Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2020 | Nov. 06, 2020 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Sep. 30, 2020 | |
Entity File Number | 001-38163 | |
Entity Registrant Name | PetIQ, Inc. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 35-2554312 | |
Entity Address, Address Line One | 923 S. Bridgeway Pl. | |
Entity Address, City or Town | Eagle | |
Entity Address, State or Province | ID | |
Entity Address, Postal Zip Code | 83616 | |
City Area Code | 208 | |
Local Phone Number | 939-8900 | |
Title of 12(b) Security | Class A Common Stock, $0.001 par value | |
Trading Symbol | PETQ | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | true | |
Entity Shell Company | false | |
Entity Central Index Key | 0001668673 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false | |
Class A common stock | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 25,286,211 | |
Class B common stock | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 3,410,429 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Current assets | ||
Cash and cash equivalents | $ 57,753 | $ 27,272 |
Accounts receivable, net | 100,826 | 71,377 |
Inventories | 83,880 | 79,703 |
Other current assets | 5,525 | 7,071 |
Total current assets | 247,984 | 185,423 |
Property, plant and equipment, net | 60,409 | 52,525 |
Operating lease right of use assets | 19,498 | 20,785 |
Deferred tax assets | 59,780 | |
Other non-current assets | 1,977 | 3,214 |
Intangible assets, net | 217,367 | 119,956 |
Goodwill | 230,872 | 231,045 |
Total assets | 778,107 | 672,728 |
Current liabilities | ||
Accounts payable | 65,352 | 51,538 |
Accrued wages payable | 12,552 | 9,082 |
Accrued interest payable | 2,530 | 83 |
Other accrued expenses | 8,212 | 3,871 |
Current portion of operating leases | 4,718 | 4,619 |
Current portion of long-term debt and finance leases | 7,717 | 3,821 |
Total current liabilities | 101,081 | 73,014 |
Operating leases, less current installments | 15,338 | 16,580 |
Long-term debt, less current installments | 355,495 | 251,376 |
Finance leases, less current installments | 3,252 | 3,331 |
Other non-current liabilities | 965 | 117 |
Total non-current liabilities | 375,050 | 271,404 |
Commitments and contingencies (Note 13) | ||
Equity | ||
Additional paid-in capital | 349,524 | 300,120 |
Accumulated deficit | (82,959) | (15,903) |
Accumulated other comprehensive loss | (1,247) | (1,131) |
Total stockholders' equity | 265,346 | 283,114 |
Non-controlling interest | 36,630 | 45,196 |
Total equity | 301,976 | 328,310 |
Total liabilities and equity | 778,107 | 672,728 |
Class A common stock | ||
Equity | ||
Common stock value | 25 | 23 |
Class B common stock | ||
Equity | ||
Common stock value | $ 3 | $ 5 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Common stock, shares outstanding | 25,256 | 23,554 |
Class A common stock | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock authorized | 125,000 | 125,000 |
Common Stock, Shares, Issued | 25,256 | 23,554 |
Common stock, shares outstanding | 25,256 | 23,554 |
Class B common stock | ||
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock authorized | 100,000 | 100,000 |
Common Stock, Shares, Issued | 3,420 | 4,752 |
Common stock, shares outstanding | 3,420 | 4,752 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of (Loss) Income - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Total net sales | $ 162,083 | $ 186,025 | $ 615,843 | $ 555,095 |
Total cost of sales | 129,815 | 158,734 | 509,237 | 468,174 |
Gross profit | 32,268 | 27,291 | 106,606 | 86,921 |
Operating expenses | ||||
General and administrative expenses | 35,562 | 29,345 | 105,744 | 74,333 |
Contingent note revaluations gain | 2,310 | 3,090 | ||
Operating (loss) income | (3,294) | (4,364) | 862 | 9,498 |
Interest expense, net | (7,829) | (5,742) | (18,500) | (9,921) |
Foreign currency loss, net | (251) | (126) | (73) | |
Other income, net | 13 | 6 | 702 | 21 |
Total other expense, net | (8,067) | (5,736) | (17,924) | (9,973) |
Pretax net loss | (11,361) | (10,100) | (17,062) | (475) |
Income tax (expense) benefit | (53,168) | 1,304 | (52,060) | (77) |
Net loss | (64,529) | (8,796) | (69,122) | (552) |
Net loss attributable to non-controlling interest | (1,468) | (2,906) | (2,067) | (88) |
Net loss attributable to PetIQ, Inc | $ (63,061) | $ (5,890) | $ (67,055) | $ (464) |
Net (loss) income per share attributable to PetIQ, Inc. Class A common stock | ||||
Basic | $ (2.53) | $ (0.26) | $ (2.75) | $ (0.02) |
Diluted | $ (2.53) | $ (0.26) | $ (2.75) | $ (0.02) |
Weighted Average shares of Class A common stock outstanding | ||||
Basic | 24,935 | 22,974 | 24,365 | 22,387 |
Diluted | 24,935 | 22,974 | 24,365 | 22,387 |
Product | ||||
Total net sales | $ 150,063 | $ 161,534 | $ 580,650 | $ 482,224 |
Total cost of sales | 116,847 | 140,839 | 469,095 | 416,748 |
Services | ||||
Total net sales | 12,020 | 24,491 | 35,193 | 72,871 |
Total cost of sales | $ 12,968 | $ 17,895 | $ 40,142 | $ 51,426 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive (Loss) Income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Comprehensive Income | ||||
Net loss | $ (64,529) | $ (8,796) | $ (69,122) | $ (552) |
Foreign currency translation adjustment | 451 | (273) | (227) | (302) |
Comprehensive loss | (64,078) | (9,069) | (69,349) | (854) |
Comprehensive loss attributable to non-controlling interest | (1,402) | (2,945) | (2,096) | (141) |
Comprehensive loss attributable to PetIQ | $ (62,676) | $ (6,124) | $ (67,253) | $ (713) |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Cash flows from operating activities | ||
Net loss | $ (69,122) | $ (552) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||
Depreciation and amortization of intangible assets and loan fees | 20,942 | 11,005 |
Termination of supply agreement | 7,801 | |
Gain on disposition of property, plant, and equipment | (363) | (25) |
Stock based compensation expense | 6,549 | 4,747 |
Deferred tax adjustment | 52,060 | 37 |
Contingent note revaluation | 3,090 | |
Other non-cash activity | 143 | 146 |
Changes in assets and liabilities | ||
Accounts receivable | (29,777) | (41,684) |
Inventories | (3,993) | 12,137 |
Other assets | 3,449 | 1,368 |
Accounts payable | 15,824 | 1,026 |
Accrued wages payable | 3,443 | 2,401 |
Other accrued expenses | 6,863 | (2,299) |
Net cash provided by (used in) operating activities | 13,819 | (8,603) |
Cash flows from investing activities | ||
Proceeds from disposition of property, plant, and equipment | 429 | 70 |
Purchase of property, plant, and equipment | (17,811) | (5,128) |
Purchase of Capstar and related intangibles | (96,072) | |
Business acquisitions (net of cash acquired) | (185,090) | |
Net cash used in investing activities | (113,454) | (190,148) |
Cash flows from financing activities | ||
Proceeds from issuance of convertible notes - liability | 90,465 | |
Proceeds from issuance of convertible notes - equity | 53,285 | |
Payment for Capped Call options | (14,821) | |
Proceeds from issuance of long-term debt | 668,675 | 661,084 |
Principal payments on long-term debt | (667,511) | (511,681) |
Payment of financing fees on Convertible Notes | (5,884) | |
Tax distributions to LLC Owners | (46) | (1,641) |
Principal payments on finance lease obligations | (1,252) | (1,103) |
Payment of deferred financing fees and debt discount | (550) | (5,362) |
Tax withholding payments on Restricted Stock Units | (313) | |
Exercise of options to purchase class A common stock | 8,188 | 1,588 |
Net cash provided by financing activities | 130,236 | 142,885 |
Net change in cash and cash equivalents | 30,601 | (55,866) |
Effect of exchange rate changes on cash and cash equivalents | (120) | (39) |
Cash and cash equivalents, beginning of period | 27,272 | 66,360 |
Cash and cash equivalents, end of period | 57,753 | 10,455 |
Supplemental cash flow information | ||
Interest paid | 12,311 | 9,472 |
Net change in property, plant, and equipment acquired through accounts payable | 874 | (380) |
Finance lease additions | 993 | 535 |
Net change of deferred tax asset from step-up in basis | 9,517 | |
Income taxes paid | 63 | 216 |
Accrued tax distribution | (443) | $ 103 |
Issuance of note for termination, settlement, and asset acquistion agreement | $ 17,487 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Equity - USD ($) shares in Thousands, $ in Thousands | Class A common stockCommon Stock [Member] | Class B common stockCommon Stock [Member] | Retained Earnings / (Accumulated Deficit) | Accumulated Other Comprehensive Loss | Additional Paid-In Capital | Non-controlling Interest | Total |
Beginning Balance at Dec. 31, 2018 | $ 22 | $ 7 | $ (4,450) | $ (1,316) | $ 262,219 | $ 64,496 | $ 320,977 |
Beginning Balance (in shares) at Dec. 31, 2018 | 21,620 | 6,547 | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Exchange of LLC Interests held by LLC Owners | $ 1 | $ (2) | (96) | 15,759 | (15,663) | ||
Exchange of LLC Interests held by LLC Owners (in shares) | 1,590 | (1,590) | |||||
Net increase in deferred tax asset from LLC Interest transactions | 9,517 | 9,517 | |||||
Accrued tax distributions | (103) | (103) | |||||
Other comprehensive income (loss) | (249) | (53) | (302) | ||||
Stock based compensation expense | $ 11 | (3,727) | (1,020) | (4,747) | |||
Exercise of Options to purchase Common Stock | 1,588 | 1,588 | |||||
Exercise of Options to purchase Common Stock (in shares) | 81 | ||||||
Net loss | (464) | (88) | (552) | ||||
Ending Balance at Sep. 30, 2019 | $ 23 | $ 5 | (4,914) | (1,661) | 292,810 | 49,610 | 335,873 |
Ending Balance (in shares) at Sep. 30, 2019 | 23,302 | 4,957 | |||||
Beginning Balance at Jun. 30, 2019 | $ 22 | $ 7 | 976 | (1,327) | 282,343 | 56,157 | 338,178 |
Beginning Balance (in shares) at Jun. 30, 2019 | 22,750 | 5,462 | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Exchange of LLC Interests held by LLC Owners | $ 1 | $ (1) | (100) | 4,951 | (4,851) | ||
Exchange of LLC Interests held by LLC Owners (in shares) | 505 | (505) | |||||
Net increase in deferred tax asset from LLC Interest transactions | 3,424 | 3,424 | |||||
Accrued tax distributions | 949 | 949 | |||||
Other comprehensive income (loss) | (234) | (39) | (273) | ||||
Stock based compensation expense | (1,302) | (299) | (1,601) | ||||
Exercise of Options to purchase Common Stock | $ 43 | 790 | 790 | ||||
Issuance of stock for vesting of RSU's, net of tax with holdings | 3 | ||||||
Net loss | (5,890) | (2,906) | (8,796) | ||||
Ending Balance at Sep. 30, 2019 | $ 23 | $ 5 | (4,914) | (1,661) | 292,810 | 49,610 | 335,873 |
Ending Balance (in shares) at Sep. 30, 2019 | 23,302 | 4,957 | |||||
Beginning Balance at Dec. 31, 2019 | $ 23 | $ 5 | (15,903) | (1,131) | 300,120 | 45,196 | 328,310 |
Beginning Balance (in shares) at Dec. 31, 2019 | 23,554 | 4,752 | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Exchange of LLC Interests held by LLC Owners | $ 1 | $ (1) | 82 | 11,806 | (11,888) | ||
Exchange of LLC Interests held by LLC Owners (in shares) | 1,332 | (1,332) | |||||
Net increase in deferred tax asset from LLC Interest transactions | 9,038 | 9,038 | |||||
Establishment of valuation allowance related to the deferred tax assets from LLC Interest transactions | (9,038) | (9,038) | |||||
Accrued tax distributions | 443 | 443 | |||||
Other comprehensive income (loss) | (198) | (29) | (227) | ||||
Stock based compensation expense | 5,610 | 939 | 6,549 | ||||
Equity component of convertible notes, net of tax | 36,809 | 6,161 | 42,970 | ||||
Payment for capped call share options | (12,696) | (2,125) | (14,821) | ||||
Exercise of Options to purchase Common Stock | $ 0 | 8,188 | $ 8,188 | ||||
Exercise of Options to purchase Common Stock (in shares) | 345 | 345 | |||||
Issuance of stock for vesting of RSU's, net of tax with holdings | (313) | $ (313) | |||||
Issuance of stock for vesting of RSU's, net of tax with holdings (in shares) | 25 | ||||||
Net loss | (67,056) | (2,067) | (69,122) | ||||
Ending Balance at Sep. 30, 2020 | $ 25 | $ 3 | (82,959) | (1,247) | 349,524 | 36,630 | 301,976 |
Ending Balance (in shares) at Sep. 30, 2020 | 25,256 | 3,420 | |||||
Beginning Balance at Jun. 30, 2020 | $ 24 | $ 4 | (19,897) | (1,774) | 344,270 | 40,464 | 363,091 |
Beginning Balance (in shares) at Jun. 30, 2020 | 24,658 | 3,770 | |||||
Increase (Decrease) in Stockholders' Equity | |||||||
Exchange of LLC Interests held by LLC Owners | $ 0 | 142 | 2,958 | (3,100) | |||
Exchange of LLC Interests held by LLC Owners (in shares) | 350 | (350) | |||||
Net increase in deferred tax asset from LLC Interest transactions | 3,252 | 3,252 | |||||
Establishment of valuation allowance related to the deferred tax assets from LLC Interest transactions | (9,038) | (9,038) | |||||
Accrued tax distributions | 752 | 752 | |||||
Other comprehensive income (loss) | 385 | 66 | 451 | ||||
Stock based compensation expense | 1,874 | 273 | 2,147 | ||||
Equity component of convertible notes, net of tax | 212 | (358) | (146) | ||||
Exercise of Options to purchase Common Stock | $ 0 | 6,017 | 6,017 | ||||
Exercise of Options to purchase Common Stock (in shares) | 245 | ||||||
Issuance of stock for vesting of RSU's, net of tax with holdings | (21) | (21) | |||||
Issuance of stock for vesting of RSU's, net of tax with holdings (in shares) | 3 | ||||||
Net loss | (63,062) | (1,468) | (64,529) | ||||
Ending Balance at Sep. 30, 2020 | $ 25 | $ 3 | $ (82,959) | $ (1,247) | $ 349,524 | $ 36,630 | $ 301,976 |
Ending Balance (in shares) at Sep. 30, 2020 | 25,256 | 3,420 |
Principal Business Activity and
Principal Business Activity and Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2020 | |
