the Company. The Company now operates the Product and Service segments. The Product segment consists of legacy PetIQ Domestic and International segments plus VIP’s product distribution business. Services represents all veterinary services, and related product sales, provided by the Company directly to consumers. The segments are based on the discrete financial information reviewed by the Chief Operating Decision Maker to make resource allocation decisions and to evaluate performance. Certain corporate costs are not included in this analysis, such as accounting, legal, human resources, information technology and corporate headquarters expenses. Additionally certain expense types are allocated to the corporate portion of the Company, such as stock based compensation, amortization expense on intangible assets, interest expense, foreign currency exchange adjustments, and income taxes. All prior period disclosures have been restated to reflect these new reportable operating segments.

Financial information relating to the Company’s operating segments for the three months ended:


$'s in 000's
September 30, 2018	Products		Services		Corporate		Consolidated
Net Sales	$	108,524	$	22,858	$	—	$	131,382
Operating income (loss)		14,053		2,260		(9,752)		6,561
Interest expense		—		—		(2,159)		(2,159)
Foreign currency loss, net		—		—		(50)		(50)
Other income, net		—		—		351		351
Depreciation expense		589		477		720		1,786
Amortization expense	$	—	$	—	$	1,294	$	1,294


$'s in 000's
September 30, 2017	Products		Services		Corporate		Consolidated
Net Sales	$	60,554	$	—	$	—	$	60,554
Operating income (loss)		5,568		—		(3,790)		1,778
Interest expense		—		—		(352)		(352)
Other income, net		—		—		14		14
Foreign currency loss, net		—		—		(31)		(31)
Depreciation expense		648		—		36		684
Amortization expense	$	—	$	—	$	261	$	261

Financial information relating to the Company’s operating segments for the nine months ended:


$'s in 000's
September 30, 2018	Products		Services		Corporate		Consolidated
Net Sales	$	355,088	$	62,502	$	—	$	417,590
Operating income (loss)		39,158		3,855		(30,162)		12,851
Interest expense		—		—		(6,140)		(6,140)
Foreign currency loss, net		—		—		8		8
Other income, net		—		—		(622)		(622)
Depreciation expense		1,739		1,726		1,351		4,816
Amortization expense	$	—	$	—	$	3,691	$	3,691


$'s in 000's
September 30, 2017	Products		Services		Corporate		Consolidated
Net Sales	$	214,761	$	—	$	—	$	214,761
Operating income (loss)		23,207		—		(9,960)		13,247
Interest expense		—		—		(1,351)		(1,351)
Other income, net		—		—		14		14
Foreign currency loss, net		—		—		(152)		(152)
Depreciation expense		1,725		—		70		1,795
Amortization expense	$	—	$	—	$	782	$	782

Related Parties	9 Months Ended
Related Parties	Sep. 30, 2018
Related Parties
Related Parties	Note 15 – Related Parties Opco had entered into management consulting services agreements with members of Holdco. The services were related to financial transactions and other senior management matters related to business administration. Those agreements provided for the Company to pay base annual management fees plus expenses, typically paid quarterly. These expenses were recorded in general and administrative expenses in the condensed consolidated statement of operations. The Company recorded $158 thousand and $545 thousand of expense for the three and nine months ended September 30, 2017. Upon consummation of the recapitalization and IPO transactions, these agreements were terminated. As discussed in Note 7– Income Taxes, the Company has accrued tax distributions that are payable to LLC Owners to facilitate the LLC Owners periodic estimated tax obligations. At September 30, 2018, and December 31, 2017, the Company had an accrual of $0 and $597 thousand, respectively, for estimated tax distributions, which are included in accounts payable on the condensed consolidated balance sheets. As discussed in Note 5– Debt, the Company has a note payable to the Sellers of VIP, who are significant shareholders of the Company, of $10 million and accrued interest of $480 thousand as of September 30, 2018. The Company leases office and warehouse space from a company under common control of the Sellers, commencing on January 17, 2018. The Company incurred rent expenses of $89 thousand and $268 thousand in the three and nine months ended September 30, 2018, respectively. Chris Christensen, the brother of CEO, McCord Christensen, acts as the Company’s agent at Moreton Insurance (“Moreton”), which acts as a broker for a number of the Company’s insurance policies. The Company’s premium expense, paid to Moreton and subsequently transferred to insurance providers, was $434 thousand for the three and nine months ended September 30, 2017 and $522 thousand for the three and nine months ended September 30, 2018. Mr. Chris Christensen was paid a commission of approximately $20 thousand and $25 thousand for the three and nine months ended September 30, 2018 and 2017, respectively, by Moreton for the sale of such insurance policies to the Company.

Subsequent Events	9 Months Ended
Subsequent Events	Sep. 30, 2018
Subsequent Events
Subsequent Events	Note 16 – Subsequent events On October 1, 2018, the Company closed an underwritten public offering of 5,750,000 shares of Class A common stock. The Company sold 2,000,000 newly issued shares of Class A common stock and received net proceeds of approximately $73.5 million after deducting underwriting discounts and commissions and offering expenses. The remaining 3,750,000 shares of Class A common stock were sold by existing shareholders and the Company did not receive any proceeds with respect hereto. On October 17, 2018, the Company completed the strategic acquisition of HBH Enterprises, LLC (“HBH”) (the “HBH Acquisition”). Total consideration was approximately $16 million including approximately $3.0 million of cash plus the issuance of 400,000 LLC interests of Holdco (the “Holdco Consideration”) and 400,000 shares of Class B common stock, $0.001 par value per share, of the Company (the “Company Stock Consideration” and, together with the Holdco Consideration, the “Equity Consideration”). The Equity Consideration can be exchanged for 400,000 shares of Class A common stock of the Company pursuant to the terms of the LLC Agreement of Holdco.

Principal Business Activity and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Use of Estimates

Foreign Currencies

Fair Value of Financial Instruments

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table presents liabilities measured at fair value on a recurring basis:


$'s in 000's		September 30, 2018		December 31, 2017
Liabilities:
Contingent notes	$	7,150	$	—

The following table summarizes the Level 3 activity related to the contingent consideration:


	Three months ended				Nine months ended
$'s in 000's	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Balance at beginning of the period	$	7,500	$	—	$	—	$	—
Fair value of contingent consideration at VIP Acquisition date		—		—		6,900		—
Change in fair value of contingent consideration		(350)		—		250		—
Balance at the end of the period	$	7,150	$	—	$	7,150	$	—

Cash and Cash Equivalents

Receivables and Credit Policy

Accounts receivable consists of the following as of:


$'s in 000's	September 30, 2018		December 31, 2017
Trade receivables	$	50,646	$	22,189
Other receivables		3,432		297
		54,078		22,486
Less: Allowance for doubtful accounts		(383)		(343)
Non-current portion of receivables		(101)		(384)
Total accounts receivable, net	$	53,594	$	21,759

Inventories


$'s in 000's	September 30, 2018		December 31, 2017
Raw materials and work in progress	$	4,470	$	4,004
Finished goods		72,106		40,052
Total inventories	$	76,576	$	44,056

Property, Plant, and Equipment


Computer equipment and software			3 years
Vehicle and vehicle accessories			3-5 years
Buildings			33 years
Equipment			3-15 years
Leasehold improvements			3-15 years
Furniture and fixtures			5-10 years

Deferred Acquisition Liability

Revenue Recognition

When Performance Obligations Are Satisfied

Revenue is recognized for services over time when the service is delivered.

