Form 8-k PetIQ Q4 2018 Earnings Release

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 11, 2019

 

PETIQ, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

 

 

 

 

 

 

Delaware
(State or other jurisdiction
of incorporation)

 

 

 

001-38163
(Commission
File Number)

 

 

 

35-2554312
(I.R.S. Employer
Identification No.)

 

 

 

 


(Address of principal executive offices)

 

 

 

 

 

 

923 S. Bridgeway Pl.

Eagle, Idaho
(Address of principal executive offices)

 

 

 

83616
(Zip Code)

 

 

(208) 939-8900

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act (17 CFR 230.405) or Rule 12b-2 of the Securities Exchange Act (17 CFR 240.12b-2)

 

 Indicate by check mark if the registrant has elected not to use the extended transition period for complying with new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act (17 CFR 240.13(a)-1)

 

 

 


 

Item 2.02 Results of Operations and Financial Condition.*

 

On March 11 2019,  PetIQ, Inc. (“the Company”) issued a press release announcing certain financial results for its full year and fiscal quarter ended December 31, 2018, as well as 2019 outlook. A copy of the press release is attached hereto as Exhibit 99.1.

 

 

Item 9.01 Financial Statements and Exhibits.

 

 

 

 

 

 

 

(d)

Exhibits:

 

Exhibit No.

    

Description

99.1*

 

Press Release dated March 11, 2019 announcing results for the fourth quarter and full year ended December 31, 2018.


*The information furnished under Items 2.02 and 9.01 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 

 

PETIQ, INC.

 

Dated: March 11, 2019

By

/s/ John Newland

 

 

Name:

John Newland

 

 

Title:

Chief Financial Officer

 


PetIQ Q4 2018 Earnings Release

Picture 1

PetIQ, Inc. Reports Record Fourth Quarter and Full Year 2018 Financial Results

Fourth Quarter 2018 Net Sales Increased 114% Year-Over-Year to $111.0 Million

Full Year 2018 Net Sales of $528.6 Million

Provides Full Year 2019 Outlook

EAGLE, Idaho – March 11, 2019 – PetIQ, Inc. (“PetIQ” or the “Company”) (Nasdaq: PETQ), a leading pet medication and wellness company, today reported financial results for the three months and full year ended December 31, 2018.

Fourth Quarter 2018 Highlights Compared to Prior Year Period

·

Record fourth quarter net sales of $111.0 million, an increase of 114%;  representing organic net sales growth of 70%

·

Net loss of $5.3 million compared to a loss of $3.4 million

·

Adjusted net income $1.2 million compared to $2.6 million

·

Adjusted EBITDA of $6.5 million compared to $3.6 million, an increase of 82%

Full Year 2018 Highlights Compared to Prior Year Period

·

Record 2018 net sales of $528.6 million, an increase of 98%; representing organic net sales growth of 45%

·

Net income of $0.1 million compared to $7.8 million

·

Adjusted net income of $21.6 million compared to $16.9 million, an increase of 28%

·

Adjusted EBITDA of $41.5 million compared to $22.3 million, an increase of 86%

·

Opened 25 wellness centers, for a total of 34 wellness centers and 34 regional offices in operation

·

Completed two strategic acquisitions of Community Veterinary Clinics, LLC d/b/a VIP Petcare (“VIP”) in January and HBH Enterprises LLC, in October

·

Cash and cash equivalents of $66.4 million with total liquidity of $128.0 million

Cord Christensen, PetIQ’s Chairman and Chief Executive Officer commented, “2018 was a transformational year for PetIQ with the completion of two strategic acquisitions to help us build a larger and more diversified animal health organization. We have worked diligently to execute on our Follow the Pets strategy by further enhancing our core pet health and wellness capabilities, strengthening new and existing partnerships across all sales channels through complementary veterinarian product and service offerings, and integrating VIP, which together, resulted in the significant growth of our business.  We believe these efforts better position us to continue to grow the animal health and wellness category, fulfilling our mission to make pets’ lives better through improved access to affordable pet health care.” 