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. (“PetIQ,” the “Company,” “we” or “us”) is a leading pet medication and wellness company delivering a smarter way for pet parents to help their pets live their best lives through convenient access to affordable veterinary products and services. We engage with customers through more than 60,000 points of distribution across retail, including veterinary, and e-commerce channels with our branded distributed medications, which is further supported by our own world-class medication manufacturing facility in Omaha, Nebraska. Our national service platform, VIP Petcare (“VIP”), operates in over 3,400 retail partner locations in 41 states, providing cost effective and convenient veterinary wellness services. PetIQ believes that pets are an important part of the family and deserve the best products and care we can give them. We have two reporting segments: (i) Products; and (ii) Services. The Products segment consists of our manufacturing and distribution business. The Services segments consists of veterinary services, and related product sales, provided by the Company directly to consumers. We are the sole managing member of PetIQ Holdings, LLC (“HoldCo”), a Delaware limited liability company, which is the sole member of PetIQ, LLC (“Opco”) and, through Holdco, operate and control all of the business and affairs of Opco. The condensed consolidated financial statements as of September 30, 2020 and December 31, 2019 and for the 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, the valuation of inventories, liability and equity allocation of convertible notes, and reserves for legal contingencies. 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 Notes Payable – VIP Acquisition are carried at cost, which approximates fair value. 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. A portion of the purchase price for the acquisition of VIP, (the “VIP Acquisition”) was structured in the form of Contingent Notes (the “Contingent Notes”) that vested based on the combined Company EBITDA targets for the years ending December 31, 2018 and 2019. The combined Company EBITDA targets were met for each year end, and as such the Contingent Notes were earned. As such, the portion of the liability as it relates to each Contingent Note became fixed as of December 31, 2019 and 2018, and are carried at cost, which approximates fair value as the stated interest rate is consistent with current market rates. See Note 2 – “Business Combinations and Asset Acquisitions” for more information regarding the VIP Acquisition. The Contingent Notes are included in long-term debt in the accompanying condensed consolidated balance sheets. The Contingent Notes began bearing interest at a fixed rate of 6.75% once they were earned, with the balance payable in July of 2023. The following table summarizes the Level 3 activity related to the Contingent Notes for the nine months ended September 30, 2019: $'s in 000's Balance at beginning of the period $ 2,680 Change in fair value of contingent consideration 3,090 Balance at the end of the period $ 5,770 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. All credit card, debit card and electronic transfer transactions that process in less than seven days are classified as cash and cash equivalents. 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 credit losses equal to expected losses. The Company’s estimate is based on historical collection experience, a review of the current status of trade accounts receivable, and known current economic conditions including the current and expected impact of COVID-19. 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. Accounts receivable consists of the following as of: $'s in 000's September 30, 2020 December 31, 2019 Trade receivables $ 95,321 $ 67,551 Other receivables 6,068 4,257 101,389 71,808 Less: Allowance for credit losses (563) (431) Total accounts receivable, net $ 100,826 $ 71,377 Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in first-out (“FIFO”) method and includes estimated rebate amounts. 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, 2020 December 31, 2019 Raw materials $ 14,088 $ 10,675 Work in progress 1,476 1,717 Finished goods 68,316 67,311 Total inventories $ 83,880 $ 79,703 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 calculated using the straight-line method, based on estimated useful lives of the assets, except for leasehold improvements and finance 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 2 - 15 years Leasehold improvements 2 - 15 years Furniture and fixtures 5 - 10 years Convertible Debt We separately account for the liability and equity components of convertible debt instruments that can be settled in cash by allocating the proceeds from issuance between the liability component and the embedded conversion option in accordance with accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The value of the equity component is calculated by first measuring the fair value of the liability component, using the interest rate of a similar liability that does not have a conversion feature, as of the issuance date. The difference between the proceeds from the convertible debt issuance and the amount measured as the liability component is recorded as the equity component with a corresponding discount recorded on the debt. We recognize amortization of the resulting discount using the effective interest method as interest expense in our consolidated statements of operations. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. On May 19 th million aggregate principal amount of Convertible Notes due 2026 (the “Notes”). See Note 5 – “Debt”. We have allocated issuance costs to the liability and equity components. Issuance costs attributable to the liability component are being amortized to expense over the respective term of the Notes, and issuance costs attributable to the equity component were netted with the respective equity component in additional paid-in capital. Simultaneously, with the issuance of the Notes, we bought capped call options from certain financial institutions to minimize the impact of potential dilution of our Class A common stock upon conversion of the Notes. The premium for the capped call options was recorded as additional paid-in capital in our condensed consolidated balance sheets as the options are settleable in our Class A common stock. Revenue Recognition 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 generally 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. The Company determined that certain products manufactured to a customer’s specifications do not have an alternative future use at a reasonable profit margin due to costs associated with reworking, transporting and repackaging these products. These products are produced subject to purchase orders that include an enforceable right to payment. Therefore the Company determined that revenue on these products would be recognized over time, as the products are produced. This represents a minor subset of the products the Company manufactures. Revenue is recognized for services at the time 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. Incentives in the form of cash paid to the customer (or a reduction of a customer cash payment to us) typically are recognized as a reduction of sales unless the incentive is for a distinct benefit that we receive from the customer (e.g., advertising or marketing). 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, 2020. 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 accounts payable or other current assets in the Condensed Consolidated Balance Sheets. 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, 2020 and December 31, 2019 are immaterial. The Company does not have significant deferred revenue or unbilled receivable balances. 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 $0.6 million and $0.2 million for three months ended September 30, 2020 and 2019, respectively, and $2.5 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively. Advertising costs were $5.8 million and $1.8 million for the three months ended September 30, 2020 and 2019, respectively, and $8.3 million and $3.5 million for the nine months ended September 30, 2020 and 2019, respectively. Collaboration Agreements On July 8, 2019, the Company, through Opco, completed the acquisition of all the outstanding stock of Sergeant’s Pet Care Products, Inc. (“Sergeant’s”), d/b/a Perrigo Animal Health, including any assets related to Perrigo Company plc’s animal health business (the “Perrigo Animal Health Acquisition”) There can be no assurance that these products will be approved by the U.S. Food and Drug Administration (“FDA”) on the anticipated schedule or at all. Consideration paid after FDA approval will be capitalized and amortized to cost of goods sold over the economic life of each product. The expenses paid prior to FDA approval will be included in General and Administrative expenses on the Consolidated Statements of Operations. No costs were incurred during the nine months ended September 30, 2020 or 2019. 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. Based on the available objective evidence during the three and nine months ended September 30, 2020, the Company believes it is more likely than not that the tax benefits from our deferred tax assets, including net operating loss carry-forwards and other tax credits, may not be realized. Accordingly, the Company recorded a full valuation allowance against the tax benefits. We expect to maintain this full valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. Non-controlling interest The non-controlling interests on the condensed consolidated statements of operations represents the portion of earnings or loss attributable to the economic interest in the Company’s subsidiary, Holdco, held by the non-controlling holders of Class B common stock and limited liability company interests in Holdco. Non-controlling interests on the condensed consolidated balance sheet represents the portion of net assets of the Company attributable to the non-controlling holders of Class B common stock and limited liability company interests in Holdco, based on the portion of the LLC Interests owned by holders of Class B common stock and limited liability company interests in Holdco. As of September 30, 2020 and December 31, 2019 the non-controlling interest was approximately 11.9% and 16.8%, respectively of ownership of LLC Interests. 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. If the assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed. The Company consults with both internal and external legal counsel related to litigation. Adopted Accounting Standard Updates Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments - Credit Losses." This ASU requires an organization to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable information. Organizations will now use forward-looking information to better estimate their credit losses. The Company adopted this ASU using a modified retrospective approach. Under this method of adoption, the Company determined that there was no cumulative-effect adjustment to beginning Retained earnings on the condensed consolidated balance sheet. Adoption of this standard did not impact the Company’s income before income taxes and had no impact on the condensed consolidated statement of cash flows. In May 2020, the SEC issued Final Rule Release No. 33-10786, which amends the financial statement requirements for acquisitions and dispositions of businesses and related pro forma financial information required under SEC Regulation S-X, Rule 3 05 Upcoming Accounting Standard Updates In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on the issuer’s accounting for convertible debt instruments by removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. The elimination of these models will reduce reported interest expense and increase reported net income for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements. |
Business Combination
Business Combination | 9 Months Ended |
Sep. 30, 2020 | |
Business Combination | |
Business Combination | Note 2 – Business Combination and Asset Acquisitions Perrigo Animal Health Acquisition On July 8, 2019, PetIQ, through Opco, completed the Perrigo Animal Health Acquisition. Sergeant’s is now an indirect wholly-owned subsidiary of the Company. The fair value of the consideration is summarized as follows: $'s in 000's Fair Value Inventories $ 17,998 Property, plant and equipment 19,568 Other current assets 13,048 Other assets 9,680 Indefinite-lived intangible assets 23,040 Definite-lived intangible assets - 13 year weighted average life 14,480 Goodwill 105,838 Total assets 203,652 Liabilities assumed 19,259 Purchase price $ 184,393 Cash paid, net of cash acquired $ (185,090) Post-closing working capital adjustment 697 Fair value of total consideration transferred $ (184,393) The definite-lived intangibles primarily relate to trademarks, customer relationships, developed technology and know-how and in-process research and development intangibles. The $14.5 million represents the fair value and will be amortized over the estimated useful lives of the assets through June 2039. Amortization expense for these definite-lived intangible assets for the three and nine months ended September 30, 2020 was $0.6 million and $1.8 million, respectively. The indefinite-lived intangibles primarily relate to trademarks and in-process research and development. We evaluate goodwill and indefinite-lived intangible assets for impairment on an annual basis and more frequently if an event occurs or circumstances change that would indicate impairment may exist. 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 $105.8 million of goodwill is expected to be deductible for tax purposes. Goodwill was allocated to the Products segment. Capstar ® (nitenpyram) Acquisition During the three months ended March 31, 2020, the Company executed an Asset Purchase Agreement (the “Purchase Agreement”) to acquire the U.S. rights to Capstar® and CapAction® and related assets (the “Capstar Acquisition”) from Elanco US Inc. (“Elanco”) for $95 million, plus the cost of certain outstanding finished goods inventory in saleable condition. The Capstar Acquisition was completed on July 31, 2020, using cash on hand as a result of the issuance of the Notes in May 2020. The Capstar Acquisition was accounted for as an asset acquisition and certain transaction related costs of approximately $1.0 million were included in the cost of the acquired assets. The fair value assigned to trade names is typically based on the income approach using a relief from royalty methodology that assumes that the fair value of a trade name can be measured by estimating the cost of licensing and paying a royalty fee for the trade name that the owner of the trade name avoids. The estimated fair value of customer relationship was determined using an income approach, specifically a discounted cash flow analysis. The rate utilized to discount net cash flows to their present values was approximately 15% and was determined after consideration of the overall enterprise rate of return and the relative risk and importance of the assets to the generation of future cash flows. $'s in 000's Fair Value Amortizable intangibles Customer relationships $ 70,901 Patents and processes 9,895 Total amortizable intangibles 80,796 Non-amortizable intangibles Trademarks and other 15,276 Total purchased intangible assets $ 96,072 The weighted average amortization period of the amortizable intangible assets is approximately 11.8 Supplier Termination, Settlement and Asset Purchase Agreement: The Company has a supplier who has alleged PetIQ has breached its supply agreement due to the acquisition of Perrigo Animal Health. During July 2020, the Company entered into a Termination, Settlement and Asset Purchase Agreement (“Agreement”). The Agreement called for PetIQ to pay $20.6 million, $2.6 million at signing and $1.0 million per quarter thereafter. The Agreement terminated the supply agreement that was previously in place, settled all outstanding claims and operations, and allowed PetIQ to purchase certain intellectual property related assets. The Company has estimated the fair value of the payment obligation as million. The assets acquired are included within the patents and processes intangible assets category and will be amortized over . The assets were valued using the relief from royalty method. The remainder of the obligation is considered to be a payment to settle the alleged breach of the supply agreement, the termination expense is included in general and administrative expenses on the condensed consolidated statement of operations for the nine months ended September 30, 2020. The obligation is considered debt and is included in debt on the condensed consolidated balance sheet. See Note 5 – “Debt” for additional information. |