Significant Payment Terms

Shipping

Variable Consideration

Warranties & Returns

Contract balances

Cost of Services

Research and Development and Advertising Costs

Income taxes

Non-controlling interest

Litigation

Recently Issued Accounting Pronouncements

ASU 2014-09

Adopted Accounting Standard Updates

ASU 2014-09, Revenue from Contracts with Customers (Topic 606)

Condensed Consolidated Statements of Income for the three months ended September 30, 2018


						Balance Without
$'s in 000's		As Reported		Adjustments		Adoption of Topic 606
Revenues	$	131,382	$	(5,442)	$	125,940
Cost of sales		107,200		(4,476)		102,724
General and Administrative expenses		17,621		426		18,047
(Provision) benefit for income taxes		(801)		(223)		(1,024)
Net Income		3,902		(1,615)		2,287

Condensed Consolidated Statements of Income for the nine months ended September 30, 2018


						Balance Without
$'s in 000's	As Reported		Adjustments			Adoption of Topic 606
Revenues	$	417,590	$	765	$	418,355
Cost of sales		351,207		(743)		350,464
General and Administrative expenses		53,532		870		54,402
(Provision) benefit for income taxes		(754)		(102)		(856)
Net Income		5,343		536		5,879

Condensed Consolidated Balance Sheets


						Balance Without
$'s in 000's		As Reported		Adjustments		Adoption of Topic 606
Assets
Accounts receivable	$	53,594	$	486	$	54,080
Inventories		76,576		(486)		76,090
Other current assets		1,594		—		1,594

Liabilities and Stockholders' Equity
Accounts payable		46,306		(1,202)		45,104
Accumulated deficit		(976)		1,216		240

The following tables represent the disaggregation of revenue by contract type for each of our reportable segments:


		Three months ended September 30, 2018
$'s in 000's		U.S.		Foreign		Total
Product sales	$	106,969	$	1,555	$	108,524
Service revenue		22,858		—		22,858
Total net sales	$	129,827	$	1,555	$	131,382

		Three months ended September 30, 2017
$'s in 000's		U.S.		Foreign		Total
Product sales	$	59,328	$	1,226	$	60,554
Service revenue		—		—		—
Total net sales	$	59,328	$	1,226	$	60,554


		Nine months ended September 30, 2018
$'s in 000's		U.S.		Foreign		Total
Product sales	$	350,503	$	4,585	$	355,088
Service revenue		62,502		—		62,502
Total net sales	$	413,005	$	4,585	$	417,590

		Nine months ended September 30, 2017
$'s in 000's		U.S.		Foreign		Total
Product sales	$	211,095	$	3,666	$	214,761
Service revenue		—		—		—
Total net sales	$	211,095	$	3,666	$	214,761

Principal Business Activity and Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Principal Business Activity and Significant Accounting Policies

Summary of liabilities measured at fair value on a recurring basis


$'s in 000's		September 30, 2018		December 31, 2017
Liabilities:
Contingent notes	$	7,150	$	—

Summary of Level 3 activity related to the contingent consideration

The following table summarizes the Level 3 activity related to the contingent consideration:


	Three months ended				Nine months ended
$'s in 000's	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Balance at beginning of the period	$	7,500	$	—	$	—	$	—
Fair value of contingent consideration at VIP Acquisition date		—		—		6,900		—
Change in fair value of contingent consideration		(350)		—		250		—
Balance at the end of the period	$	7,150	$	—	$	7,150	$	—

Schedule of accounts receivable


$'s in 000's	September 30, 2018		December 31, 2017
Trade receivables	$	50,646	$	22,189
Other receivables		3,432		297
		54,078		22,486
Less: Allowance for doubtful accounts		(383)		(343)
Non-current portion of receivables		(101)		(384)
Total accounts receivable, net	$	53,594	$	21,759

Schedule of components of inventories


$'s in 000's	September 30, 2018		December 31, 2017
Raw materials and work in progress	$	4,470	$	4,004
Finished goods		72,106		40,052
Total inventories	$	76,576	$	44,056

Schedule of estimated useful lives of property, plant, and equipment


Computer equipment and software			3 years
Vehicle and vehicle accessories			3-5 years
Buildings			33 years
Equipment			3-15 years
Leasehold improvements			3-15 years
Furniture and fixtures			5-10 years

Schedule of financial information that has been recast to reflect the adoption of Topic 606

Condensed Consolidated Statements of Income for the three months ended September 30, 2018


						Balance Without
$'s in 000's		As Reported		Adjustments		Adoption of Topic 606
Revenues	$	131,382	$	(5,442)	$	125,940
Cost of sales		107,200		(4,476)		102,724
General and Administrative expenses		17,621		426		18,047
(Provision) benefit for income taxes		(801)		(223)		(1,024)
Net Income		3,902		(1,615)		2,287

Condensed Consolidated Statements of Income for the nine months ended September 30, 2018


						Balance Without
$'s in 000's	As Reported		Adjustments			Adoption of Topic 606
Revenues	$	417,590	$	765	$	418,355
Cost of sales		351,207		(743)		350,464
General and Administrative expenses		53,532		870		54,402
(Provision) benefit for income taxes		(754)		(102)		(856)
Net Income		5,343		536		5,879

Condensed Consolidated Balance Sheets


						Balance Without
$'s in 000's		As Reported		Adjustments		Adoption of Topic 606
Assets
Accounts receivable	$	53,594	$	486	$	54,080
Inventories		76,576		(486)		76,090
Other current assets		1,594		—		1,594

Liabilities and Stockholders' Equity
Accounts payable		46,306		(1,202)		45,104
Accumulated deficit		(976)		1,216		240

Summary of disaggregation of revenue by contract type


		Three months ended September 30, 2018
$'s in 000's		U.S.		Foreign		Total
Product sales	$	106,969	$	1,555	$	108,524
Service revenue		22,858		—		22,858
Total net sales	$	129,827	$	1,555	$	131,382