Fourth Quarter 2018 Financial Results

 

Net sales increased 114% to $111.0 million for the fourth quarter of 2018, compared to $52.0 million for the same period in the prior year. Product segment net sales were $95.1 million and Services segment revenues were $15.9 million in the fourth quarter of 2018. The increase in consolidated net sales reflects growth in existing and new retail partners, primarily within the Company’s distributed products, the addition of the Services segment, and the expansion of the Company’s overall product and services offerings.


 

 

Gross profit was $16.9 million, an increase of 61%, compared to $10.5 million in the same period last year. Gross margin for the quarter was 15.3%. Adjusted gross profit was $19.7 million and adjusted gross margin was 17.8% for the fourth quarter 2018.  The GAAP gross margin to adjusted gross margin difference of 250 basis points is a result of the exclusion of certain purchase accounting adjustments, non-same-store Services segment revenue contribution and related costs of sales, as well as clinic launch expenses, which were minimal during the quarter. The Company continued to capitalize on opportunities to grow with the Company’s existing animal health partners, driving incremental sales of distributed products and resulting in an ongoing mix shift of Product segment sales toward distributed products with no effect on gross profit.

 

Net loss was $5.3 million and adjusted net income was $1.2 million for the fourth quarter of 2018. Adjusted net income primarily excludes stock-based compensation expense, tax expense, integration costs, fair value adjustment to contingent note, acquisition expenses and clinic launch expenses, and operating losses associated with the 26 non-comparable newly opened veterinary wellness centers, one new host partner, and five regional offices that have been open less than six trailing quarters. 

 

Fourth quarter adjusted EBITDA increased 82% to $6.5 million, representing an adjusted EBITDA margin of 5.8%, compared to $3.6 million, representing 6.8%, for the same period in the prior year.  The increase in adjusted EBITDA was a result of increased adjusted gross profit and increased leverage of G&A.

 

Adjusted gross profit, adjusted net income, and adjusted EBITDA are non-GAAP financial measures.  The Company believes these non-GAAP financial measures provide investors with additional insight into and measurement of its entry into the veterinary services business following the acquisition of VIP in January 2018.  In the Services segment, the Company is providing a “same-store sales” adjustment to reflect revenue for veterinary clinics open for at least six trailing quarters.  The Company believes this will provide useful information to investors as these veterinary clinics and wellness centers mature and move into the comparable store base.  See “Non-GAAP Measures” for a definition of these measures and the financial tables that accompany this release for a reconciliation to the most comparable GAAP measure.

Full Year 2018 Financial Results

Net sales increased 98% to $528.6 million for the year ended December 31, 2018, compared to $266.7 million for the prior year. Product segment sales were $450.2 million and Services segment net revenues were $78.4 million for 2018.

 

Gross profit was $83.3 million, an increase of 63%, compared to $51.2 million for the year ended December 31, 2017. Gross margin for 2018 was 15.8%. Adjusted gross profit was $92.3 million and adjusted gross margin was 17.5% for the full year ended December 31, 2018.  The GAAP gross margin to adjusted gross margin difference of 170 basis points was the result of a purchase accounting adjustment to fair value inventory, the exclusion of a non-same-store Service segment revenue contribution and related costs of services and clinic launch expenses.

 

Net income was $0.1 million and adjusted net income was $21.6 million for the full year ended December 31, 2018. Adjusted net income excludes the aforementioned items mentioned for the fourth quarter and the financial tables that accompany this release provide a reconciliation to the most comparable GAAP measure of net income.

 

Adjusted EBITDA, a non-GAAP financial measure, increased 86% to $41.5 million for 2018, representing an adjusted EBITDA margin of 7.9%, compared to $22.3 million, representing an adjusted EBITDA margin of 8.4% for the prior year.  The increase in adjusted EBITDA was a result of increased adjusted gross profit and increased leverage of G&A.