Property, Plant, and Equipment
Property, Plant, and Equipment | 9 Months Ended |
Sep. 30, 2020 | |
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, 2020 December 31, 2019 Leasehold improvements $ 18,166 $ 15,517 Equipment 25,247 23,138 Vehicles and accessories 6,768 6,007 Computer equipment and software 10,496 8,070 Buildings 10,114 10,050 Furniture and fixtures 2,426 1,836 Land 7,067 4,557 Construction in progress 8,755 3,392 89,039 72,567 Less accumulated depreciation (28,630) (20,042) Total property, plant, and equipment $ 60,409 $ 52,525 Depreciation expense related to these assets was $3.0 million and $8.9 million for the three and nine months ended September 30, 2020 and $2.4 million and $5.6 million for the three and nine months ended September 30, 2019, respectively. |
Intangible Assets and Goodwill
Intangible Assets and Goodwill | 9 Months Ended |
Sep. 30, 2020 | |
Intangible Assets and Goodwill | |
Intangible Assets and Goodwill | Note 4 – Intangible Assets and Goodwill Intangible assets consist of the following at: $'s in 000's Useful Lives September 30, 2020 December 31, 2019 Amortizable intangibles Certification 7 years $ 350 $ 350 Customer relationships 12 - 20 years 160,111 89,232 Patents and processes 5 - 10 years 14,791 4,928 Brand names 5 - 15 years 24,688 15,019 Total amortizable intangibles 199,940 109,529 Less accumulated amortization (21,333) (13,058) Total net amortizable intangibles 178,607 96,471 Non-amortizable intangibles Trademarks and other 33,291 18,016 In-process research and development 5,469 5,469 Intangible assets, net of accumulated amortization $ 217,367 $ 119,956 Certain intangible assets are denominated in currencies other than the U.S. Dollar; therefore, their gross and net carrying values are subject to foreign currency movements. Amortization expense for the three months ended September 30, 2020 and 2019 was $3.8 million and $1.8 million, respectively, and $8.3 million and $4.4 million for the nine months ended September 30, 2020 and 2019, respectively. The in-process research and development (“IPRD”), intangible assets represent the value assigned to acquired R&D projects that principally represent rights to develop and sell a product that the Company has acquired which have not yet been completed or approved. The IPRD acquired as part of the Perrigo Animal Health Acquisition is accounted for as an indefinite-lived asset until the product is available for sale and regulatory approval is obtained, or abandonment of the associated research and development efforts. If the research and development efforts are successfully completed, the IPRD would be amortized over its then estimated useful life. The fair value of the IPRD was estimated using the multi-period excess earnings income method. The projected cash flows estimates for the future products were based on certain key assumptions including estimates of future revenues and expenses, taking into account the stage of development at the acquisition date and the resources needed to complete development. Estimated future amortization expense for each of the following years is as follows: Years ending December 31, ($'s in 000's) Remainder of 2020 $ 4,552 2021 18,838 2022 18,627 2023 17,873 2024 15,496 Thereafter 103,221 The following is a summary of the changes in the carrying value of goodwill for the period from January 1, 2019 to September 30, 2020: Reporting Unit ($'s in 000's) Products Services Total Goodwill as of January 1, 2019 77,765 47,264 125,029 Foreign currency translation 178 — 178 Acquisitions 105,838 — 105,838 Goodwill as of December 31, 2019 183,781 47,264 231,045 Foreign currency translation (173) — (173) Goodwill as of September 30, 2020 $ 183,608 $ 47,264 $ 230,872 |
Debt
Debt | 9 Months Ended |
Sep. 30, 2020 | |
Debt | |
Debt | Note 5 – Debt Convertible Notes On May 19, 2020, the Company issued $143.8 million in aggregate principal amount of 4.00% Convertible Senior Notes due 2026 pursuant to the indenture (the “Indenture”), dated as of May 19, 2020. The total net proceeds from the Notes offering, after deducting debt issuance costs paid or payable by us, was million. The Notes The Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s Class A common stock exceeds 130% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (2) the trading day immediately before the date the Company sends such notice. In addition, calling any Notes will constitute a Make-Whole Fundamental Change with respect to such Notes, which will result in an increase to the conversion rate if such Notes are converted after they are called for redemption. If certain corporate events that constitute a “Fundamental Change” (as defined in the Indenture) occur, then noteholders may require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. The definition of Fundamental Change includes certain business combination transactions involving the Company and certain de-listing events with respect to the Company’s Class A common stock. The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. The Notes contain customary events of default. In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. The carrying amount of the liability component was calculated using a discount rate of The fair value of the Notes was $195.4 million as of September 30, 2020. The estimated fair value of the Notes is based on market rates and the closing trading price of the Convertible Notes as of September 30, 2020 and is classified as Level 2 in the fair value hierarchy. As of September 30, the if-converted value of the Notes did not exceed the principal amount. The net carrying amount of the liability component of the Notes was as follows: ($'s in 000's) September 30, 2020 Par value of the Notes $ 143,750 Unamortized debt discount (51,085) Unamortized debt issuance costs (3,550) Net carrying amount $ 89,115 The net carrying amount of the equity component of the Notes was as follows: ($'s in 000's) September 30, 2020 Proceeds allocated to the conversion option $ 53,285 Deferred tax affect (8,134) Issuance costs (2,181) Net carrying amount $ 42,970 The following table sets forth the interest expense recognized related to the Notes: For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2020 ($'s in 000's) Contractual interest expense $ 1,438 $ 2,108 Amortization of debt issuance costs 1,510 2,199 Amortization of debt discount 105 153 Total $ 3,053 $ 4,460 Effective interest rate of the liability component 13.0% 13.0% Capped Call Transactions On May 14, 2020 and May 19, 2020, the Company entered into capped call transactions (the “Capped Call Transactions”) with The Company paid approximately $14.8 million for the Capped Call Transactions, which was recorded as additional paid-in capital, using a portion of the gross proceeds from the sale of the Notes. The capped call is expected to be tax deductible as the Company elected to integrate the capped call into the Notes for tax purposes. The tax effect on the equity component of the Convertible Notes of $8.1 million deferred tax liability associated with the Capped Call Transactions will be offset by a reduction to the valuation allowance adjustment through continuing operations. A&R Credit Agreement The Company amended the existing revolving credit agreement of Opco and each of its domestic wholly-owned subsidiaries (the “Amended Revolving Credit Agreement”) on July 8, 2019. The Amended Revolving Credit Agreement provides for a secured revolving credit facility of $125 million that matures on July 8, 2024. The borrowers under the Amended Revolving Credit Facility incur fees between 0.375% and 0.50% as unused facility fees, dependent on the aggregate amount borrowed. On May 14, 2020, the Company amended the Amended Revolving Credit Agreement to allow for the Notes described above. Additionally the amendment instituted a Eurodollar floor of 1% to the agreement. All obligations under the Amended Revolving Credit Agreement are unconditionally guaranteed by HoldCo and, subject to certain exceptions, each of its material current and future domestic wholly-owned subsidiaries. All obligations under the Amended Revolving Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of each borrower and guarantor under the Amended Revolving Credit Agreement, subject to certain exceptions. The Amended Revolving Credit Agreement contains a number of covenants that, among other things, restrict the ability of the borrowers and guarantors thereunder to (subject to certain exceptions): (i) make investments, loans or advances; (ii) incur additional indebtedness; (iii) create liens on assets; (iv) engage in mergers or consolidations and/or sell assets; (v) pay dividends and distributions or repurchase our equity interests; (vi) repay subordinated indebtedness; (vii) make certain acquisitions; and (viii) other restrictions typical for a credit agreement of this type. As of September 30, 2020, the borrowers and guarantors thereunder were in compliance with these covenants. Although the Company currently expects continued compliance with debt covenants, the impact COVID-19 may negatively affect the Company’s ability to comply with these covenants. The Amended Revolving Credit Agreement also contains certain customary affirmative covenants and events of default (including change of control). In addition, the Amended Revolving Credit Agreement contains a minimum fixed charge coverage ratio covenant which is tested if availability under the Amended Revolving Credit Agreement falls below a certain level. As of September 30, 2020, the borrower and guarantors thereunder were in compliance with these covenants. As of September 30, 2020, $15.0 million was outstanding under the Amended Revolving Credit Agreement. The weighted average interest rate on the Amended Revolving Credit Agreement was 2.3% at September 30, 2020. A&R Term Loan Credit Agreement The Company amended and restated the existing term loan credit agreement of Opco (the “A&R Term Loan Credit Agreement”) on July 8, 2019. The $220.0 million A&R Term Loan Credit Agreement has an interest rate equal to the Eurodollar rate plus 4.50% . The A&R Term Loan Credit Agreement calls for 1% of the original loan balance to be paid annually via equal quarterly payments, with the balance of the loan due on the sixth anniversary of the agreement. All obligations under the A&R Term Loan Credit Agreement are unconditionally guaranteed by PetIQ Holdings, LLC 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 Term Loan Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of PetIQ, LLC and each guarantor under the A&R Term Loan Credit Agreement, subject to certain exceptions. The A&R Term Loan Credit Agreement contains a number of covenants that, among other things, restrict the ability of the borrower and guarantors thereunder to (subject to certain exceptions): (i) make investments, loans or advances; (ii) incur additional indebtedness; (iii) create liens on assets; (iv) engage in mergers or consolidations and/or sell assets; (v) pay dividends and distributions or repurchase our equity interests; (vi) repay subordinated indebtedness; (vii) make certain acquisitions; and (viii) other restrictions typical for a credit agreement of this type. The A&R Term Loan Credit Agreement also contains certain customary affirmative covenants and events of default (including change of control). In addition, the A&R Term Loan Credit Agreement includes a maintenance covenant that requires compliance with a maximum first lien net leverage ratio. The availability of certain baskets and the ability to enter into certain transactions (including our ability to pay dividends) may also be subject to compliance with secured leverage ratios. As of September 30, 2020, the borrower and guarantors thereunder were in compliance with these covenants. General 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 July 2020, the Company entered into the Agreement. See Note 2 – “Business Combinations and Asset Acquisitions”. The Agreement called for PetIQ to pay $20.6 million, $2.6 million at signing and $1.0 million per quarter thereafter with no interest. The Company discounted the payment stream using a market interest rate of 8.3%, resulting in an obligation of $17.5 million. In connection with the VIP Acquisition, the Company entered into a guarantee note and the Contingent Notes (together the “Notes Payable – VIP Acquisition”), which have a collective balance of $27.5 million and require quarterly interest payments of 6.75% with the balance payable July 17, 2023. The following represents the Company’s long-term debt as of: $'s in 000's September 30, 2020 December 31, 2019 Convertible Notes $ 143,750 $ — Term loans 217,800 220,000 Revolving credit facility 15,000 10,000 Notes Payable - VIP Acquisition 27,500 27,500 Other Debt 16,974 1,812 Net discount on debt and deferred financing fees (59,279) (5,688) $ 361,745 $ 253,624 Less current maturities of long-term debt (6,250) (2,248) Total long-term debt $ 355,495 $ 251,376 Future maturities of long-term debt, excluding the discount on debt and deferred financing fees, as of September 30, 2020, are as follows: ($'s in 000's) Remainder of 2020 $ 1,562 2021 6,250 2022 6,252 2023 33,755 2024 6,257 Thereafter 366,948 The Company incurred debt issuance costs of $0.3 million and $0.6 million related to the A&R Credit Agreement during the three and nine months ended September 30, 2020, respectively. The Company incurred debt issuance costs of The Company incurred debt issuance costs of $5.9 million in May 2020 in connection with the Notes. In accordance with FASB ASC 470, Debt, these costs were allocated to debt and equity components in proportion to the allocation of proceeds. million of issuance costs were recorded as additional paid-in capital and such amounts are not subject to amortization. The remaining issuance costs of million are recorded as debt issuance costs in the net carrying value of the Notes. The debt issuance costs are amortized on an effective interest basis over the term of the Notes and is included in interest expense, net on the condensed consolidated statements of operations. Future amortization of our debt discount and debt issuance costs for the the term of the Convertible Notes is as follows: ($'s in 000's) Debt Discounts Debt Issuance Costs Remainder of 2020 $ 1,559 $ 108 2021 6,761 460 2022 7,684 522 2023 8,733 594 2024 9,925 675 Thereafter 16,423 1,191 |