		Three months ended September 30, 2017
$'s in 000's		U.S.		Foreign		Total
Product sales	$	59,328	$	1,226	$	60,554
Service revenue		—		—		—
Total net sales	$	59,328	$	1,226	$	60,554


		Nine months ended September 30, 2018
$'s in 000's		U.S.		Foreign		Total
Product sales	$	350,503	$	4,585	$	355,088
Service revenue		62,502		—		62,502
Total net sales	$	413,005	$	4,585	$	417,590

		Nine months ended September 30, 2017
$'s in 000's		U.S.		Foreign		Total
Product sales	$	211,095	$	3,666	$	214,761
Service revenue		—		—		—
Total net sales	$	211,095	$	3,666	$	214,761

Business Combination (Tables)

9 Months Ended

Sep. 30, 2018

Business Combination

Summary of preliminary estimated fair value of the consideration



$'s in 000's		Preliminary Estimated Fair Value		Adjustments		As Retrospectively Adjusted
Current assets	$	15,755	$	—	$	15,755
Property, plant, and equipment		8,857		—		8,857
Other assets, net		295		—		295
Intangible assets - Customer relationships (20 year useful life)		80,200		(3,900)		76,300
Intangible assets - Brand names (10 year useful life)		9,600		—		9,600
Goodwill		112,109		1,371		113,480
Total assets		226,816		(2,529)		224,287

Current liabilities		22,886		146		23,032
Capital lease obligations		3,032		—		3,032
Total liabilities		25,918		146		26,064

Estimated purchase price	$	200,898	$	(2,675)	$	198,223

Cash paid, net of cash acquired	$	91,987	$	96	$	92,083
LLC Interests and shares of Class B common stock		90,031		—		90,031
Guarantee note		10,000		—		10,000
Contingent notes		9,500		(2,600)		6,900
Preliminary post-closing working capital adjustment		(620)		(171)		(791)

Estimated fair value of total consideration transferred	$	200,898	$	(2,675)	$	198,223

Summary of pro forma combined statements of operations


		Three months ended September 30,				Nine months ended September 30,
($'s in 000's, except per share data)		2018		2017		2018		2017
Net sales	$	131,382	$	92,143	$	420,687	$	332,757
Net income	$	3,902	$	(443)	$	7,193	$	12,684

Earnings per share:
Basic(1)	$	0.15	$	(0.02)	$	0.30	$	0.53
Diluted(1)	$	0.15	$	(0.02)	$	0.30	$	0.52

Property, Plant, and equipment (Tables)

9 Months Ended

Sep. 30, 2018

Property, Plant, and Equipment

Property, Plant, and Equipment


$'s in 000's		September 30, 2018		December 31, 2017
Leasehold improvements	$	10,797	$	6,616
Equipment		12,115		10,665
Vehicles and accessories		3,683		—
Computer equipment and software		5,649		927
Buildings		2,492		771
Furniture and fixtures		1,448		407
Land		660		660
Construction in progress		259		2,344
		37,103		22,390
Less accumulated depreciation		(12,067)		(7,390)
Total property, plant, and equipment	$	25,036	$	15,000

Intangible Assets and Goodwill (Tables)

9 Months Ended

Sep. 30, 2018

Intangible Assets and Goodwill

Schedule of intangible assets


$'s in 000's	Useful Lives	September 30, 2018		December 31, 2017
Amortizable intangibles
Distribution agreement	2 years	$	3,021	$	3,021
Certification	7 years		350		350
Customer relationships	12-20 years		77,459		1,191
Patents and processes	10 years		1,958		1,998
Brand names	10-15 years		10,497		923
Total amortizable intangibles			93,285		7,483
Less accumulated amortization			(8,370)		(4,733)
Total net amortizable intangibles			84,915		2,750
Non-amortizable intangibles
Trademarks and other			516		516
Intangible assets, net of accumulated amortization		$	85,431	$	3,266

Estimated future amortization expense


Years ending December 31, ($'s in 000's)
Remainder of 2018	$	1,293
2019		5,174
2020		5,174
2021		5,173
2022		5,169
Thereafter		62,932

Schedule of Goodwill


		Reporting Unit
($'s in 000's)		Products		Services		Total
Goodwill as of January 1, 2018	$	5,064	$	—	$	5,064
Foreign currency translation		(136)		—		(136)
Acquisition		65,190		48,290		113,480
Goodwill as of September 30, 2018	$	70,118	$	48,290	$	118,408

Debt (Tables)

9 Months Ended

Sep. 30, 2018

Debt

Schedule of components of long term debt


$'s in 000's	September 30, 2018		December 31, 2017
Term loans	$	74,813	$	—
Revolving credit facility		23,774		15,325
Mortgage		1,872		1,902
Guaranteed note		10,000		—
Net discount on debt and deferred financing fees		(2,022)		—
	$	108,437	$	17,227
Less current maturities of long-term debt		(795)		(44)
Total long-term debt	$	107,642	$	17,183

Future maturities of long term debt, excluding the net discount on debt and deferred financing fees


($'s in 000's)
Remainder of 2018	$	199
2019		796
2020		798
2021		800
2022		802
Thereafter		107,064

- Definition

Tabular disclosure of long-debt instruments or arrangements, including identification, terms, features, collateral requirements and other information necessary to a fair presentation. These are debt arrangements that originally required repayment more than twelve months after issuance or greater than the normal operating cycle of the entity, if longer.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.22)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21475-112644

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 942
-SubTopic 470
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=75038535&loc=d3e64711-112823

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(e),(f))
-URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 835
-SubTopic 30
-Section 55
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=64930739&loc=d3e28878-108400

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21538-112644

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 6
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21506-112644

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 835
-SubTopic 30
-Section 45
-Paragraph 1A
-URI http://asc.fasb.org/extlink&oid=64930785&loc=d3e28541-108399

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 835
-SubTopic 30
-Section 45
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=64930785&loc=d3e28551-108399

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section 50
-Paragraph 7
-URI http://asc.fasb.org/extlink&oid=84159872&loc=d3e21521-112644

+ Details

Leases (Tables)

9 Months Ended

Sep. 30, 2018

Leases

Summary of annual future commitments under non-cancelable leases


	Lease Obligations
$'s in 000's	Operating Leases		Capital Leases
Remainder of 2018	$	884	$	360
2019		2,196		1,235
2020		1,523		815
2021		699		188
2022		536		78
Thereafter		244		12
Total minimum future obligations	$	6,082	$	2,688
Less interest				(133)
Present value of net future minimum obligations				2,555
Less current capital lease obligations				(1,179)
Long-term capital lease obligations			$	1,376

Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2018

Earnings per Share

Reconciliations of the numerators and denominators used to compute basic and diluted earnings per share of Class A common stock


	Three months ended				Nine months ended
(in 000's, except for per share amounts)	September 30, 2018		September 30, 2017		September 30, 2018		September 30, 2017
Numerator:
Net income	$	3,902	$	859	$	5,343	$	11,208
Less: net income attributable to non-controlling interests		(1,681)		(1,085)		(2,651)		(11,434)
Net income attributable to PetIQ, Inc. — basic and diluted		2,221		(226)		2,692		(226)
Denominator:
Weighted-average shares of Class A common stock outstanding -- basic		16,944		13,223		15,842		13,223
Dilutive effects of stock options that are convertible into Class A common stock		291		—		122		—
Dilutive effect of RSUs		4		—		1		—
Weighted-average shares of Class A common stock outstanding -- diluted		17,239		13,223		15,966		13,223

Earnings per share of Class A common stock — basic	$	0.13	$	(0.02)	$	0.17	$	(0.02)
Earnings per share of Class A common stock — diluted	$	0.13	$	(0.02)	$	0.17	$	(0.02)

Stock Based Compensation (Tables)

9 Months Ended

Sep. 30, 2018

Stock Based Compensation

Fair value of the stock option awards was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions


	2018			2017
Expected term (years) (1)		6.25			6.25
Expected volatility (2)		35.00	%		35.00	%
Risk-free interest rate (3)		2.53	%		1.98	%
Dividend yield (4)		0.00	%		0.00	%

⁽¹⁾

⁽²⁾

The expected volatility assumption was calculated based on a peer group analysis of stock price volatility with a look back period consistent with the expected option term.

⁽³⁾

The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant, which corresponds to the expected term of the stock options.

⁽⁴⁾

The Company has not paid and does not anticipate paying a cash dividend on our common stock

Summary of the activity of the Company’s unvested stock options


							Weighted
							Average
			Weighted				Remaining
			Average		Aggregate		Contractual
	Stock		Exercise		Intrinsic		Life
	Options		Price		Value		(years)
Outstanding at December 31, 2017		598,647	$	16.00
Granted		1,211,837		22.58
Exercised		(75,895)		18.83
Forfeited		(195,000)		21.37
Cancelled		—
Outstanding at September 30, 2018		1,539,589	$	20.36	$	29,174		9.15
Options exercisable at September 30, 2018		128,778

Summary of RSU activity


			Weighted
			Average
	Number of		Grant Date
	Shares		Fair Value
Outstanding at December 31, 2017		—		—
Granted		29,758		30.33
Settled		—
Forfeited		—
Non-vested RSUs at September 30, 2018		29,758	$	30.33

Non-Controlling Interests (Tables)

9 Months Ended

Sep. 30, 2018

Non-Controlling Interests

Summary of noncontrolling interest


	LLC Interests held					% of Total
		Continuing LLC				Continuing LLC
	Owners		PetIQ, Inc.		Total	Owners	PetIQ, Inc.
As of December 31, 2017		8,268,188		13,222,583	21,490,771	38.5%	61.5%
Issuance of LLC Interests for acquisition		4,200,000		—	4,200,000
Contribution of proceeds from stock option issuance		—		75,895	75,895
Exchange transactions		(5,873,825)		5,873,825	—
As of September 30, 2018		6,594,363		19,172,303	25,766,666	25.6%	74.4%

Segments (Tables)

9 Months Ended

Sep. 30, 2018

Segments

Summary of financial information relating to the Company’s operating segments

Financial information relating to the Company’s operating segments for the three months ended:


$'s in 000's
September 30, 2018	Products		Services		Corporate		Consolidated
Net Sales	$	108,524	$	22,858	$	—	$	131,382
Operating income (loss)		14,053		2,260		(9,752)		6,561
Interest expense		—		—		(2,159)		(2,159)
Foreign currency loss, net		—		—		(50)		(50)
Other income, net		—		—		351		351
Depreciation expense		589		477		720		1,786
Amortization expense	$	—	$	—	$	1,294	$	1,294


$'s in 000's
September 30, 2017	Products		Services		Corporate		Consolidated
Net Sales	$	60,554	$	—	$	—	$	60,554
Operating income (loss)		5,568		—		(3,790)		1,778
Interest expense		—		—		(352)		(352)
Other income, net		—		—		14		14
Foreign currency loss, net		—		—		(31)		(31)
Depreciation expense		648		—		36		684
Amortization expense	$	—	$	—	$	261	$	261

Financial information relating to the Company’s operating segments for the nine months ended:


$'s in 000's
September 30, 2018	Products		Services		Corporate		Consolidated
Net Sales	$	355,088	$	62,502	$	—	$	417,590
Operating income (loss)		39,158		3,855		(30,162)		12,851
Interest expense		—		—		(6,140)		(6,140)
Foreign currency loss, net		—		—		8		8
Other income, net		—		—		(622)		(622)
Depreciation expense		1,739		1,726		1,351		4,816
Amortization expense	$	—	$	—	$	3,691	$	3,691


$'s in 000's
September 30, 2017	Products		Services		Corporate		Consolidated
Net Sales	$	214,761	$	—	$	—	$	214,761
Operating income (loss)		23,207		—		(9,960)		13,247
Interest expense		—		—		(1,351)		(1,351)
Other income, net		—		—		14		14
Foreign currency loss, net		—		—		(152)		(152)
Depreciation expense		1,725		—		70		1,795
Amortization expense	$	—	$	—	$	782	$	782

Principal Business Activity and Significant Accounting Policies - Fair value on a contingent consideration (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018 USD ($)	Sep. 30, 2018 USD ($)
Business Acquisition, Contingent Consideration [Line Items]
Balance at the end of the period	$ 7,150	$ 7,150
VIP \| Level 3
Business Acquisition, Contingent Consideration [Line Items]
Balance at beginning of the period	7,500
Fair value of contingent consideration at VIP Acquisition date	6,900	6,900
Change in fair value of contingent consideration	(350)	250
Balance at the end of the period	$ 7,150	$ 7,150

Principal Business Activity and Significant Accounting Policies - Receivables and Credit Policy (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Receivables and Credit Policy
Accounts receivable, gross	$ 54,078	$ 22,486
Less: Allowance for doubtful accounts	(383)	(343)
Non-current portion of receivables	101	384
Total accounts receivable, net	53,594	21,759
Trade receivables
Receivables and Credit Policy
Accounts receivable, gross	50,646	22,189
Notes receivable
Receivables and Credit Policy
Accounts receivable, gross	$ 3,432	$ 297