 

 

Segment Results

 

Products: For the fourth quarter of 2018, Product segment net sales increased 83.2% to $95.1 million and operating income increased 75% to $9.6 million.  This compares to Product segment sales and operating income of $51.9 million and $5.5 million, respectively, for the fourth quarter of 2017.

 

For the full year ended December 31, 2018, Product segment net sales increased 68.8% to $450.2 million and operating income increased 70% to $48.7 million.  This compares to Product segment sales and operating income of $266.7 million and $28.7 million, respectively, for the full year ended December 31, 2017. 

 

Services: For the fourth quarter of 2018, Services segment net revenues and operating income of $15.9 million and a loss of $1.2 million, respectively.  On a pro forma basis, as if VIP had been owned in the comparable period, Services segment revenue increased 5% from the fourth quarter of 2017, or approximately flat on a same store basis.  As a part of the Company’s integration of VIP in the first quarter of 2018, PetIQ discontinued clinics in certain unprofitable hosts.  After taking this into consideration, Services segment fourth quarter net revenues increased 8%. The Company opened three veterinarian wellness centers during the fourth quarter of 2018; there were a total of 34 veterinarian wellness centers as of December 31, 2018.

 

For the full year ended December 31, 2018, the Services segment net revenues and operating income were $78.4 million and $2.7 million, respectively.  This represents Services segment net revenue growth of approximately 9% on a pro forma basis over the same period ended December 31, 2017, or approximately 4% on a same store basis. 

 

Cash and Debt

 

During the fourth quarter, the Company completed an underwritten offering of 2.0 million shares of primary Class A common stock for total net proceeds of approximately $73.9 million.  As of December 31, 2018, the Company had cash and cash equivalents of $66.4 million, plus availability on its revolving credit facility of $61.6 million, equating to $128.0 million, which we define as total liquidity. This represents a 165% increase in total liquidity from $48.4 million for the year ended December 31, 2017.  The Company’s long-term debt balance, which is largely comprised of its revolving credit facility and term loan, was $108.2 million as of December 31, 2018, which is relatively consistent with prior quarter except for the addition of contingent note balance of $7.5 million.  From a working capital perspective, accounts receivable increased $23.2 million compared to December 31, 2017, in line with the Company’s strong sales growth. Inventory increased $48.1 million compared to the prior year as a result of inventory needed to support the growth in the Company’s business and December inventory purchases tied to a shift in timing of customer shipments to the first quarter of 2019 from the second quarter of 2018.

 

Strategic Manufacturing Acquisition

 

As previously announced, the Company completed the strategic acquisition of HBH, an innovative developer and manufacturer of specialty pet supplements and treats on October 17, 2018, with HBH becoming a wholly-owned subsidiary of PetIQ.  The consideration for the acquisition consisted of $1.7 million in cash, net of cash acquired, which includes a $2.2 million repayment of debt and the issuance of 400,000 shares of PetIQ Class B common stock.

 

2019 Outlook

 

For the full year ending December 31, 2019, the Company expects the following outlook:


 

·

Consolidated net sales of at least $600 million, an increase greater than 14% from growth of 98% in 2018

·

Adjusted EBITDA* of at least $51 million, an increase greater than 23% from growth of 86% in 2018

·

The opening of at least 80 veterinarian wellness clinics

In addition, the Company is reiterating its long-term 2023 growth objectives including:

·

Net sales of approximately $1.0 billion

·

Adjusted EBITDA margin of greater than 15%  *

·

Wellness center locations of 1,000

 

*The Company does not provide guidance for the most directly comparable GAAP measure, net income, and similarly cannot provide a reconciliation between its forecasted adjusted EBITDA and net income metrics without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control and may vary greatly between periods and could significantly impact future financial results.

 

Conference Call and Webcast

 

The Company will host a conference call and webcast where members of the executive management team will discuss these results with additional comments and details today, March 11, 2019, at 4:30 p.m. ET. The conference call will be available live over the Internet through the “Investors” section of the Company’s website at www.PetIQ.com.  To participate on the live call listeners in North America may dial 877-451-6152 and international listeners may dial 201-389-0879.