Leases
Leases | 9 Months Ended |
Sep. 30, 2020 | |
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 2020 and 2026. A portion of leases are denominated in foreign currencies. For both operating and finance leases, the Company recognizes a right-of-use asset, which represents the right to use the underlying asset for the lease term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term. We elected the short-term lease exemption for all leases that qualify. This means leases having an initial term of twelve months or less are not recorded on the balance sheet and the related lease expense is recognized on a straight-line basis over the term of the lease. The Company's leases may include options to extend or terminate the lease. Renewal options generally range from one For the Three Months Ended For the Nine Months Ended $'s in 000's September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Finance lease cost Amortization of right-of-use assets $ 409 $ 337 $ 1,191 $ 1,038 Interest on lease liabilities 11 126 170 235 Operating lease cost 1,316 3,293 4,426 5,164 Variable lease cost (1) 530 208 783 395 Short-term lease cost 12 29 31 48 Sublease income (226) — (679) — Total lease cost $ 2,052 $ 3,993 $ 5,922 $ 6,880 (1) Variable lease cost primarily relates to percentage rent, common area maintenance, property taxes and insurance on leased real estate. Other information related to leases was as follows as of: September 30, 2020 December 31, 2019 Weighted-average remaining lease term (years) Operating leases 4.52 5.15 Finance leases 2.45 2.73 Weighted-average discount rate Operating leases 5.3% 5.3% Finance leases 5.8% 5.7% Annual future commitments under non-cancelable leases as of September 30, 2020, consist of the following: Lease Obligations $'s in 000's Operating Leases Finance Leases Remainder of 2020 $ 1,503 $ 419 2021 5,491 1,560 2022 5,182 1,394 2023 4,368 1,400 2024 2,846 332 Thereafter 3,274 20 Total minimum future obligations $ 22,664 $ 5,125 Less interest (2,608) (406) Present value of net future minimum obligations 20,056 4,719 Less current lease obligations (4,718) (1,467) Long-term lease obligations $ 15,338 $ 3,252 Supplemental cash flow information: Nine Months Ended Nine Months Ended $'s in 000's September 30, 2020 September 30, 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from finance leases $ 170 $ 235 Operating cash flows from operating leases 4,334 3,110 Financing cash flows from finance leases 1,252 1,103 (Noncash) right-of-use assets obtained in exchange for lease obligations Operating leases 3,153 4,648 Finance leases 993 535 |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2020 | |
Income Taxes | |
Income Taxes | Note 7 – Income Tax As a result of the Company’s initial public offering 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. Our effective tax rate (ETR) from continuing operations was (468.0)% and (305.1)% for the three and nine months ended September 30, 2020, respectively, and 12.9% and (16.3)% for the three and nine months ended September 30, 2019, respectively, including discrete items. Income tax expense for nine months ended September 30, 2020 and 2019 was different than the U.S federal statutory income tax rate of 21% primarily due to the effect of state taxes, foreign GILTI income inclusion, various permanent tax differences, the non-controlling interest income that is not taxable and the recognition of a valuation allowance during the three and nine months ended September 30, 2020. The Company has assessed the realizability of the net deferred tax assets as of September 30, 2020 and in that analysis has considered the relevant positive and negative evidence available to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income to realize its deferred tax assets. The Company believes it is more likely than not that the benefit from recorded deferred tax assets will not be realized. The Company has recorded a valuation allowance for deferred tax assets of $61.2 million and $0.1 million as of September 30, 2020 and December 31, 2019, respectively. In future periods, if we conclude we have future taxable income sufficient to recognize the deferred tax assets, we may reduce or eliminate the valuation allowance. HoldCo makes cash distributions to members to pay taxes attributable to their allocable share of income earned. In the three and nine months ended September 30, 2020, the Company made cash distributions of $0 and $0.05 million, respectively. In the three and nine months ended September 30, 2019, the Company made cash distributions of $0.3 million and $1.6 million, respectively. Additionally, HoldCo accrues for distributions required to be made related to estimated income taxes. During the three and nine months ended September 30, 2020, the Company relieved previously accrued distributions of $(0.8) million and $(0.4) million, respectively, and during the three and nine months ended September 30, 2019, the Company relieved previously accrued distributions by $(1.0) million and accrued $0.1 million, respectively. On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) which includes temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, and the creation of certain refundable employee retention credits. The Company will benefit from the Employee Retention Credits and the payroll tax deferral. |
Earnings per Share
Earnings per Share | 9 Months Ended |
Sep. 30, 2020 | |
Earnings per Share | |
Earnings per Share | Note 8 – Earnings per Share Basic and Diluted (Loss) Earnings per Share Basic earnings (loss) per share of Class A common stock is computed by dividing net (loss) income available to PetIQ by the weighted-average number of shares of Class A common stock outstanding during the period. Diluted (loss) earnings per share of Class A common stock is computed by dividing net (loss) income available to PetIQ by the weighted-average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. We use the ‘if-converted’ method for calculating any potential dilutive effect of the Notes on diluted earnings per share, subject to meeting the criteria for using the treasury stock method in future periods. 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 September 30, Nine months ended September 30, (in 000's, except for per share amounts) 2020 2019 2020 2019 Numerator: Net loss $ (64,529) $ (8,796) $ (69,122) $ (552) Less: net loss attributable to non-controlling interests (1,468) (2,906) (2,067) (88) Net loss attributable to PetIQ, Inc. — basic and diluted (63,061) (5,890) (67,055) (464) Denominator: Weighted-average shares of Class A common stock outstanding -- basic 24,935 22,974 24,365 22,387 Dilutive effects of stock options that are convertible into Class A common stock — — — — Dilutive effect of RSUs — — — — Dilutive effect for conversion of Notes — — — — Weighted-average shares of Class A common stock outstanding -- diluted 24,935 22,974 24,365 22,387 Loss per share of Class A common stock — basic $ (2.53) $ (0.26) $ (2.75) $ (0.02) Loss per share of Class A common stock — diluted $ (2.53) $ (0.26) $ (2.75) $ (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, 2020 and 2019, 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, respectively. Additionally, all stock options and restricted stock units and convertible Notes have not been included in the diluted earnings per share calculation for the three and nine months ended September 30, 2020 and 2019, as they have been determined to be anti-dilutive under the treasury stock method. |
Stock Based Compensation
Stock Based Compensation | 9 Months Ended |
Sep. 30, 2020 | |
Stock Based Compensation | |
Stock Based Compensation | Note 9 – Stock Based Compensation PetIQ, Inc. Omnibus Incentive Plan The PetIQ, Inc. Omnibus Incentive Plan, as amended (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 has 3,914 thousand authorized shares under the Plan. As of September 30, 2020, 1,280 thousand 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”) provided 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 thousand shares of Class A Common Stock of the Company. As of September 30, 2020, no 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 previously issued stock options under 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 The fair value of these equity awards is amortized to equity based compensation expense over the vesting period, which totaled $1.3 million and $4.9 million for the three and nine months ended September 30, 2020, respectively, and $1.4 million and $4.0 million for the three and nine months ended September 30, 2019. 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 was determined on the grant dates using the Black-Scholes valuation model based on the following weighted-average assumptions for the periods ended September 30, 2020 and 2019: September 30, 2020 September 30, 2019 Expected term (years) (1) 6.25 6.25 Expected volatility (2) 33.91 % 35.00 % Risk-free interest rate (3) 0.37 % 2.74 % 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 weighted average grant date fair value of stock options granted during the period ended September 30, 2020 was $6.70 per option. At September 30, 2020, total unrecognized compensation cost related to unvested stock options was $10.1 million and is expected to be recognized over a weighted-average period of 2.4 years. Weighted Average Weighted Aggregate Remaining Stock Average Intrinsic Contractual Options Exercise Value Life (in 000's) Price (in 000's) (years) Outstanding at December 31, 2019 2,072 $ 24.63 $ 6,266 8.0 Granted 505 20.22 Exercised (345) 23.76 Forfeited (89) 21.44 Outstanding at September 30, 2020 2,143 $ 23.86 $ 20,332 7.6 Options exercisable at September 30, 2020 752 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, 2020, total unrecognized compensation cost related to unvested RSUs was $6.9 million and is expected to vest over a weighted average 3.0 years. The fair value of these equity awards is amortized to equity based compensation expense over the vesting period, which totaled $0.5 million and $1.7 million for the three and nine months ended September 30, 2020 and $0.3 million and $0.8 million for the three and nine months ended September 30, 2019. 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, 2020. Weighted Number of Average Shares Grant Date (in 000's) Fair Value Outstanding at December 31, 2019 133 $ 28.85 Granted 271 20.73 Settled (45) 26.54 Forfeited (10) 22.27 Nonvested RSUs at September 30, 2020 349 $ 23.03 |
Stockholder's Equity
Stockholder's Equity | 9 Months Ended |
Sep. 30, 2020 | |
Stockholder's Equity | |
Stockholder's Equity | Note 10 – Stockholders’ Equity Exchanges During the nine months ended September 30, 2020 holders of Class B common stock and LLC Interests exercised exchange rights and exchanged 1,332 thousand Class B common shares and corresponding LLC Interests for newly issued Class A Common Stock. The LLC Agreement generally allows for exchanges on the last day of each calendar month. |
Non-Controlling Interests
Non-Controlling Interests | 9 Months Ended |
Sep. 30, 2020 | |
Non-Controlling Interests | |
Non-Controlling Interests | 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 LLC LLC $'s in 000's Owners PetIQ, Inc. Total Owners PetIQ, Inc. As of December 31, 2019 4,752 23,554 28,306 16.8% 83.2% Stock based compensation adjustments — 370 370 Exchange transactions (1,332) 1,332 — As of September 30, 2020 3,420 25,256 28,676 11.9% 88.1% Note that certain figures shown in the table above may not recalculate due to rounding. For the three and nine months ended September 30, 2020 the Company owned a weighted average of 87.2% and 85.7% of Holdco, respectively. |
Customer Concentration
Customer Concentration | 9 Months Ended |
Sep. 30, 2020 | |
Customer Concentration | |
Customer Concentration | Note 12 – Customer Concentration The Company has significant exposure to customer concentration. During the three and nine months ended September 30, 2020, two customers individually accounted for more than 10% of sales, comprising 42% and 42% of net sales, respectively for such periods. During the three and nine months ended September 30, 2019 one and two customers individually accounted for more than 10% of sales, together comprising 23% and 35% of net sales in both such periods. At September 30, 2020 one Products segment customer individually accounted for more than 10% of outstanding trade receivables, and accounted for 44% of outstanding trade receivables, net. At December 31, 2019 two Products segment customers individually accounted for more than 10% of outstanding trade receivables, and of outstanding trade receivables, net. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2020 | |
Commitments and Contingencies | |
Commitments and Contingencies | Note 13 – Commitments and Contingencies Litigation Contingencies On April 4, 2018, Med Vets, Inc. and Bay Medical Solutions Inc. (collectively “Plaintiffs”) filed suit in the United States District Court for the Northern District of California against PetIQ and VIP Petcare Holdings, Inc. for alleged unlawful merger and other antitrust violations. On June 29, 2020, the 9 th Circuit Court of Appeals issued an opinion affirming the dismissal of Med Vets’ merger challenge. On July 13, 2020, the Plaintiffs filed for an en banc th 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, 2020 and December 31, 2019 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
Segments | 9 Months Ended |
Sep. 30, 2020 | |
Segments | |