Principal Business Activity and Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Dec. 31, 2017
Inventories
Raw materials and work in progress	$ 4,470	$ 4,004
Finished goods	72,106	40,052
Total inventories	$ 76,576	$ 44,056

Principal Business Activity and Significant Accounting Policies - PPNE (Details)	9 Months Ended
	Sep. 30, 2018
Computer equipment and software
Property, Plant, and Equipment
Estimated useful life	3 years
Vehicle and vehicle accessories \| Minimum
Property, Plant, and Equipment
Estimated useful life	3 years
Vehicle and vehicle accessories \| Maximum
Property, Plant, and Equipment
Estimated useful life	5 years
Buildings
Property, Plant, and Equipment
Estimated useful life	33 years
Buildings \| Maximum
Property, Plant, and Equipment
Estimated useful life	15 years
Equipment \| Minimum
Property, Plant, and Equipment
Estimated useful life	3 years
Leasehold improvements \| Minimum
Property, Plant, and Equipment
Estimated useful life	3 years
Leasehold improvements \| Maximum
Property, Plant, and Equipment
Estimated useful life	15 years
Furniture and fixtures \| Minimum
Property, Plant, and Equipment
Estimated useful life	5 years
Furniture and fixtures \| Maximum
Property, Plant, and Equipment
Estimated useful life	10 years

Principal Business Activity and Significant Accounting Policies - Others (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Fair Value of Financial Instruments
Fixed interest rate	4.35%		4.35%
Research and Development and Advertising Costs
Research and development costs	$ 114	$ 33	$ 131	$ 427
Advertising costs	$ 532	$ 436	$ 2,545	$ 2,028
Continuing LLC Owners
Non-Controlling Interests
Interest held by non-controlling owners	25.60%		25.60%		38.50%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-09-30
Revenue Recognition
Period of satisfaction of performance obligation			1 year
Contingent notes
Fair Value of Financial Instruments
Fixed interest rate	6.75%		6.75%
Other accrued expenses
Deferred Acquisition Liability
Current portion of deferred acquisition liability					$ 1,575
Recurring \| Contingent notes
Fair Value of Financial Instruments
Contingent notes	$ 7,150		$ 7,150

Principal Business Activity and Significant Accounting Policies - Adopted Accounting Standard Updates (“ASU”) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Condensed Consolidated Statements of Income
Revenues	$ 131,382	$ 60,554	$ 417,590	$ 214,761
Cost of sales	107,200	48,037	351,207	174,093
General and administrative expenses	17,621	10,739	53,532	27,421
Income tax (expense) benefit	(801)	(550)	(754)	(550)
Net Income	3,902	$ 859	5,343	$ 11,208
Assets
Accounts receivable	53,594		53,594		$ 21,759
Inventories	76,576		76,576		44,056
Other current assets	1,594		1,594		1,991
Liabilities and equity
Accounts payable	46,306		46,306		14,234
Accumulated deficit	(976)		(976)		$ (3,493)
Adjustments
Condensed Consolidated Statements of Income
Revenues			765
Cost of sales			(743)
General and administrative expenses			870
Income tax (expense) benefit			(102)
Net Income			536
Balance Without Adoption of ASC 606
Condensed Consolidated Statements of Income
Revenues			418,355
Cost of sales			350,464
General and administrative expenses			54,402
Income tax (expense) benefit			(856)
Net Income			5,879
ASU 2014-09 \| Adjustments
Condensed Consolidated Statements of Income
Revenues	(5,442)
Cost of sales	(4,476)
General and administrative expenses	426
Income tax (expense) benefit	(223)
Net Income	(1,615)
Assets
Accounts receivable	486		486
Inventories	(486)		(486)
Liabilities and equity
Accounts payable	(1,202)		(1,202)
Accumulated deficit	1,216		1,216
ASU 2014-09 \| Balance Without Adoption of ASC 606
Condensed Consolidated Statements of Income
Revenues	125,940
Cost of sales	102,724
General and administrative expenses	18,047
Income tax (expense) benefit	(1,024)
Net Income	2,287
Assets
Accounts receivable	54,080		54,080
Inventories	76,090		76,090
Other current assets	1,594		1,594
Liabilities and equity
Accounts payable	45,104		45,104
Accumulated deficit	$ 240		$ 240

Principal Business Activity and Significant Accounting Policies - Adopted Accounting Standard Updates (“ASU”) - Disaggregation of revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Disaggregation of revenue
Total net sales	$ 131,382	$ 60,554	$ 417,590	$ 214,761
Product
Disaggregation of revenue
Total net sales	108,524	60,554	355,088	214,761
Services
Disaggregation of revenue
Total net sales	22,858		62,502
U.S.
Disaggregation of revenue
Total net sales	129,827	59,328	413,005	211,095
U.S. \| Product
Disaggregation of revenue
Total net sales	106,969	59,328	350,503	211,095
U.S. \| Services
Disaggregation of revenue
Total net sales	22,858		62,502
Foreign
Disaggregation of revenue
Total net sales	1,555	1,226	4,585	3,666
Foreign \| Product
Disaggregation of revenue
Total net sales	$ 1,555	$ 1,226	$ 4,585	$ 3,666

Business Combination - Narrative (Details) $ in Thousands		3 Months Ended	9 Months Ended
Business Combination - Narrative (Details) $ in Thousands	Jan. 17, 2018 USD ($) item shares	Sep. 30, 2018 USD ($)	Sep. 30, 2018 USD ($) shares	Dec. 31, 2017 USD ($)
Business Combination
Number of shares Issued \| shares			4,200,000
Intangible assets, net of accumulated amortization		$ 84,915	$ 84,915	$ 2,750
Remainder of 2018		1,293	1,293
Goodwill not deductible for tax purposes			$ 54,000
Class B common stock
Business Combination
Number of shares Issued \| shares			4,200,000
VIP
Business Combination
Total purchase price, net of cash acquired	$ 198,223
VIP \| Class B common stock
Business Combination
Number of shares Issued \| shares	4,200,000
VIP \| Holdco
Business Combination
Number of shares Issued \| shares	4,200,000
Term loan \| VIP
Business Combination
Fund to acquire business acquisition	$ 75,000
Note payable \| VIP
Business Combination
Fund to acquire business acquisition	10,000
Contingent notes \| VIP
Business Combination
Fund to acquire business acquisition	$ 10,000
Number of contingent notes \| item	2
Customer relationships and brand names
Business Combination
Intangible assets, net of accumulated amortization		85,900	$ 85,900
Current amortization expense		1,200	3,300
Remainder of 2018		1,200	1,200
Estimated future amortization expense, after year 1		$ 4,800	$ 4,800