 

A replay of the conference call will be archived on the Company’s website and telephonic playback will be available through April 1, 2019. North American listeners may dial 844-512-2921 and international listeners may dial 412-317-6671 the passcode is 13687561.

About PetIQ

 

PetIQ is a leading, rapidly growing pet health and wellness company.  Through over 60,000 points of distribution across retail and e-commerce channels, PetIQ and VIP Petcare, a wholly-owned subsidiary, have a mission to make pet lives better by educating pet parents on the importance of offering regular, convenient access and affordable choices for pet preventive and wellness veterinary products and services.  PetIQ believes that pets are an important part of the family and deserve the best products and care we can give them.  For more information, visit www.PetIQ.com.

 

Forward Looking Statements

 

This press release contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could" and similar expressions.  Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management's good faith belief as of that time with respect to future events, and are subject


 

to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, our ability to successfully grow our business through acquisitions; our dependency on a limited number of customers; our ability to implement our growth strategy effectively; disruptions in our manufacturing and distribution chains; competition from veterinarians and others in our industry; reputational damage to our brands; economic trends and spending on pets; the effectiveness of our marketing and trade promotion programs; recalls or withdrawals of our products or product liability claims; our ability to manage our manufacturing and supply chain effectively; disruptions in our manufacturing and distribution chains; our ability to introduce new products and improve existing products; our failure to protect our intellectual property; costs associated with governmental regulation; our ability to keep and retain key employees; our ability to sustain profitability; and the risks set forth under the “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2017 and quarterly report on Form 10-Q for the period ended March 31, 2018.

 

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.  The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.

 

Non-GAAP Financial Measures

 

In addition to financial results reported in accordance with U.S. GAAP, PetIQ uses the following non-GAAP financial measures: Adjusted net income (loss), Adjusted gross profit, Adjusted EBITDA, and Adjusted EBITDA Margin.

 

Adjusted net income consists of GAAP Net income (loss) adjusted for tax expense, costs of becoming a public company, acquisition expenses, purchase accounting adjustments, integration costs and costs of discontinued clinics, new clinic launch expense, and stock based compensation expense.  Adjusted Net Income is utilized by management: (i) to compare operations of the Company prior to our initial public offering and (ii) to evaluate the effectiveness of our business strategies. 

 

Adjusted gross profit consists of GAAP gross profit adjusted for purchase accounting adjustments, gross profit (loss) on veterinarian clinics and wellness centers that are not part of same store sales, and new clinic launch expense.  Adjusted gross profit is utilized by management to evaluate the effectiveness of our business strategies.

 

EBITDA represents net income (loss) before interest, income taxes, and depreciation and amortization. Adjusted EBITDA represents EBITDA plus management fees, stock based compensation expense, acquisition expenses, purchase accounting adjustments, fair value adjustments to contingent notes, integration costs and costs of discontinued clinics, loss on veterinarian clinics and wellness centers that are not part of the same store sales, and new clinic launch expense. Adjusted EBITDA adjusts for transactions that management does not believe are representative of our core ongoing business. Adjusted EBITDA Margin is Adjusted EBITDA stated as a percentage of Net sales.  Adjusted EBITDA is utilized by management: (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.  The Company presents EBITDA because it is a necessary component for computing Adjusted EBITDA.

 


 

We believe that the use of Adjusted Net income, Adjusted gross profit, Adjusted EBITDA, and Adjusted EBITDA margin provide additional tools for investors to use in evaluating ongoing operating results and trends. In addition, you should be aware when evaluating Adjusted Net Income, adjusted gross profit,  Adjusted EBITDA and Adjusted EBITDA margin, that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by these or other unusual or non-recurring items. Our computation of Adjusted Net Income, adjusted gross profit, Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted Net Income, adjusted gross profit, Adjusted EBITDA and Adjusted EBITDA margin in the same manner.  Our management does not, and you should not, consider Adjusted Net Income, adjusted gross profit or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted Net Income, adjusted gross profit and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements.  See a reconciliation of Non-GAAP measures to the most comparable GAAP measure, in the financial tables that accompany this release.