Segments | Note 14 – Segments The Company has two operating segments: Products and Services. The Products segment consists of the Company’s manufacturing and distribution business. The Services segment consists of the Company’s 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 (“CODM”) to make resource allocation decisions and to evaluate performance. We measure and evaluate our reportable segments based on net sales and segment Adjusted EBITDA. We exclude from our segments certain corporate costs and expenses, such as accounting, legal, human resources, information technology and corporate headquarters expenses as our corporate functions do not meet the definition of a segment as defined in the accounting guidance related to segment reporting. Financial information relating to the Company’s operating segments for the three months ended: $'s in 000's Unallocated September 30, 2020 Products Services Corporate Consolidated Net Sales $ 150,063 $ 12,020 $ — $ 162,083 Adjusted EBITDA 26,318 (223) (14,088) 12,007 Depreciation expense 1,201 937 892 3,030 Capital expenditures 5,072 2,193 122 7,387 $'s in 000's Unallocated September 30, 2019 Products Services Corporate Consolidated Net Sales $ 161,534 $ 24,491 $ — $ 186,025 Adjusted EBITDA 20,506 7,048 (8,296) 19,258 Depreciation expense 1,228 547 629 2,404 Capital expenditures $ 188 $ 2,984 $ 210 $ 3,382 Financial information relating to the Company’s operating segments for the nine months ended: $'s in 000's Unallocated September 30, 2020 Products Services Corporate Consolidated Net Sales $ 580,650 $ 35,193 $ — $ 615,843 Adjusted EBITDA 92,448 2,878 (40,555) 54,771 Depreciation expense 3,685 2,674 2,527 8,886 Capital expenditures 10,337 5,966 1,508 17,811 $'s in 000's Unallocated September 30, 2019 Products Services Corporate Consolidated Net Sales $ 482,224 $ 72,871 $ — $ 555,095 Adjusted EBITDA 56,030 18,147 (23,217) 50,960 Depreciation expense 2,134 1,591 1,862 5,587 Capital expenditures 1,462 3,290 376 5,128 The following table reconciles Segment Adjusted EBITDA to Net loss for the periods presented. For the three months ended For the nine months ended $'s in 000's September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Adjusted EBITDA: Product $ 26,318 $ 20,506 $ 92,448 $ 56,030 Services (223) 7,048 2,878 18,147 Unallocated Corporate (14,088) (8,296) (40,555) (23,217) Total Consolidated 12,007 19,258 54,771 50,960 Adjustments: Depreciation (3,030) (2,404) (8,886) (5,587) Amortization (3,821) (1,807) (8,313) (4,364) Interest (7,829) (5,742) (18,500) (9,921) Acquisition costs (1) (1,083) (1,960) (1,815) (5,425) Stock based compensation expense (2,147) (1,601) (6,549) (4,747) Integration costs and costs of discontinued clinics (2) (307) (1,166) (9,611) (2,308) SKU Rationalization (3) — (6,482) — (6,482) Fair value adjustment of contingent note (4) — (2,310) — (3,090) Purchase accounting adjustment to inventory — (2,403) — (2,403) Non same-store revenue (5) 2,884 2,583 6,119 6,254 Non same-store costs (5) (5,378) (5,394) (15,476) (12,690) Clinic launch expenses (6) (767) (672) (2,046) (672) Litigation expenses (290) — (723) — COVID-19 related costs (7) (1,600) — (6,033) — Pretax net loss $ (11,361) $ (10,100) $ (17,062) $ (475) Income tax benefit (expense) (53,168) 1,304 (52,060) (77) Net loss $ (64,529) $ (8,796) $ (69,122) $ (552) (1) Acquisition costs include legal, accounting, banking, consulting, diligence, and other out-of-pocket costs related to completed and contemplated acquisitions. (2) Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses, such as personnel costs like severance and signing bonuses, consulting work, contract termination, and IT conversion costs. These costs are primarily in the Products segment and the corporate segment for personnel costs, legal and consulting expenses, and IT costs. (3) SKU rationalization relates to the disposal of or reserve to estimated net realizable value for inventory that will either no longer be sold, or will be de-emphasized, as the Company aligns brands between Legacy PetIQ brands and brands acquired as part of the Perrigo Animal Health Acquisition. All costs are included in the Products segment gross margin. (4) Fair value adjustment on the contingent note represents the non cash adjustment to mark the 2019 Contingent Note to fair value. (5) Non same-store revenue and costs relate to our Services segment and are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. (6) Clinic launch expenses relate to our Services segment and represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business. (7) Costs related to maintaining service segment infrastructure, staffing, and overhead related clinics and wellness centers closed due to COVID-19 related health and safety initiatives. Product segment and unallocated corporate costs related to incremental wages paid to essential workers and sanitation costs due to COVID. Supplemental geographic disclosures are below. Nine months ended September 30, 2020 $'s in 000's U.S. Foreign Total Product sales $ 576,756 $ 3,894 $ 580,650 Service revenue 35,193 — 35,193 Total net sales $ 611,949 $ 3,894 $ 615,843 Nine months ended September 30, 2019 $'s in 000's U.S. Foreign Total Product sales $ 478,979 $ 3,245 $ 482,224 Service revenue 72,871 — 72,871 Total net sales $ 551,850 $ 3,245 $ 555,095 Three months ended September 30, 2020 $'s in 000's U.S. Foreign Total Product sales $ 148,424 $ 1,639 $ 150,063 Service revenue 12,020 — 12,020 Total net sales $ 160,444 $ 1,639 $ 162,083 Three months ended September 30, 2019 $'s in 000's U.S. Foreign Total Product sales $ 159,922 $ 1,612 $ 161,534 Service revenue 24,491 — 24,491 Total net sales $ 184,413 $ 1,612 $ 186,025 Property, plant, and equipment by geographic location is below. September 30, 2020 December 31, 2019 United States $ 59,116 $ 51,397 Europe 1,293 1,128 Total $ 60,409 $ 52,525 |
Related Parties
Related Parties | 9 Months Ended |
Sep. 30, 2020 | |
Related Parties | |
Related Parties | Note 15 – Related Parties As discussed in Note 7– “Income Taxes”, the Company has accrued tax distributions that are payable to Continuing LLC Owners to facilitate the Continuing LLC Owners periodic estimated tax obligations. At September 30, 2020 and December 31, 2019, the Company had paid $0.04 million in advance on required tax distributions and accrued $0.4 million, respectively, for estimated tax distributions, which are included in accounts payable on the consolidated balance sheets. As discussed in Note 5– “Debt,” the Company has notes payable to the sellers of VIP, who are significant shareholders of the Company, of $27.5 million in aggregate as of September 30, 2020 and December 31, 2019. The Company had $0.5 million in accrued interest on these notes as of September 30, 2020 and no accrued interest on these notes as of December 31, 2019. The Company paid $0.5 million in the three months ended September 30, 2020 and paid $1.2 million of interest in the nine months ended September 30, 2020. The Company paid no interest in the three months ended September 30, 2019, but paid $0.7 million in the nine months ended September 30, 2019. The Company leases office and warehouse space from a company under common control of the sellers of VIP, commencing on January 17, 2018. The Company incurred rent expenses of $0.1 million and $0.3 million in the three and nine months ended September 30, 2020 and $0.1 million and $0.3 million in the three and nine months ended September 30, 2019, 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 $0.7 million and $1.0 million for the three and nine months ended September 30, 2020 and $0.6 million and $0.7 million for the three and nine months ended September 30, 2019. Mr. Chris Christensen was paid a commission of approximately $32 thousand and $50 thousand for the three and nine months ended September 30, 2020, respectively, and $28 thousand and $35 thousand for the three and nine months ended September 30, 2019, respectively, for the sale of such insurance policies to the Company. In April 2020, the Company purchased a parcel of land for $2.5 million. The broker for the Company was Colliers International, and the agent was Mike Christensen, the brother of CEO McCord Christensen. Total commission paid to Colliers was approximately |
Principal Business Activity a_2
Principal Business Activity and Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2020 | |
Principal Business Activity and Significant Accounting Policies | |
Use of Estimates | 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, the valuation of inventories, liability and equity allocation of convertible notes, and reserves for legal contingencies. |
Fair Value of Financial Instruments | 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 Notes Payable – VIP Acquisition are carried at cost, which approximates fair value. 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. A portion of the purchase price for the acquisition of VIP, (the “VIP Acquisition”) was structured in the form of Contingent Notes (the “Contingent Notes”) that vested based on the combined Company EBITDA targets for the years ending December 31, 2018 and 2019. The combined Company EBITDA targets were met for each year end, and as such the Contingent Notes were earned. As such, the portion of the liability as it relates to each Contingent Note became fixed as of December 31, 2019 and 2018, and are carried at cost, which approximates fair value as the stated interest rate is consistent with current market rates. See Note 2 – “Business Combinations and Asset Acquisitions” for more information regarding the VIP Acquisition. The Contingent Notes are included in long-term debt in the accompanying condensed consolidated balance sheets. The Contingent Notes began bearing interest at a fixed rate of 6.75% once they were earned, with the balance payable in July of 2023. The following table summarizes the Level 3 activity related to the Contingent Notes for the nine months ended September 30, 2019: $'s in 000's Balance at beginning of the period $ 2,680 Change in fair value of contingent consideration 3,090 Balance at the end of the period $ 5,770 |
Cash and Cash Equivalents | 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. All credit card, debit card and electronic transfer transactions that process in less than seven days are classified as cash and cash equivalents. 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 | 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 credit losses equal to expected losses. The Company’s estimate is based on historical collection experience, a review of the current status of trade accounts receivable, and known current economic conditions including the current and expected impact of COVID-19. 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. Accounts receivable consists of the following as of: $'s in 000's September 30, 2020 December 31, 2019 Trade receivables $ 95,321 $ 67,551 Other receivables 6,068 4,257 101,389 71,808 Less: Allowance for credit losses (563) (431) Total accounts receivable, net $ 100,826 $ 71,377 |
Inventories | Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined on the first-in first-out (“FIFO”) method and includes estimated rebate amounts. 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, 2020 December 31, 2019 Raw materials $ 14,088 $ 10,675 Work in progress 1,476 1,717 Finished goods 68,316 67,311 Total inventories $ 83,880 $ 79,703 |
Property, Plant, and Equipment | 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 calculated using the straight-line method, based on estimated useful lives of the assets, except for leasehold improvements and finance 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 2 - 15 years Leasehold improvements 2 - 15 years Furniture and fixtures 5 - 10 years |
Convertible debt transactions | Convertible Debt We separately account for the liability and equity components of convertible debt instruments that can be settled in cash by allocating the proceeds from issuance between the liability component and the embedded conversion option in accordance with accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The value of the equity component is calculated by first measuring the fair value of the liability component, using the interest rate of a similar liability that does not have a conversion feature, as of the issuance date. The difference between the proceeds from the convertible debt issuance and the amount measured as the liability component is recorded as the equity component with a corresponding discount recorded on the debt. We recognize amortization of the resulting discount using the effective interest method as interest expense in our consolidated statements of operations. The equity component is not remeasured as long as it continues to meet the conditions for equity classification. On May 19 th million aggregate principal amount of Convertible Notes due 2026 (the “Notes”). See Note 5 – “Debt”. We have allocated issuance costs to the liability and equity components. Issuance costs attributable to the liability component are being amortized to expense over the respective term of the Notes, and issuance costs attributable to the equity component were netted with the respective equity component in additional paid-in capital. Simultaneously, with the issuance of the Notes, we bought capped call options from certain financial institutions to minimize the impact of potential dilution of our Class A common stock upon conversion of the Notes. The premium for the capped call options was recorded as additional paid-in capital in our condensed consolidated balance sheets as the options are settleable in our Class A common stock. |
Revenue Recognition | Revenue Recognition 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 generally 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. The Company determined that certain products manufactured to a customer’s specifications do not have an alternative future use at a reasonable profit margin due to costs associated with reworking, transporting and repackaging these products. These products are produced subject to purchase orders that include an enforceable right to payment. Therefore the Company determined that revenue on these products would be recognized over time, as the products are produced. This represents a minor subset of the products the Company manufactures. Revenue is recognized for services at the time 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. Incentives in the form of cash paid to the customer (or a reduction of a customer cash payment to us) typically are recognized as a reduction of sales unless the incentive is for a distinct benefit that we receive from the customer (e.g., advertising or marketing). 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, 2020. 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 accounts payable or other current assets in the Condensed Consolidated Balance Sheets. 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, 2020 and December 31, 2019 are immaterial. The Company does not have significant deferred revenue or unbilled receivable balances. |