Business Combination - Total consideration (Details) - USD ($) $ in Thousands		9 Months Ended
	Jan. 17, 2018	Sep. 30, 2018	Dec. 31, 2017
Preliminary estimated fair value of the consideration
Goodwill		$ 118,408	$ 5,064
Cash paid, net of cash acquired		$ 92,083
VIP
Preliminary estimated fair value of the consideration
Current assets	$ 15,755
Property, plant, and equipment	8,857
Other assets, net	295
Goodwill	113,480
Total assets	224,287
Current liabilities	23,032
Capital lease obligations	3,032
Total liabilities	26,064
Estimated purchase price	198,223
Cash paid, net of cash acquired	92,083
LLC Interests and shares of Class B common stock	90,031
Guarantee note	10,000
Contingent notes	6,900
Preliminary post-closing working capital adjustment	(791)
Estimated fair value of total consideration transferred	198,223
Customer relationships
Preliminary estimated fair value of the consideration
Finite-Lived Intangible Asset, Useful Life		20 years
Customer relationships \| VIP
Preliminary estimated fair value of the consideration
Intangible assets	76,300
Brand names
Preliminary estimated fair value of the consideration
Finite-Lived Intangible Asset, Useful Life		10 years
Brand names \| VIP
Preliminary estimated fair value of the consideration
Intangible assets	9,600
Maximum \| Customer relationships
Preliminary estimated fair value of the consideration
Finite-Lived Intangible Asset, Useful Life		20 years
Maximum \| Brand names
Preliminary estimated fair value of the consideration
Finite-Lived Intangible Asset, Useful Life		15 years
Preliminary Estimated Fair Value \| VIP
Preliminary estimated fair value of the consideration
Current assets	15,755
Property, plant, and equipment	8,857
Other assets, net	295
Goodwill	112,109
Total assets	226,816
Current liabilities	22,886
Capital lease obligations	3,032
Total liabilities	25,918
Estimated purchase price	200,898
Cash paid, net of cash acquired	91,987
LLC Interests and shares of Class B common stock	90,031
Guarantee note	10,000
Contingent notes	9,500
Preliminary post-closing working capital adjustment	(620)
Estimated fair value of total consideration transferred	200,898
Preliminary Estimated Fair Value \| Customer relationships \| VIP
Preliminary estimated fair value of the consideration
Intangible assets	80,200
Preliminary Estimated Fair Value \| Brand names \| VIP
Preliminary estimated fair value of the consideration
Intangible assets	9,600
Net Working Capital Adjustments \| VIP
Preliminary estimated fair value of the consideration
Goodwill	1,371
Total assets	(2,529)
Current liabilities	146
Total liabilities	146
Estimated purchase price	(2,675)
Cash paid, net of cash acquired	96
Contingent notes	(2,600)
Preliminary post-closing working capital adjustment	(171)
Estimated fair value of total consideration transferred	(2,675)
Net Working Capital Adjustments \| Customer relationships \| VIP
Preliminary estimated fair value of the consideration
Intangible assets	$ (3,900)

Business Combination - Pro Forma Combined Statements of Operations (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Pro forma combined statements of operations
Net sales	$ 131,382	$ 92,143	$ 420,687	$ 332,757
Net income	$ 3,902	$ (443)	$ 7,193	$ 12,684
Earnings (loss) per share: Basic	$ 0.15	$ (0.02)	$ 0.30	$ 0.53
Earnings (loss) per share: Diluted	$ 0.15	$ (0.02)	$ 0.30	$ 0.52

Property, Plant, and equipment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Property, Plant, and Equipment
Property, plant and equipment, gross	$ 37,103		$ 37,103		$ 22,390
Less accumulated depreciation	(12,067)		(12,067)		(7,390)
Property, Plant and Equipment, Net, Total	25,036		25,036		15,000
Depreciation and amortization expense	1,786	$ 684	4,816	$ 1,795
Leasehold improvements
Property, Plant, and Equipment
Property, plant and equipment, gross	10,797		10,797		6,616
Equipment
Property, Plant, and Equipment
Property, plant and equipment, gross	12,115		12,115		10,665
Vehicles and accessories
Property, Plant, and Equipment
Property, plant and equipment, gross	3,683		3,683
Computer equipment and software
Property, Plant, and Equipment
Property, plant and equipment, gross	5,649		5,649		927
Buildings
Property, Plant, and Equipment
Property, plant and equipment, gross	2,492		2,492		771
Furniture and fixtures
Property, Plant, and Equipment
Property, plant and equipment, gross	1,448		1,448		407
Land
Property, Plant, and Equipment
Property, plant and equipment, gross	660		660		660
Construction in Progress
Property, Plant, and Equipment
Property, plant and equipment, gross	$ 259		$ 259		$ 2,344

Intangible Assets and Goodwill - Intangible Assets (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Intangible Assets and Goodwill
Amortizable Intangibles, gross	$ 93,285		$ 93,285		$ 7,483
Less accumulated amortization	(8,370)		(8,370)		(4,733)
Total net amortizable intangibles	84,915		84,915		2,750
Intangible assets, net of accumulated amortization	85,431		85,431		3,266
Amortization expense	1,294	$ 261	3,691	$ 782
Trademarks and other
Intangible Assets and Goodwill
Non-amortizable intangibles	516		$ 516		516
Distribution agreement
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			2 years
Amortizable Intangibles, gross	3,021		$ 3,021		3,021
Certification
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			7 years
Amortizable Intangibles, gross	350		$ 350		350
Customer relationships
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			20 years
Amortizable Intangibles, gross	77,459		$ 77,459		1,191
Patents and processes
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			10 years
Amortizable Intangibles, gross	1,958		$ 1,958		1,998
Brand names
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			10 years
Amortizable Intangibles, gross	$ 10,497		$ 10,497		$ 923
Minimum \| Customer relationships
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			12 years
Minimum \| Brand names
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			10 years
Maximum \| Customer relationships
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			20 years
Maximum \| Brand names
Intangible Assets and Goodwill
Amortizable Intangibles, useful lives			15 years

Intangible Assets and Goodwill - Estimated future amortization expense (Details) $ in Thousands	Sep. 30, 2018 USD ($)
Intangible Assets and Goodwill
Remainder of 2018	$ 1,293
2019	5,174
2020	5,174
2021	5,173
2022	5,169
Thereafter	$ 62,932

Intangible Assets and Goodwill - Schedule of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($)
Goodwill, Beginning Balance	$ 5,064
Foreign currency translation	(136)
Acquisition	113,480
Goodwill, Ending Balance	118,408
Product
Goodwill, Beginning Balance	5,064
Foreign currency translation	(136)
Acquisition	65,190
Goodwill, Ending Balance	70,118
Services
Acquisition	48,290
Goodwill, Ending Balance	$ 48,290