 

The Company considers its same-store portfolio to consist of only those retail service regional offices, mobile community clinics provided within host partners, and wellness centers that have been operating for at least six trailing quarters.

 

Definitions

1)

Mobile community clinic

·

A mobile community clinic is defined as an event, or a visit to a retail host partner location, by the Company’s veterinary staff utilizing the Company’s mobile service vehicles.  Clinic locations and schedules vary by location and seasonally. Due to the non-standardization of the Company’s mobile community clinics, these clinics are grouped as part of geographic regions.  New regions and host partners are excluded from the same store sale calculation until they have six full consecutive quarters of operations.

 

2)

Veterinarian Wellness center

·

A veterinarian wellness center is a physical fixed service location within the existing footprint of one of our retail partners.  These veterinarian wellness centers operate under a variety of brands based on the needs of our partner locations, including the recently launched VetIQ clinics at Walmart.

 

3)

Regional offices

·

Regional offices support the operations of the Company’s services segment which include its mobile veterinarian community clinics and wellness centers.  These offices are staffed with field management and other operational staff.

CONTACT:

 

 

Investor Relations Contact:

 

Media Relations Contact:

ICR

Katie Turner

katie.turner@icrinc.com

Jeff Sonnek

646-277-1263
jeff.sonnek@icrinc.com

ICR

Cory Ziskind

cory.ziskind@icrinc.com

646-277-1232


 

PetIQ, Inc.

Condensed Consolidated Balance Sheets

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

 

 

 

 

 

 

 

 

 

 

 

 

 

    

December 31, 2018

    

December 31, 2017

    

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

66,360

 

$

37,896

 

Accounts receivable, net

 

 

45,007

 

 

21,759

 

Inventories

 

 

92,142

 

 

44,056

 

Other current assets

 

 

4,212

 

 

5,164

 

Total current assets

 

 

207,721

 

 

108,875

 

Property, plant and equipment, net

 

 

27,335

 

 

15,000

 

Deferred tax assets

 

 

43,946

 

 

5,994

 

Other non-current assets

 

 

2,857

 

 

2,646

 

Intangible assets, net

 

 

88,546

 

 

3,266

 

Goodwill

 

 

125,029

 

 

5,064

 

Total assets

 

$

495,434

 

$

140,845

 

Liabilities and equity

 

 

  

 

 

  

 

Current liabilities

 

 

  

 

 

  

 

Accounts payable

 

$

54,768

 

$

14,234

 

Accrued wages payable

 

 

5,295

 

 

1,811

 

Accrued interest payable

 

 

728

 

 

115

 

Other accrued expenses

 

 

1,154

 

 

1,880

 

Current portion of long-term debt and capital leases

 

 

2,251

 

 

151

 

Total current liabilities

 

 

64,196

 

 

18,191

 

Long-term debt

 

 

107,418

 

 

17,183

 

Capital leases, less current installments

 

 

2,319

 

 

389

 

Other non-current liabilities

 

 

524

 

 

238

 

Total non-current liabilities

 

 

110,261

 

 

17,810

 

Commitments and contingencies

 

 

  

 

 

  

 

Equity

 

 

  

 

 

  

 

Additional paid-in capital

 

 

262,219

 

 

70,873

 

Class A common stock, par value $0.001 per share, 125,000,000 shares authorized, 21,619,875 and 13,222,583 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively

 

 

22

 

 

13

 

Class B common stock, par value $0.001 per share, 100,000,000 and 100,000,000 shares authorized, 6,546,791 and 8,268,188 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively

 

 

 7

 

 

 8

 

Accumulated deficit

 

 

(4,450)

 

 

(3,493)

 

Accumulated other comprehensive loss

 

 

(1,316)

 

 

(687)

 

Total stockholders' equity

 

 

256,481

 

 

66,714

 

Non-controlling interest

 

 

64,496

 

 

38,130

 

Total equity

 

 

320,977

 

 

104,844

 

Total liabilities and equity

 

$

495,434

 

$

140,845

 

 

 


 

PetIQ, Inc.