Cost of Services | 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 Research and development and advertising costs are expensed as incurred and are included in general and administrative expenses. Research and development costs amounted to $0.6 million and $0.2 million for three months ended September 30, 2020 and 2019, respectively, and $2.5 million and $0.4 million for the nine months ended September 30, 2020 and 2019, respectively. Advertising costs were $5.8 million and $1.8 million for the three months ended September 30, 2020 and 2019, respectively, and $8.3 million and $3.5 million for the nine months ended September 30, 2020 and 2019, respectively. |
Collaboration Agreements | Collaboration Agreements On July 8, 2019, the Company, through Opco, completed the acquisition of all the outstanding stock of Sergeant’s Pet Care Products, Inc. (“Sergeant’s”), d/b/a Perrigo Animal Health, including any assets related to Perrigo Company plc’s animal health business (the “Perrigo Animal Health Acquisition”) There can be no assurance that these products will be approved by the U.S. Food and Drug Administration (“FDA”) on the anticipated schedule or at all. Consideration paid after FDA approval will be capitalized and amortized to cost of goods sold over the economic life of each product. The expenses paid prior to FDA approval will be included in General and Administrative expenses on the Consolidated Statements of Operations. No costs were incurred during the nine months ended September 30, 2020 or 2019. |
Income taxes | 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. Based on the available objective evidence during the three and nine months ended September 30, 2020, the Company believes it is more likely than not that the tax benefits from our deferred tax assets, including net operating loss carry-forwards and other tax credits, may not be realized. Accordingly, the Company recorded a full valuation allowance against the tax benefits. We expect to maintain this full valuation allowance until sufficient positive evidence exists to support a reversal of, or decrease in, the valuation allowance. |
Non-controlling interest | Non-controlling interest The non-controlling interests on the condensed consolidated statements of operations represents the portion of earnings or loss attributable to the economic interest in the Company’s subsidiary, Holdco, held by the non-controlling holders of Class B common stock and limited liability company interests in Holdco. Non-controlling interests on the condensed consolidated balance sheet represents the portion of net assets of the Company attributable to the non-controlling holders of Class B common stock and limited liability company interests in Holdco, based on the portion of the LLC Interests owned by holders of Class B common stock and limited liability company interests in Holdco. As of September 30, 2020 and December 31, 2019 the non-controlling interest was approximately 11.9% and 16.8%, respectively of ownership of LLC Interests. |
Litigation | 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. If the assessment indicates a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed. The Company consults with both internal and external legal counsel related to litigation. |
Adopted Accounting Standard Updates | Adopted Accounting Standard Updates Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, "Financial Instruments - Credit Losses." This ASU requires an organization to measure all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable information. Organizations will now use forward-looking information to better estimate their credit losses. The Company adopted this ASU using a modified retrospective approach. Under this method of adoption, the Company determined that there was no cumulative-effect adjustment to beginning Retained earnings on the condensed consolidated balance sheet. Adoption of this standard did not impact the Company’s income before income taxes and had no impact on the condensed consolidated statement of cash flows. |
Principal Business Activity a_3
Principal Business Activity and Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Principal Business Activity and Significant Accounting Policies | |
Summary of Level 3 activity related to the contingent consideration | $'s in 000's Balance at beginning of the period $ 2,680 Change in fair value of contingent consideration 3,090 Balance at the end of the period $ 5,770 |
Schedule of accounts receivable | $'s in 000's September 30, 2020 December 31, 2019 Trade receivables $ 95,321 $ 67,551 Other receivables 6,068 4,257 101,389 71,808 Less: Allowance for credit losses (563) (431) Total accounts receivable, net $ 100,826 $ 71,377 |
Schedule of components of inventories | $'s in 000's September 30, 2020 December 31, 2019 Raw materials $ 14,088 $ 10,675 Work in progress 1,476 1,717 Finished goods 68,316 67,311 Total inventories $ 83,880 $ 79,703 |
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 2 - 15 years Leasehold improvements 2 - 15 years Furniture and fixtures 5 - 10 years |
Business Combination (Tables)
Business Combination (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Capstar Acquisition | |
Schedule of fair value of purchased assets | $'s in 000's Fair Value Amortizable intangibles Customer relationships $ 70,901 Patents and processes 9,895 Total amortizable intangibles 80,796 Non-amortizable intangibles Trademarks and other 15,276 Total purchased intangible assets $ 96,072 |
Perrigo Animal Health Acquisition | |
Summary of preliminary estimated fair value of the consideration | $'s in 000's Fair Value Inventories $ 17,998 Property, plant and equipment 19,568 Other current assets 13,048 Other assets 9,680 Indefinite-lived intangible assets 23,040 Definite-lived intangible assets - 13 year weighted average life 14,480 Goodwill 105,838 Total assets 203,652 Liabilities assumed 19,259 Purchase price $ 184,393 Cash paid, net of cash acquired $ (185,090) Post-closing working capital adjustment 697 Fair value of total consideration transferred $ (184,393) |
Property, Plant, and Equipment
Property, Plant, and Equipment (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Property, Plant, and Equipment | |
Property, Plant, and Equipment | $'s in 000's September 30, 2020 December 31, 2019 Leasehold improvements $ 18,166 $ 15,517 Equipment 25,247 23,138 Vehicles and accessories 6,768 6,007 Computer equipment and software 10,496 8,070 Buildings 10,114 10,050 Furniture and fixtures 2,426 1,836 Land 7,067 4,557 Construction in progress 8,755 3,392 89,039 72,567 Less accumulated depreciation (28,630) (20,042) Total property, plant, and equipment $ 60,409 $ 52,525 |
Intangible Assets and Goodwill
Intangible Assets and Goodwill (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Intangible Assets and Goodwill | |
Schedule of intangible assets | $'s in 000's Useful Lives September 30, 2020 December 31, 2019 Amortizable intangibles Certification 7 years $ 350 $ 350 Customer relationships 12 - 20 years 160,111 89,232 Patents and processes 5 - 10 years 14,791 4,928 Brand names 5 - 15 years 24,688 15,019 Total amortizable intangibles 199,940 109,529 Less accumulated amortization (21,333) (13,058) Total net amortizable intangibles 178,607 96,471 Non-amortizable intangibles Trademarks and other 33,291 18,016 In-process research and development 5,469 5,469 Intangible assets, net of accumulated amortization $ 217,367 $ 119,956 |
Estimated future amortization expense | Years ending December 31, ($'s in 000's) Remainder of 2020 $ 4,552 2021 18,838 2022 18,627 2023 17,873 2024 15,496 Thereafter 103,221 |
Schedule of Goodwill | Reporting Unit ($'s in 000's) Products Services Total Goodwill as of January 1, 2019 77,765 47,264 125,029 Foreign currency translation 178 — 178 Acquisitions 105,838 — 105,838 Goodwill as of December 31, 2019 183,781 47,264 231,045 Foreign currency translation (173) — (173) Goodwill as of September 30, 2020 $ 183,608 $ 47,264 $ 230,872 |
Debt (Tables)
Debt (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Schedule of components of long term debt | $'s in 000's September 30, 2020 December 31, 2019 Convertible Notes $ 143,750 $ — Term loans 217,800 220,000 Revolving credit facility 15,000 10,000 Notes Payable - VIP Acquisition 27,500 27,500 Other Debt 16,974 1,812 Net discount on debt and deferred financing fees (59,279) (5,688) $ 361,745 $ 253,624 Less current maturities of long-term debt (6,250) (2,248) Total long-term debt $ 355,495 $ 251,376 |
Summary of debt interest expense | For the Three Months Ended For the Nine Months Ended September 30, 2020 September 30, 2020 ($'s in 000's) Contractual interest expense $ 1,438 $ 2,108 Amortization of debt issuance costs 1,510 2,199 Amortization of debt discount 105 153 Total $ 3,053 $ 4,460 Effective interest rate of the liability component 13.0% 13.0% |
Future maturities of long-term debt, excluding the net discount on debt, deferred financing fees and contingent notes | ($'s in 000's) Remainder of 2020 $ 1,562 2021 6,250 2022 6,252 2023 33,755 2024 6,257 Thereafter 366,948 |
Convertible Notes | |
Convertible notes summary | ($'s in 000's) September 30, 2020 Par value of the Notes $ 143,750 Unamortized debt discount (51,085) Unamortized debt issuance costs (3,550) Net carrying amount $ 89,115 |
Schedule of net carrying amount of the equity component of notes | ($'s in 000's) September 30, 2020 Proceeds allocated to the conversion option $ 53,285 Deferred tax affect (8,134) Issuance costs (2,181) Net carrying amount $ 42,970 |
Schedule of amortization expense debt discount and debt issuance costs | ($'s in 000's) Debt Discounts Debt Issuance Costs Remainder of 2020 $ 1,559 $ 108 2021 6,761 460 2022 7,684 522 2023 8,733 594 2024 9,925 675 Thereafter 16,423 1,191 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Leases | |
Schedule of components of lease expense | For the Three Months Ended For the Nine Months Ended $'s in 000's September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Finance lease cost Amortization of right-of-use assets $ 409 $ 337 $ 1,191 $ 1,038 Interest on lease liabilities 11 126 170 235 Operating lease cost 1,316 3,293 4,426 5,164 Variable lease cost (1) 530 208 783 395 Short-term lease cost 12 29 31 48 Sublease income (226) — (679) — Total lease cost $ 2,052 $ 3,993 $ 5,922 $ 6,880 |
Schedule of other information related to leases | September 30, 2020 December 31, 2019 Weighted-average remaining lease term (years) Operating leases 4.52 5.15 Finance leases 2.45 2.73 Weighted-average discount rate Operating leases 5.3% 5.3% Finance leases 5.8% 5.7% |
Summary of annual future commitments under non-cancelable leases | Lease Obligations $'s in 000's Operating Leases Finance Leases Remainder of 2020 $ 1,503 $ 419 2021 5,491 1,560 2022 5,182 1,394 2023 4,368 1,400 2024 2,846 332 Thereafter 3,274 20 Total minimum future obligations $ 22,664 $ 5,125 Less interest (2,608) (406) Present value of net future minimum obligations 20,056 4,719 Less current lease obligations (4,718) (1,467) Long-term lease obligations $ 15,338 $ 3,252 |
Supplemental cash flow information | Nine Months Ended Nine Months Ended $'s in 000's September 30, 2020 September 30, 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from finance leases $ 170 $ 235 Operating cash flows from operating leases 4,334 3,110 Financing cash flows from finance leases 1,252 1,103 (Noncash) right-of-use assets obtained in exchange for lease obligations Operating leases 3,153 4,648 Finance leases 993 535 |
Earnings per Share (Tables)
Earnings per Share (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Earnings per Share | |
Reconciliations of the numerators and denominators used to compute basic and diluted earnings (loss) per share of Class A common stock | Three months ended September 30, Nine months ended September 30, (in 000's, except for per share amounts) 2020 2019 2020 2019 Numerator: Net loss $ (64,529) $ (8,796) $ (69,122) $ (552) Less: net loss attributable to non-controlling interests (1,468) (2,906) (2,067) (88) Net loss attributable to PetIQ, Inc. — basic and diluted (63,061) (5,890) (67,055) (464) Denominator: Weighted-average shares of Class A common stock outstanding -- basic 24,935 22,974 24,365 22,387 Dilutive effects of stock options that are convertible into Class A common stock — — — — Dilutive effect of RSUs — — — — Dilutive effect for conversion of Notes — — — — Weighted-average shares of Class A common stock outstanding -- diluted 24,935 22,974 24,365 22,387 Loss per share of Class A common stock — basic $ (2.53) $ (0.26) $ (2.75) $ (0.02) Loss per share of Class A common stock — diluted $ (2.53) $ (0.26) $ (2.75) $ (0.02) |
Stock Based Compensation (Table
Stock Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
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 | September 30, 2020 September 30, 2019 Expected term (years) (1) 6.25 6.25 Expected volatility (2) 33.91 % 35.00 % Risk-free interest rate (3) 0.37 % 2.74 % 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. |
Summary of the activity of the Company's unvested stock options | Weighted Average Weighted Aggregate Remaining Stock Average Intrinsic Contractual Options Exercise Value Life (in 000's) Price (in 000's) (years) Outstanding at December 31, 2019 2,072 $ 24.63 $ 6,266 8.0 Granted 505 20.22 Exercised (345) 23.76 Forfeited (89) 21.44 Outstanding at September 30, 2020 2,143 $ 23.86 $ 20,332 7.6 Options exercisable at September 30, 2020 752 |
Summary of RSU activity | Weighted Number of Average Shares Grant Date (in 000's) Fair Value Outstanding at December 31, 2019 133 $ 28.85 Granted 271 20.73 Settled (45) 26.54 Forfeited (10) 22.27 Nonvested RSUs at September 30, 2020 349 $ 23.03 |
Non-Controlling Interests (Tabl
Non-Controlling Interests (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
Non-Controlling Interests | |
Summary of noncontrolling interest | LLC Interests held % of Total LLC LLC $'s in 000's Owners PetIQ, Inc. Total Owners PetIQ, Inc. As of December 31, 2019 4,752 23,554 28,306 16.8% 83.2% Stock based compensation adjustments — 370 370 Exchange transactions (1,332) 1,332 — As of September 30, 2020 3,420 25,256 28,676 11.9% 88.1% |
Segments (Tables)
Segments (Tables) | 9 Months Ended |
Sep. 30, 2020 | |