Debt (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended		12 Months Ended
Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017	Dec. 21, 2016
Debt
Maximum borrowing capacity					$ 50
Purchase price of a commercial building	$ 1,900	$ 1,900
Fixed interest rate	4.35%	4.35%
Amortization schedule		25 years
Balloon payment		10 years
Net discount on debt and deferred financing fees	$ (2,022)	$ (2,022)
Long-term Debt, Total	108,437	108,437		$ 17,227
Less current maturities of long-term debt	(795)	(795)		(44)
Long-term debt	107,642	107,642		17,183
Future maturities of long-term debt
Remainder of 2018	199	199
2019	796	796
2020	798	798
2021	800	800
2022	802	802
Thereafter	107,064	107,064
Debt issuance costs		$ 2,675	$ 42
Minimum
Debt
Unused facility fee (as a percent)		0.375%
Maximum
Debt
Unused facility fee (as a percent)		0.50%
Revolving credit facility
Debt
Maximum borrowing capacity	75,000	$ 75,000			45
Outstanding balance	23,774	$ 23,774		$ 15,325
Variable interest rate, basis points spread over variable reference rate (as a percent)		5.25%		5.00%
Future maturities of long-term debt
Debt issuance costs	100	$ 300
Term loans
Debt
Maximum borrowing capacity					$ 5
Outstanding balance	74,813	74,813
Future maturities of long-term debt
Debt issuance costs	0	2,400
Mortgage
Debt
Mortgage	1,872	1,872		$ 1,902
Term Loan Credit Agreement
Debt
Maximum borrowing capacity	$ 75,000	$ 75,000
Variable interest rate, basis points spread over variable reference rate (as a percent)		7.35%
Guaranteed note
Debt
Fixed interest rate	6.75%	6.75%
Long-term Debt, Total	$ 10,000	$ 10,000

Leases (Details) $ in Thousands	Sep. 30, 2018 USD ($)
Operating Leases
Reminder of 2018	$ 884
2019	2,196
2020	1,523
2021	699
2022	536
Thereafter	244
Operating Leases, Total minimum future obligations	6,082
Capital Leases
Remainder of 2018	360
2019	1,235
2020	815
2021	188
2022	78
Thereafter	12
Capital Leases, Total minimum future obligations	2,688
Less Interest	(133)
Present value of net future minimum obligations	2,555
Less current capital lease obligations	(1,179)
Long-term capital lease obligations	$ 1,376

Leases - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
Leases - Narrative (Details) - USD ($) $ in Millions	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Leases
Net book value of equipment under capital lease	$ 3.9		$ 3.9		$ 0.9
Total operating lease expense	$ 1.1	$ 0.5	$ 2.8	$ 1.4

Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
Income Taxes (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Income tax expense (benefit) at federal statutory rate			21.00%		35.00%
TCJA provisions, maximum deduction to offset income tax liability			50.00%
Effective tax rate	17.00%	39.00%	12.40%	4.70%
Provisional tax expense for deemed repatriation tax			$ 200
Remeasurement of deferred taxes			3,400
One-time transition tax on unrepatriated earnings of foreign subsidiaries			55
Net expenses due to remeasurement of deferred tax assets			70
PetIQ
Cash distributions	$ 141		$ 1,467

Earnings per Share (Details) - USD ($)
$ / shares in Units, $ in Thousands

3 Months Ended

9 Months Ended

Sep. 30, 2018

Sep. 30, 2017

Sep. 30, 2018

Sep. 30, 2017

Numerator:

Net income

$ 3,902

$ 859

$ 5,343

$ 11,208

Less: net income attributable to non-controlling interests

(1,681)

(1,085)

(2,651)

(11,434)

Net income (loss) attributable to PetIQ, Inc.

$ 2,221

$ (226)

$ 2,692

$ (226)

Denominator:

Weighted-average shares of Class A common stock outstanding - basic (in shares)

^[1]

16,943,630

13,222,583

15,842,104

13,222,583

Dilutive effects of stock options that are convertible into Class A common stock

291,000

122,000

Weighted-average shares of Class A common stock outstanding - diluted (in shares)

^[1]

17,238,918

13,222,583

15,965,647

13,222,583

Earnings per share of Class A common stock - basic ( in dollars per shares)

^[1]

$ 0.13

$ (0.02)

$ 0.17

$ (0.02)

Earnings per share of Class A common stock - diluted ( in dollars per shares)

^[1]

$ 0.13

$ (0.02)

$ 0.17

$ (0.02)

Stock options

Denominator:

Anti dilutive shares excluded from computation of diluted earnings per share

974,435

RSU

Denominator:

Anti dilutive shares excluded from computation of diluted earnings per share

345,660

[1]	Basic and Diluted earnings per share is applicable only for periods after the Company’s IPO. See Note 8 - Earnings Per Share.

Stock Based Compensation (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2018	Sep. 30, 2017
Stock Based Compensation
Share available for issuance	570,000	570,000
Stock Options Granted (in shares)		1,211,837
Vesting percentage on each anniversary of the grant date		25.00%
Maximum term for stock options		6 years 3 months	6 years 3 months
Stock based compensation expense	$ 1,224	$ (2,678)	$ 246
Grant date fair value of stock options granted		$ 10.10
Unrecognized compensation cost related to unvested stock options	$ 13,700	$ 13,700
Unrecognized compensation cost related to unvested options, recognized weighted-average period		3 years 2 months 12 days
Class A common stock
Stock Based Compensation
Number of shares reserved	800,000	800,000
Class A common stock \| Omnibus Plan
Stock Based Compensation
Shares reserved for future issuance	1,914,047	1,914,047
Share available for issuance	838,805	838,805
Maximum
Stock Based Compensation
Maximum term for stock options		10 years

Stock Based Compensation - Weighted Average Assumptions (Details)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017
Stock Based Compensation
Expected term (years)	6 years 3 months	6 years 3 months
Expected volatility	35.00%	35.00%
Risk-free interest rate	2.53%	1.98%
Dividend yield	0.00%	0.00%

Stock Based Compensation - Summary of Unvested Stock Options (Details) $ / shares in Units, $ in Thousands	9 Months Ended
	Sep. 30, 2018 USD ($) $ / shares shares
Stock Based Compensation
Stock Options Outstanding - Beginning Balance	598,647
Stock Options Granted (in shares)	1,211,837
Stock option Exercised (in shares)	(75,895)
Stock Options Forfeited (in shares)	(195,000)
Stock Options Outstanding - Ending Balance	1,539,589
Options exercisable - Ending Balance	128,778
Weighted Average Exercise Price Outstanding - Beginning Balance \| $ / shares	$ 16.00
Weighted Average Exercise Price - Granted \| $ / shares	22.58
Weighted Average Exercise Price - Exercised \| $ / shares	18.83
Weighted Average Exercise Price - Forfeited \| $ / shares	21.37
Weighted Average Exercise Price Outstanding - Ending Balance \| $ / shares	$ 20.36
Aggregate Intrinsic Value \| $	$ 29,174
Weighted Average Remaining Contractual Life (years)	9 years 1 month 24 days