Condensed Consolidated Statements of Income

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Year ended

 

    

December 31, 2018

    

December 31, 2017

    

December 31, 2018

    

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

$

95,141

 

$

51,926

 

$

450,229

 

$

266,687

Services revenue

 

 

15,883

 

 

 —

 

 

78,385

 

 

 —

Total net sales

 

 

111,024

 

 

51,926

 

 

528,614

 

 

266,687

Cost of products sold

 

 

81,177

 

 

41,400

 

 

383,501

 

 

215,493

Cost of services

 

 

12,942

 

 

 —

 

 

61,825

 

 

 —

Total cost of sales

 

 

94,119

 

 

41,400

 

 

445,326

 

 

215,493

Gross profit

 

 

16,905

 

 

10,526

 

 

83,288

 

 

51,194

Operating expenses

 

 

  

 

 

  

 

 

  

 

 

  

General and administrative expenses

 

 

18,728

 

 

10,484

 

 

72,260

 

 

37,905

Contingent note revaluation

 

 

3,030

 

 

 —

 

 

3,280

 

 

 —

Operating (loss) income

 

 

(4,853)

 

 

42

 

 

7,748

 

 

13,289

Interest expense, net

 

 

(1,882)

 

 

(212)

 

 

(8,022)

 

 

(1,563)

Foreign currency (loss) gain , net

 

 

37

 

 

12

 

 

45

 

 

(140)

  Other income (expense), net

 

 

27

 

 

187

 

 

(345)

 

 

201

Total other expense, net

 

 

(1,818)

 

 

(13)

 

 

(8,322)

 

 

(1,502)

Pretax net income (loss)

 

 

(6,671)

 

 

29

 

 

(574)

 

 

11,787

Income tax benefit (expense)

 

 

1,415

 

 

(3,420)

 

 

661

 

 

(3,970)

Net income (loss)

 

 

(5,256)

 

 

(3,391)

 

 

87

 

 

7,817

Net income (loss) attributable to non-controlling interest

 

 

(1,782)

 

 

(124)

 

 

869

 

 

11,310

Net loss attributable to PetIQ, Inc.

 

$

(3,474)

 

$

(3,267)

 

$

(782)

 

$

(3,493)

Net loss per share attributable to PetIQ, Inc. Class A common stock(1)

 

 

 

 

 

 

 

 

 

 

 

 

-Basic

 

$

(0.16)

 

 

(0.25)

 

$

(0.05)

 

 

(0.26)

-Diluted

 

$

(0.16)

 

 

(0.25)

 

$

(0.05)

 

 

(0.26)

Weighted Average shares of Class A common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

-Basic

 

 

21,282,724

 

 

13,222,583

 

 

17,215,978

 

 

13,222,583

-Diluted

 

 

21,282,724

 

 

13,222,583

 

 

17,215,978

 

 

13,222,583

 


 

PetIQ, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, $’s in 000’s)

 

 

 

 

 

 

 

 

 

    

For the Year Ended December 31,

 

 

2018

 

2017

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net income (loss)

 

$

87

 

$

7,817

 

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

 

 

  

 

 

  

 

Depreciation and amortization of intangible assets and loan fees

 

 

12,467

 

 

3,614

 

Foreign exchange (gain) loss on liabilities

 

 

16

 

 

228

 

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

 

 

(90)

 

 

20

 

Stock based compensation expense

 

 

3,812

 

 

447

 

Deferred tax adjustment

 

 

(843)

 

 

3,690

 

Contingent note revaluations

 

 

3,280

 

 

 —

 

Other non-cash activity

 

 

(334)

 

 

 —

 

Changes in assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

 

(14,209)

 

 

(4,313)

 

Inventories

 

 

(36,610)

 

 

(9,718)

 

Prepaid expenses and other assets

 

 

1,423

 

 

(721)

 

Accounts payable

 

 