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 Unallocated September 30, 2020 Products Services Corporate Consolidated Net Sales $ 150,063 $ 12,020 $ — $ 162,083 Adjusted EBITDA 26,318 (223) (14,088) 12,007 Depreciation expense 1,201 937 892 3,030 Capital expenditures 5,072 2,193 122 7,387 $'s in 000's Unallocated September 30, 2019 Products Services Corporate Consolidated Net Sales $ 161,534 $ 24,491 $ — $ 186,025 Adjusted EBITDA 20,506 7,048 (8,296) 19,258 Depreciation expense 1,228 547 629 2,404 Capital expenditures $ 188 $ 2,984 $ 210 $ 3,382 Financial information relating to the Company’s operating segments for the nine months ended: $'s in 000's Unallocated September 30, 2020 Products Services Corporate Consolidated Net Sales $ 580,650 $ 35,193 $ — $ 615,843 Adjusted EBITDA 92,448 2,878 (40,555) 54,771 Depreciation expense 3,685 2,674 2,527 8,886 Capital expenditures 10,337 5,966 1,508 17,811 $'s in 000's Unallocated September 30, 2019 Products Services Corporate Consolidated Net Sales $ 482,224 $ 72,871 $ — $ 555,095 Adjusted EBITDA 56,030 18,147 (23,217) 50,960 Depreciation expense 2,134 1,591 1,862 5,587 Capital expenditures 1,462 3,290 376 5,128 |
Summary of reconciles segment adjusted ebitda to pretax net income | For the three months ended For the nine months ended $'s in 000's September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Adjusted EBITDA: Product $ 26,318 $ 20,506 $ 92,448 $ 56,030 Services (223) 7,048 2,878 18,147 Unallocated Corporate (14,088) (8,296) (40,555) (23,217) Total Consolidated 12,007 19,258 54,771 50,960 Adjustments: Depreciation (3,030) (2,404) (8,886) (5,587) Amortization (3,821) (1,807) (8,313) (4,364) Interest (7,829) (5,742) (18,500) (9,921) Acquisition costs (1) (1,083) (1,960) (1,815) (5,425) Stock based compensation expense (2,147) (1,601) (6,549) (4,747) Integration costs and costs of discontinued clinics (2) (307) (1,166) (9,611) (2,308) SKU Rationalization (3) — (6,482) — (6,482) Fair value adjustment of contingent note (4) — (2,310) — (3,090) Purchase accounting adjustment to inventory — (2,403) — (2,403) Non same-store revenue (5) 2,884 2,583 6,119 6,254 Non same-store costs (5) (5,378) (5,394) (15,476) (12,690) Clinic launch expenses (6) (767) (672) (2,046) (672) Litigation expenses (290) — (723) — COVID-19 related costs (7) (1,600) — (6,033) — Pretax net loss $ (11,361) $ (10,100) $ (17,062) $ (475) Income tax benefit (expense) (53,168) 1,304 (52,060) (77) Net loss $ (64,529) $ (8,796) $ (69,122) $ (552) (1) Acquisition costs include legal, accounting, banking, consulting, diligence, and other out-of-pocket costs related to completed and contemplated acquisitions. (2) Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses, such as personnel costs like severance and signing bonuses, consulting work, contract termination, and IT conversion costs. These costs are primarily in the Products segment and the corporate segment for personnel costs, legal and consulting expenses, and IT costs. (3) SKU rationalization relates to the disposal of or reserve to estimated net realizable value for inventory that will either no longer be sold, or will be de-emphasized, as the Company aligns brands between Legacy PetIQ brands and brands acquired as part of the Perrigo Animal Health Acquisition. All costs are included in the Products segment gross margin. (4) Fair value adjustment on the contingent note represents the non cash adjustment to mark the 2019 Contingent Note to fair value. (5) Non same-store revenue and costs relate to our Services segment and are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. (6) Clinic launch expenses relate to our Services segment and represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business. (7) Costs related to maintaining service segment infrastructure, staffing, and overhead related clinics and wellness centers closed due to COVID-19 related health and safety initiatives. Product segment and unallocated corporate costs related to incremental wages paid to essential workers and sanitation costs due to COVID. |
Summary of net book value of property plant and equipment, net by location | Nine months ended September 30, 2020 $'s in 000's U.S. Foreign Total Product sales $ 576,756 $ 3,894 $ 580,650 Service revenue 35,193 — 35,193 Total net sales $ 611,949 $ 3,894 $ 615,843 Nine months ended September 30, 2019 $'s in 000's U.S. Foreign Total Product sales $ 478,979 $ 3,245 $ 482,224 Service revenue 72,871 — 72,871 Total net sales $ 551,850 $ 3,245 $ 555,095 Three months ended September 30, 2020 $'s in 000's U.S. Foreign Total Product sales $ 148,424 $ 1,639 $ 150,063 Service revenue 12,020 — 12,020 Total net sales $ 160,444 $ 1,639 $ 162,083 Three months ended September 30, 2019 $'s in 000's U.S. Foreign Total Product sales $ 159,922 $ 1,612 $ 161,534 Service revenue 24,491 — 24,491 Total net sales $ 184,413 $ 1,612 $ 186,025 Property, plant, and equipment by geographic location is below. September 30, 2020 December 31, 2019 United States $ 59,116 $ 51,397 Europe 1,293 1,128 Total $ 60,409 $ 52,525 |
Principal Business Activity a_4
Principal Business Activity and Significant Accounting Policies - (Details) | 9 Months Ended |
Sep. 30, 2020itemsegmentlocationstate | |
Principal Business Activity and Significant Accounting Policies | |
Number of points of distribution | item | 60,000 |
Number of retail pharmacy locations | location | 3,400 |
Number of states in which the entity provides veterinary services to pet owners | state | 41 |
Number of reportable segments | segment | 2 |
Principal Business Activity a_5
Principal Business Activity and Significant Accounting Policies - Fair value on a recurring basis (Details) | Sep. 30, 2020 | Jul. 31, 2017 |
Fair Value of Financial Instruments | ||
Fixed interest rate | 4.35% | |
Contingent notes | ||
Fair Value of Financial Instruments | ||
Fixed interest rate | 6.75% |
Principal Business Activity a_6
Principal Business Activity and Significant Accounting Policies - Fair value on a contingent consideration (Details) - VIP - Level 3 $ in Thousands | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Business Acquisition, Contingent Consideration [Line Items] | |
Balance at beginning of the period | $ 2,680 |
Change in fair value of contingent consideration | 3,090 |
Balance at the end of the period | $ 5,770 |
Principal Business Activity a_7
Principal Business Activity and Significant Accounting Policies - Receivables and Credit Policy (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Receivables and Credit Policy | ||
Accounts receivable, gross | $ 101,389 | $ 71,808 |
Less: Allowance for credit losses | (563) | (431) |
Total accounts receivable, net | 100,826 | 71,377 |
Trade receivables | ||
Receivables and Credit Policy | ||
Accounts receivable, gross | 95,321 | 67,551 |
Other receivables | ||
Receivables and Credit Policy | ||
Accounts receivable, gross | $ 6,068 | $ 4,257 |
Principal Business Activity a_8
Principal Business Activity and Significant Accounting Policies - Inventories (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Inventories | ||
Raw materials | $ 14,088 | $ 10,675 |
Work in progress | 1,476 | 1,717 |
Finished goods | 68,316 | 67,311 |
Total inventories | $ 83,880 | $ 79,703 |
Principal Business Activity a_9
Principal Business Activity and Significant Accounting Policies - PPNE (Details) | 9 Months Ended |
Sep. 30, 2020 | |
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 |
Equipment | Minimum | |
Property, Plant, and Equipment | |
Estimated useful life | 2 years |
Equipment | Maximum | |
Property, Plant, and Equipment | |
Estimated useful life | 15 years |
Leasehold improvements | Minimum | |
Property, Plant, and Equipment | |
Estimated useful life | 2 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 _10
Principal Business Activity and Significant Accounting Policies - Convertible Debt (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | May 19, 2020 |
Convertible Notes | ||
Debt Instrument [Line Items] | ||
Debt Instrument, Face Amount | $ 143,750 | $ 143,800 |
Principal Business Activity _11
Principal Business Activity and Significant Accounting Policies - Disaggregation of revenue (Details) | Sep. 30, 2020 |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2018-09-30 | |
Disaggregation of revenue | |
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Period | 1 year |
Principal Business Activity _12
Principal Business Activity and Significant Accounting Policies - Research and Development and Advertising Costs (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Research and Development and Advertising Costs | ||||
Research and development costs | $ 0.6 | $ 0.2 | $ 2.5 | $ 0.4 |
Advertising costs | $ 5.8 | $ 1.8 | $ 8.3 | $ 3.5 |
Principal Business Activity _13
Principal Business Activity and Significant Accounting Policies - Collaboration Agreements (Details) $ in Millions | Sep. 30, 2020USD ($) |
Principal Business Activity and Significant Accounting Policies | |
Collaboration agreements, contingent payments to be made | $ 20.6 |
Principal Business Activity _14
Principal Business Activity and Significant Accounting Policies - Non-controlling interest (Details) | Sep. 30, 2020 | Dec. 31, 2019 |
Continuing LLC Owners | ||
Noncontrolling Interest [Line Items] | ||
Interest held by non-controlling owners | 11.90% | 16.80% |
Business Combination - Narrativ
Business Combination - Narrative (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2020 | Dec. 31, 2019 | |
Business Combination | |||
Intangible assets, net of accumulated amortization | $ 178,607 | $ 178,607 | $ 96,471 |
Goodwill not deductible for tax purposes | 105,800 | ||
Perrigo Animal Health Acquisition | |||
Business Combination | |||
Intangible assets, net of accumulated amortization | 14,500 | 14,500 | |
Current amortization expense | $ 600 | $ 1,800 |
Business Combination - Total co
Business Combination - Total consideration (Details) - USD ($) $ in Thousands | Jul. 08, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | Dec. 31, 2018 |
Preliminary estimated fair value of the consideration | |||||
Goodwill | $ 230,872 | $ 231,045 | $ 125,029 | ||
Cash paid, net of cash acquired | $ 185,090 | ||||
Perrigo Animal Health Acquisition | |||||
Preliminary estimated fair value of the consideration | |||||
Finite-Lived Intangible Asset, Useful Life | 13 years | ||||
Perrigo Animal Health Acquisition | Estimated | |||||
Preliminary estimated fair value of the consideration | |||||
Inventories | $ 17,998 | ||||
Property, plant, and equipment | 19,568 | ||||
Other current assets | 13,048 | ||||
Other assets | 9,680 | ||||
Indefinite-lived intangible assets | 14,480 | ||||
Definite-lived intangible assets | 23,040 | ||||
Goodwill | 105,838 | ||||
Total assets | 203,652 | ||||
Liabilities assumed | 19,259 | ||||
Purchase price | 184,393 | ||||
Cash paid, net of cash acquired | (185,090) | ||||
Post-closing working capital adjustment | 697 | ||||
Fair value of total consideration transferred | $ (184,393) |
Business Combination - Capstar
Business Combination - Capstar Acquisition (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Mar. 31, 2020USD ($) | Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Jul. 31, 2020USD ($) | |
Business Acquisition [Line Items] | ||||
Acquistion Price | $ 17,811 | $ 5,128 | ||
Capstar Acquisition | ||||
Business Acquisition [Line Items] | ||||
Acquistion Price | $ 95,000 | |||
Fair value measurement input | 1,000 | |||
Weighted average amortization period | 11 years 9 months 18 days | |||
Capstar Acquisition | Discounted Cash Flow | ||||
Business Acquisition [Line Items] | ||||
Fair value measurement input | 15 | |||
Capstar Acquisition | Non-Recurring | ||||
Business Acquisition [Line Items] | ||||
Amortizable Intangibles | $ 80,796 | |||
Total purchased intangible assets | 96,072 | |||
Capstar Acquisition | Non-Recurring | Trademarks and other | ||||
Business Acquisition [Line Items] | ||||
Non-Amortizable Intangibles | 15,276 | |||
Capstar Acquisition | Non-Recurring | Customer relationships | ||||
Business Acquisition [Line Items] | ||||
Amortizable Intangibles | 70,901 | |||
Capstar Acquisition | Non-Recurring | Patents and processes | ||||
Business Acquisition [Line Items] | ||||
Amortizable Intangibles | $ 9,895 |
Business Combination - Supplier
Business Combination - Supplier Termination, Settlement and Asset Purchase Agreement (Details) - USD ($) $ in Millions | 1 Months Ended | 9 Months Ended |
Jul. 31, 2020 | Sep. 30, 2020 | |
Business Acquisition [Line Items] | ||
Amount required to pay pursuant to settlement agreement | $ 20.6 | |
Payment on signing | 2.6 | |
Payment per quarter | 1 | |
Estimated fair value of the payment obligation | 17.5 | |
Fair value of assets acquired | $ 9.7 | |
Patents and processes | ||
Business Acquisition [Line Items] | ||
Amortizable Intangibles, useful lives | 10 years |
Property, Plant, and Equipmen_2
Property, Plant, and Equipment (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | $ 89,039 | $ 89,039 | $ 72,567 | ||
Less accumulated depreciation | (28,630) | (28,630) | (20,042) | ||
Property, Plant and Equipment, Net, Total | 60,409 | 60,409 | 52,525 | ||
Depreciation and amortization expense | 3,030 | $ 2,404 | 8,886 | $ 5,587 | |
Leasehold improvements | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 18,166 | 18,166 | 15,517 | ||
Equipment | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 25,247 | 25,247 | 23,138 | ||
Vehicles and accessories | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 6,768 | 6,768 | 6,007 | ||
Computer equipment and software | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 10,496 | 10,496 | 8,070 | ||
Buildings | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 10,114 | 10,114 | 10,050 | ||
Furniture and fixtures | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 2,426 | 2,426 | 1,836 | ||
Land | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | 7,067 | 7,067 | 4,557 | ||
Construction in Progress | |||||
Property, Plant, and Equipment | |||||
Property, plant and equipment, gross | $ 8,755 | $ 8,755 | $ 3,392 |
Intangible Assets and Goodwil_2
Intangible Assets and Goodwill - Intangible Assets (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, gross | $ 199,940 | $ 199,940 | $ 109,529 | ||
Less accumulated amortization | (21,333) | (21,333) | (13,058) | ||
Total net amortizable intangibles | 178,607 | 178,607 | 96,471 | ||
Intangible assets, net of accumulated amortization | 217,367 | 217,367 | 119,956 | ||
Amortization expense | 3,800 | $ 1,800 | 8,300 | $ 4,400 | |
Trademarks and other | |||||
Intangible Assets and Goodwill | |||||
Non-amortizable intangibles | 33,291 | 33,291 | 18,016 | ||
IPRD | |||||
Intangible Assets and Goodwill | |||||
Non-amortizable intangibles | 5,469 | $ 5,469 | 5,469 | ||
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, gross | 160,111 | $ 160,111 | 89,232 | ||
Patents and processes | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 10 years | ||||