Stock Based Compensation - Restricted Stock (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017
Unrecognized compensation cost related to unvested stock options	$ 13,700		$ 13,700
Stock based compensation expense	1,224		(2,678)	$ 246
RSU
Unrecognized compensation cost related to unvested stock options	780		$ 780
Vesting period			3 years 4 months 24 days
Stock based compensation expense	$ 59		$ 78
Number of Shares
Granted (in shares)		0	29,758	0
Ending balance	29,758		29,758
Weighted Average Grant Date Fair Value
Granted (per share)			$ 30.33
Ending balance	$ 30.33		$ 30.33

Stockholder's Equity (Details)	9 Months Ended
Stockholder's Equity (Details)	Sep. 30, 2018 shares
Stockholder's Equity
Number of shares Issued	4,200,000
Exchange of common shares	5,873,825
Class B common stock
Stockholder's Equity
Number of shares Issued	4,200,000
Exchange of common shares	5,873,825

Non-Controlling Interests (Details) - shares	3 Months Ended	9 Months Ended
Non-Controlling Interests (Details) - shares	Sep. 30, 2018	Sep. 30, 2018	Dec. 31, 2017
Common Stock, Shares, Outstanding, Beginning Balance		13,222,583
Issuance of LLC Interest for acquisition		4,200,000
Exercise of Options to purchase Common Stock (in shares)		75,895
Exchange transactions		5,873,825
Common Stock, Shares, Outstanding, Ending Balance	19,172,303	19,172,303
Continuing LLC Owners
Common Stock, Shares, Outstanding, Beginning Balance		8,268,188
Issuance of LLC Interest for acquisition		4,200,000
Exchange transactions		(5,873,825)
Common Stock, Shares, Outstanding, Ending Balance	6,594,363	6,594,363
Amended Holdco LLC Agreement
Common Stock, Shares, Outstanding, Beginning Balance		21,490,771
Issuance of LLC Interest for acquisition		4,200,000
Exercise of Options to purchase Common Stock (in shares)		75,895
Common Stock, Shares, Outstanding, Ending Balance	25,766,666	25,766,666
Holdco
Weighted average ownership percentage in Holdco	65.60%	65.90%
Continuing LLC Owners
Ownership interest by continuing LLC owners	25.60%	25.60%	38.50%
PetIQ
Ownership interest in Holdco	74.40%	74.40%	61.50%

Customer Concentration (Details) - customer	3 Months Ended		9 Months Ended		12 Months Ended
Customer Concentration (Details) - customer	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Customer concentrations \| Sales
Customer Concentration
Number of customers accounted for more than 10% of sales individually	1	3	2	3
Concentration risk	22.00%	61.00%	30.00%	61.00%
Credit concentrations \| Accounts receivable
Customer Concentration
Number of customers accounted for more than 10% of sales individually			2		3
Concentration risk			38.00%		48.00%

Segments (Details) $ in Thousands	3 Months Ended		9 Months Ended
Segments (Details) $ in Thousands	Sep. 30, 2018 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($) segment	Sep. 30, 2017 USD ($)
Segments
Number of operating segments \| segment			2
Number of reportable segments \| segment			2
Financial information relating to the Company’s operating segments
Net Sales	$ 131,382	$ 60,554	$ 417,590	$ 214,761
Operating income (loss)	6,561	1,778	12,851	13,247
Interest expense	(2,159)	(352)	(6,140)	(1,351)
Other income, net	351	14	(622)	14
Foreign currency (loss) gain , net	(50)	(31)	8	(152)
Depreciation expense	1,786	684	4,816	1,795
Amortization expense	1,294	261	3,691	782
Operating Segments \| Products
Financial information relating to the Company’s operating segments
Net Sales	108,524	60,554	355,088	214,761
Operating income (loss)	14,053	5,568	39,158	23,207
Depreciation expense	589	648	1,739	1,725
Operating Segments \| Services
Financial information relating to the Company’s operating segments
Net Sales	22,858		62,502
Operating income (loss)	2,260		3,855
Depreciation expense	477		1,726
Corporate, Non-Segment
Financial information relating to the Company’s operating segments
Operating income (loss)	(9,752)	(3,790)	(30,162)	(9,960)
Interest expense	(2,159)	(352)	(6,140)	(1,351)
Other income, net	351	14	(622)	14
Foreign currency (loss) gain , net	(50)	(31)	8	(152)
Depreciation expense	720	36	1,351	70
Amortization expense	$ 1,294	$ 261	$ 3,691	$ 782

Related Parties (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
Related Parties (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Sep. 30, 2017	Sep. 30, 2018	Sep. 30, 2017	Dec. 31, 2017
Related Parties
Related party expenses		$ 158		$ 545
Accrued estimated tax distributions	$ 0		$ 0		$ 597
Notes payable to Seller's of VIP	10,000		10,000
Accrued interest	480		480
Rent expenses	89		268
Chris Christensen
Related Parties
Payment of premium expenses	522	434	522	434
Commission paid	$ 20	$ 25	$ 20	$ 25

Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Millions			9 Months Ended
	Oct. 17, 2018	Oct. 01, 2018	Sep. 30, 2018	Dec. 31, 2017
Subsequent events
Number of shares Issued			4,200,000
Exchange of common shares			5,873,825
Class A common stock
Subsequent events
Common stock, par value			$ 0.001	$ 0.001
Class B common stock
Subsequent events
Number of shares Issued			4,200,000
Common stock, par value			$ 0.001	$ 0.001
Exchange of common shares			5,873,825
Subsequent event \| Class A common stock \| Undertwritten public offering
Subsequent events
Stock issued		5,750,000
Subsequent event \| Class A common stock \| Over allotment
Subsequent events
Stock issued		2,000,000
Net proceeds after deducting underwritting discounts and commissions and offering expenses		$ 73.5
Subsequent event \| Class A common stock \| Existing shareholders
Subsequent events
Stock issued		3,750,000
Subsequent event \| HBH \| Holdco
Subsequent events
Total consideration	$ 16.0
Cash	$ 3.0
Number of shares Issued	400,000
Common stock, par value	$ 0.001
Exchange of common shares	400,000