15,701

 

 

4,152

 

Accrued wages payable

 

 

1,979

 

 

694

 

Other accrued expenses

 

 

908

 

 

(28)

 

Net cash (used in) provided by operating activities

 

 

(12,413)

 

 

5,882

 

Cash flows from investing activities

 

 

  

 

 

  

 

Proceeds from disposition of property, plant, and equipment

 

 

229

 

 

 —

 

Purchase of property, plant, and equipment

 

 

(7,178)

 

 

(4,131)

 

Business acquisitions (net of cash acquired)

 

 

(93,052)

 

 

 —

 

Net cash used in investing activities

 

 

(100,001)

 

 

(4,131)

 

Cash flows from financing activities

 

 

  

 

 

  

 

Proceeds from issuance of long-term debt

 

 

538,028

 

 

260,020

 

Principal payments on long-term debt

 

 

(466,912)

 

 

(270,458)

 

Proceeds from Public Offering of Class A Shares, net of underwriting discounts and offering costs

 

 

73,914

 

 

104,010

 

Repayment of preference notes

 

 

 —

 

 

(55,960)

 

Change in restricted deposits

 

 

 —

 

 

50

 

Tax Distributions to Continuing LLC Owners

 

 

(1,485)

 

 

 —

 

Purchase of LLC units from Continuing LLC Owners

 

 

 —

 

 

(2,133)

 

Principal payments on capital lease obligations

 

 

(1,254)

 

 

(116)

 

Payment of deferred financing fees and debt discount

 

 

(2,750)

 

 

(42)

 

Exercise of options to purchase common stock

 

 

1,429

 

 

 —

 

Net cash provided by financing activities

 

 

140,970

 

 

35,371

 

Net change in cash and cash equivalents

 

 

28,556

 

 

37,122

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(92)

 

 

 7

 

Cash and cash equivalents, beginning of period

 

 

37,896

 

 

767

 

Cash and cash equivalents, end of period

 

$

66,360

 

$

37,896

 

 

 

 

 

 

 

 

 

 


 

 

PetIQ, Inc.

Reconciliation between gross profit and adjusted gross profit

(Unaudited, $’s in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the years ended

 

 

December 31, 2018

 

December 31, 2017

 

December 31, 2018

 

December 31, 2017

Gross profit

 

$

16,905

 

$

10,526

 

$

83,288

 

$

51,194

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

Purchase accounting adjustment to inventory

 

 

647

 

 

 —

 

 

2,149

 

 

 —

Non same-store gross loss

 

 

2,011

 

 

 —

 

 

5,556

 

 

 —

Clinic launch expense

 

 

119

 

 

 —

 

 

1,261

 

 

 —

Adjusted gross profit

 

$

19,682

 

$

10,526

 

$

92,254

 

$

51,194

 

 

 


 

 

PetIQ, Inc.

Reconciliation between Net Income (loss) and Adjusted EBITDA

(Unaudited, $’s in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the years ended

 

 

December 31, 2018

 

December 31, 2017

 

December 31, 2018

 

December 31, 2017

Net income (loss)

    

$

(5,256)

    

$

(3,391)

    

$

87

    

$

7,817

Plus:

 

 

  

 

 

  

 

 

  

 

 

  

Tax expense (benefit)

 

 

(1,415)

 

 

3,420

 

 

(661)

 

 

3,970

Depreciation

 

 

1,841

 

 

553

 

 

6,657

 

 

2,348

Amortization

 

 

1,519

 

 

270

 

 

5,210

 

 

1,052

Interest

 

 

1,882

 

 

212

 

 

8,022

 

 

1,563

EBITDA

 

$

(1,429)

 

$

1,064

 

$

19,315

 

$

16,750

Acquisition costs(1)

 

 

308

 

 

1,965

 

 

3,787

 

 

1,965

Management fees(2)

 

 

 —

 

 

66

 

 

 —

 

 

610

Costs associated with becoming a public company

 

 

 —

 

 

435

 

 

 —

 

 

2,710

Supplier Receivable recovery(6)

 

 

 —

 

 

(175)

 

 

 —

 

 

(175)

Stock based compensation expense

 

 

1,134

 

 

201

 

 

3,812

 

 

447

Purchase accounting adjustment to inventory

 

 

647

 

 

 —

 

 

2,149

 

 

 —

Non same-store revenue(3)

 

 

(1,192)

 

 

 —

 

 

(3,967)

 

 

 —

Non same-store costs(3)

 

 

3,678

 

 

 —

 

 

10,345

 

 

 —

Fair value adjustment of contingent note

 

 

3,030

 

 

 —

 

 

3,280

 

 

 —

Integration costs and costs of discontinued clinics

 

 

185

 

 

 —

 

 

998

 

 

 —

Clinic launch expenses(4)

 

 

119

 

 

 —

 

 

1,380

 

 

 —

Non-recurring royalty settlement(5)

 

 

 —

 

 

 —

 

 

440

 

 

 —

Adjusted EBITDA

 

$

6,480

 

$

3,556

 

$

41,539

 

$

22,307

 

 

 

5.8%

 

 

6.8%

 

 

7.9%

 

 

8.4%

 

 

(1) Acquisition costs relating to the VIP acquisition and the HBH Acquisition, which was completed in October 2018.

(2)Represents annual fees paid pursuant to our management agreements with Eos, Highland and Labore.  The management agreements terminated in connection with our IPO in July 2017.

(3)Non same-store revenue and costs are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. There were 26 wellness centers, 5 regions, and one new host partner that had less than six trailing quarters of operating results for the three months and year ended December 31, 2018 and none for the prior comparable periods.

(4)Clinic launch expenses represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business.

(5)Represents a settlement paid to a supplier related to a royalty agreement in place since 2013.

(6)During 2015 the Company terminated its relationship with a supplier in accordance with a supply agreement.  The Company collected a settlement on the matter in 2017.


 

 

PetIQ, Inc.

Reconciliation between Net Income (loss) and Adjusted Net Income 

(Unaudited, $’s in 000’s)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Year ended

 

 

 

December 31, 2018

 

December 31, 2017

 

December 31, 2018

 

December 31, 2017

 

Net income (loss)

    

$

(5,256)

    

$

(3,391)

    

$

87

    

$

7,817

    

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs(1)

 

 

308

 

 

1,965

 

 

3,787

 

 

1,965

 

Tax expense (benefit)

 

 

(1,415)

 

 

3,420

 

 

(661)

 

 

3,970

 

Stock based compensation expense

 

 

1,134

 

 

201

 

 

3,812

 

 

447

 

Purchase accounting adjustment to inventory

 

 

647

 

 

 —

 

 

2,149

 

 

 —

 

Non same-store revenue(2)

 

 

(1,192)

 

 

 —

 

 

(3,967)

 

 

 —

 

Non same-store costs(2)

 

 

3,678

 

 

 —

 

 

10,345

 

 

 —

 

Fair value adjustment of contingent note

 

 

3,030

 

 

 —

 

 

3,280

 

 

 —

 

Integration costs and costs of discontinued clinics

 

 

185

 

 

 —

 

 

998

 

 

 —

 

New clinic launch expenses(3)

 

 

119

 

 

 —

 

 

1,380

 

 

 —

 

Non-recurring royalty settlement

 

 

 —

 

 

 —

 

 

440

 

 

 —

 

Costs associated with becoming a public company

 

 

 —

 

 

435

 

 

 —

 

 

2,710

 

Adjusted Net income

 

$

1,238

 

$

2,630

 

$

21,650

 

$

16,909

 

 

(1) Acquisition costs relating to the VIP acquisition and the HBH Acquisition, which was completed in October 2018.

(2)Non same-store revenue and costs are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. There were 26 wellness centers, 5 regions, and one new host partner that had less than six trailing quarters of operating results for the three months and year ended December 31, 2018 and none for the prior comparable periods.

(3)Clinic launch expenses represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business.