Amortizable Intangibles, gross | 14,791 | $ 14,791 | 4,928 | ||
Brand names | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, gross | $ 24,688 | $ 24,688 | $ 15,019 | ||
Minimum | Customer relationships | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 12 years | ||||
Minimum | Patents and processes | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 5 years | ||||
Minimum | Brand names | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 5 years | ||||
Maximum | Customer relationships | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 20 years | ||||
Maximum | Patents and processes | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 10 years | ||||
Maximum | Brand names | |||||
Intangible Assets and Goodwill | |||||
Amortizable Intangibles, useful lives | 15 years |
Intangible Assets and Goodwil_3
Intangible Assets and Goodwill - Estimated future amortization expense (Details) $ in Thousands | Sep. 30, 2020USD ($) |
Intangible Assets and Goodwill | |
Remainder of 2020 | $ 4,552 |
2021 | 18,838 |
2022 | 18,627 |
2023 | 17,873 |
2024 | 15,496 |
Thereafter | $ 103,221 |
Intangible Assets and Goodwil_4
Intangible Assets and Goodwill - Schedule of Goodwill (Details) - USD ($) $ in Thousands | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020 | Dec. 31, 2019 | |
Goodwill, Beginning Balance | $ 231,045 | $ 125,029 |
Foreign currency translation | (173) | 178 |
Acquisition | 105,838 | |
Goodwill, Ending Balance | 230,872 | 231,045 |
Product | ||
Goodwill, Beginning Balance | 183,781 | 77,765 |
Foreign currency translation | (173) | 178 |
Acquisition | 105,838 | |
Goodwill, Ending Balance | 183,608 | 183,781 |
Services | ||
Goodwill, Beginning Balance | 47,264 | 47,264 |
Foreign currency translation | ||
Acquisition | ||
Goodwill, Ending Balance | $ 47,264 | $ 47,264 |
Debt - Convertible Notes (Detai
Debt - Convertible Notes (Details) $ / shares in Units, $ in Thousands | May 19, 2020USD ($)item | Sep. 30, 2020USD ($)$ / shares | Dec. 31, 2019$ / shares | Jul. 31, 2017 |
Debt Instrument [Line Items] | ||||
Interest rate | 4.35% | |||
Convertible Notes | ||||
Debt Instrument [Line Items] | ||||
Aggregate principal amount | $ 143,800 | $ 143,750 | ||
Amount issued | 89,115 | |||
Interest rate | 4.00% | |||
Carrying amount of the equity component representing the conversion option | $ 42,970 | |||
Class A common stock | ||||
Debt Instrument [Line Items] | ||||
Common stock par value (in dollars per share) | $ / shares | $ 0.001 | $ 0.001 | ||
Class A common stock | Convertible Notes | Maximum | ||||
Debt Instrument [Line Items] | ||||
Aggregate principal amount | $ 143,800 | |||
Net proceeds from the debt | $ 137,900 | |||
Interest rate | 4.00% | |||
Conversion ratio | 33.7268 | |||
Denomination for conversion of debt | $ 1 | |||
Premium percentage on conversion price | 130.00% | |||
Threshold trading days | item | 20 | |||
Threshold consecutive trading days | item | 30 | |||
Discount rate (as a percent) | 13.00% | |||
Carrying amount of the equity component representing the conversion option | $ 53,300 | |||
Fair value of our convertible notes | $ 195,400 |
Debt - Convertible Notes - Summ
Debt - Convertible Notes - Summary (Details) - Convertible Notes - USD ($) $ in Thousands | Sep. 30, 2020 | May 19, 2020 |
Debt Instrument [Line Items] | ||
Par value of the Convertible Notes | $ 143,750 | $ 143,800 |
Unamortized debt discounts | (51,085) | |
Unamortized debt issuance costs | (3,550) | |
Net Carrying value of Convertible Notes | $ 89,115 |
Debt - Convertible Notes - Net
Debt - Convertible Notes - Net Carrying Amount (Details) $ in Thousands | Sep. 30, 2020USD ($) |
Debt Instrument [Line Items] | |
Deferred tax affect | $ (8,134) |
Convertible Notes | |
Debt Instrument [Line Items] | |
Proceeds allocated to the Conversion Option | 53,285 |
Less: Issuance Costs | (2,181) |
Carrying amount of the equity component | $ 42,970 |
Debt - Convertible Notes - Inte
Debt - Convertible Notes - Interest Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2020 | Jul. 31, 2020 | |
Debt | |||
Contractual interest expense | $ 1,438 | $ 2,108 | |
Amortization of Debt Issuance Costs | 1,510 | 2,199 | |
Amortization of debt discount | 105 | 153 | |
Interest Expense, Debt, Total | $ 3,053 | $ 4,460 | |
Debt Instrument, Interest Rate, Effective Percentage | 13.00% | 13.00% | 8.30% |
Debt - Capped Call Transactions
Debt - Capped Call Transactions (Details) $ / shares in Units, $ in Thousands | May 14, 2020USD ($)item | Sep. 30, 2020USD ($) | Sep. 30, 2020USD ($)$ / shares |
Debt Instrument [Line Items] | |||
Number of option counterparties | item | 2 | ||
Derivative Cap Price Per Share | $ / shares | $ 41.51 | ||
Payment for Capped Call Options | $ 14,821 | ||
Tax effect on the equity component of the Convertible Notes | $ (146) | 42,970 | |
Capped Call Transactions | |||
Debt Instrument [Line Items] | |||
Deferred tax liability | $ 8,100 | $ 8,100 | |
Class A common stock | Capped Call Transactions | |||
Debt Instrument [Line Items] | |||
Payment for Capped Call Options | $ 14,800 | ||
Tax effect on the equity component of the Convertible Notes | $ 8,100 |
Debt - A&R (Details)
Debt - A&R (Details) - USD ($) $ in Thousands | May 14, 2020 | Jul. 08, 2019 | Jul. 31, 2020 | May 31, 2020 | Jul. 31, 2017 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 |
Debt | ||||||||||
Purchase price of a commercial building | $ 1,900 | |||||||||
Fixed interest rate | 4.35% | |||||||||
Amortization schedule | 25 years | |||||||||
Amount required to pay pursuant to settlement agreement | $ 20,600 | |||||||||
Payment on signing | 2,600 | |||||||||
Payment per quarter | $ 1,000 | |||||||||
Market interest rate | 8.30% | 13.00% | 13.00% | |||||||
Estimated fair value of the payment obligation | $ 17,500 | |||||||||
Balloon payment | 10 years | |||||||||
Other Debt | $ 16,974 | $ 16,974 | $ 1,812 | |||||||
Net discount on debt and deferred financing fees | 59,279 | 59,279 | 5,688 | |||||||
Long-term Debt, Total | 361,745 | 361,745 | 253,624 | |||||||
Less current maturities of long-term debt | (6,250) | (6,250) | (2,248) | |||||||
Long-term debt, less current installments | 355,495 | 355,495 | 251,376 | |||||||
Future maturities of long-term debt | ||||||||||
Remainder of 2020 | 1,562 | 1,562 | ||||||||
2021 | 6,250 | 6,250 | ||||||||
2022 | 6,252 | 6,252 | ||||||||
2023 | 33,755 | 33,755 | ||||||||
2024 | 6,257 | 6,257 | ||||||||
Thereafter | 366,948 | 366,948 | ||||||||
Debt issuance costs | $ 5,900 | 550 | $ 5,362 | |||||||
Debt Issuance Costs Recorded To Additional Paid In Capital | 2,200 | |||||||||
Net Debt Issuance Costs Net Carrying Value | $ 3,700 | |||||||||
Convertible Notes [Member] | ||||||||||
Debt | ||||||||||
Outstanding balance | 143,750 | 143,750 | ||||||||
Revolving credit facility | ||||||||||
Debt | ||||||||||
Maximum borrowing capacity | $ 125,000 | |||||||||
Outstanding balance | 15,000 | 15,000 | 10,000 | |||||||
Revolving credit facility | Minimum | ||||||||||
Debt | ||||||||||
Unused facility fee (as a percent) | 0.375% | |||||||||
Revolving credit facility | Maximum | ||||||||||
Debt | ||||||||||
Unused facility fee (as a percent) | 0.50% | |||||||||
Term loans | ||||||||||
Debt | ||||||||||
Outstanding balance | 217,800 | 217,800 | 220,000 | |||||||
Future maturities of long-term debt | ||||||||||
Debt issuance costs | $ 4,700 | 4,700 | ||||||||
A&R Term Loan Credit Agreement | ||||||||||
Debt | ||||||||||
Maximum borrowing capacity | $ 220,000 | |||||||||
Variable interest rate, basis points spread over variable reference rate (as a percent) | 4.50% | |||||||||
Future maturities of long-term debt | ||||||||||
Debt issuance costs | 300 | $ 700 | 600 | $ 700 | ||||||
A&R Term Loan Credit Agreement | Euro dollar | ||||||||||
Debt | ||||||||||
Unused facility fee (as a percent) | 1.00% | |||||||||
Earned Contingent Note | ||||||||||
Debt | ||||||||||
Contingent notes | $ 27,500 | $ 27,500 | ||||||||
Fixed interest rate | 6.75% | 6.75% | ||||||||
Long-term Debt, Total | $ 27,500 | $ 27,500 | $ 27,500 | |||||||
Amended Credit Agreement | ||||||||||
Debt | ||||||||||
Outstanding balance | $ 15,000 | $ 15,000 | ||||||||
Weighted average interest rate | 2.30% | 2.30% |
Debt - Amortization (Details)
Debt - Amortization (Details) - Convertible Notes $ in Thousands | Sep. 30, 2020USD ($) |
Debt Discounts | |
Remainder of 2020 | $ 1,559 |
2021 | 6,761 |
2022 | 7,684 |
2023 | 8,733 |
2024 | 9,925 |
Thereafter | 16,423 |
Debt issuance costs | |
Remainder of 2020 | 108 |
2021 | 460 |
2022 | 522 |
2023 | 594 |
2024 | 675 |
Thereafter | $ 1,191 |
Leases - Narrative (Details)
Leases - Narrative (Details) | Sep. 30, 2020 |
Maximum | |
Lessee, Lease, Description [Line Items] | |
Renewal options term | 10 years |
Minimum | |
Lessee, Lease, Description [Line Items] | |
Renewal options term | 1 year |
Leases - Components of lease ex
Leases - Components of lease expense and other information (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Lease cost | |||||
Amortization of right-of-use assets | $ 409 | $ 337 | $ 1,191 | $ 1,038 | |
Interest on lease liabilities | 11 | 126 | 170 | 235 | |
Operating lease cost | 1,316 | 3,293 | 4,426 | 5,164 | |
Variable lease cost | 530 | 208 | 783 | 395 | |
Short-term lease cost | 12 | 29 | 31 | 48 | |
Sublease income | (226) | (679) | |||
Total lease cost | $ 2,052 | $ 3,993 | $ 5,922 | $ 6,880 | |
Weighted-average remaining lease term (years), Operating leases | 4 years 6 months 7 days | 5 years 1 month 24 days | 4 years 6 months 7 days | 5 years 1 month 24 days | |
Weighted-average remaining lease term (years), Finance leases | 2 years 5 months 12 days | 2 years 8 months 23 days | 2 years 5 months 12 days | 2 years 8 months 23 days | |
Weighted-average discount rate, Operating leases | 5.30% | 5.30% | 5.30% | ||
Weighted-average discount rate, Finance leases | 5.80% | 5.80% | 5.70% |
Leases - Annual future commitme
Leases - Annual future commitments under non-cancelable leases (Details) - USD ($) $ in Thousands | Sep. 30, 2020 | Dec. 31, 2019 |
Lease Obligations, Operating Leases | ||
Remainder of 2020 | $ 1,503 | |
2021 | 5,491 | |
2022 | 5,182 | |
2023 | 4,368 | |
2024 | 2,846 | |
Thereafter | 3,274 | |
Total minimum future obligations | 22,664 | |
Less interest | (2,608) | |
Present value of net future minimum obligations | 20,056 | |
Less current lease obligations | (4,718) | $ (4,619) |
Long-term lease obligations | 15,338 | 16,580 |
Lease Obligations, Finance Leases | ||
Remainder of 2020 | 419 | |
2021 | 1,560 | |
2022 | 1,394 | |
2023 | 1,400 | |
2024 | 332 | |
Thereafter | 20 | |
Total minimum future obligations | 5,125 | |
Less interest | (406) | |
Present value of net future minimum obligations | 4,719 | |
Less current lease obligations | (1,467) | |
Long-term lease obligations | $ 3,252 | $ 3,331 |
Leases - Supplemental Cash Flow
Leases - Supplemental Cash Flow (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Leases | ||
Operating cash flows from finance leases | $ 170 | $ 235 |
Operating cash flows from operating leases | 4,334 | 3,110 |
Financing cash flows from finance leases | 1,252 | 1,103 |
Operating leases | 3,153 | 4,648 |
Finance leases | $ (993) | $ (535) |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Income tax expense (benefit) | (468.00%) | 12.90% | (305.10%) | (16.30%) | |
Income tax expense (benefit) at federal statutory rate | 21.00% | 21.00% | |||
Deferred Tax Assets, Valuation Allowance | $ 61,200 | $ 61,200 | $ 100 | ||
HoldCo | |||||
Cash distributions | 0 | $ 300 | 50 | $ 1,600 | |
Accrued estimated income tax | $ (800) | $ (1,000) | $ (400) | $ 100 |
Earnings per Share (Details)
Earnings per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Numerator: | ||||
Net loss | $ (64,529) | $ (8,796) | $ (69,122) | $ (552) |
Less: net loss attributable to non-controlling interests | (1,468) | (2,906) | (2,067) | (88) |
Net loss attributable to PetIQ, Inc | $ (63,061) | $ (5,890) | $ (67,055) | $ (464) |
Denominator: | ||||
Basic weighted average shares (in shares) | 24,935 | 22,974 | 24,365 | 22,387 |
Weighted-average shares of Class A common stock outstanding - diluted (in shares) | 24,935 | 22,974 | 24,365 | 22,387 |
Basic Loss per share per common share | $ (2.53) | $ (0.26) | $ (2.75) | $ (0.02) |
Diluted Loss per common share | $ (2.53) | $ (0.26) | $ (2.75) | $ (0.02) |
Stock Based Compensation (Detai
Stock Based Compensation (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Stock Based Compensation | ||||
Shares reserved for future issuance | 0 | 0 | ||
Stock Options Granted (in shares) | 505 | |||
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 | $ 1.3 | $ 1.4 | $ 4.9 | $ 4 |
Grant date fair value of stock options granted | $ 6.70 | |||
Unrecognized compensation cost related to unvested stock options | $ 10.1 | $ 10.1 | ||
Unrecognized compensation cost related to unvested options, recognized weighted-average period | 2 years 4 months 24 days | |||
Class A common stock | ||||
Stock Based Compensation | ||||
Number of shares reserved | 800 | 800 | ||
Class A common stock | Omnibus Plan | ||||
Stock Based Compensation | ||||
Shares reserved for future issuance | 3,914 | 3,914 | ||
Share available for issuance | 1,280 | 1,280 | ||
Maximum | ||||
Stock Based Compensation | ||||
Maximum term for stock options | 10 years |
Stock Based Compensation - Weig
Stock Based Compensation - Weighted Average Assumptions (Details) | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2019 | |
Stock Based Compensation | ||
Expected term (years) | 6 years 3 months | 6 years 3 months |
Expected volatility | 33.91% | 35.00% |
Risk-free interest rate | 0.37% | 2.74% |
Dividend yield | 0.00% | 0.00% |
Stock Based Compensation - Summ
Stock Based Compensation - Summary of Unvested Stock Options (Details) $ / shares in Units, shares in Thousands, $ in Thousands | 9 Months Ended | 12 Months Ended |
Sep. 30, 2020USD ($)$ / sharesshares | Dec. 31, 2019USD ($)$ / sharesshares | |
Stock Based Compensation | ||
Stock Options Outstanding - Beginning Balance | 2,072 | |
Stock Options Granted (in shares) | 505 | |
Stock option Exercised (in shares) | (345) | |
Stock Options Forfeited (in shares) | (89) | |
Stock Options Outstanding - Ending Balance | 2,143 | 2,072 |
Options exercisable - Ending Balance | 752 | |
Weighted Average Exercise Price Outstanding - Beginning Balance | $ / shares | $ 24.63 | |
Weighted Average Exercise Price - Granted | $ / shares | 20.22 | |
Weighted Average Exercise Price - Exercised | $ / shares | 23.76 | |
Weighted Average Exercise Price - Forfeited | $ / shares | 21.44 | |
Weighted Average Exercise Price Outstanding - Ending Balance | $ / shares | $ 23.86 | $ 24.63 |
Aggregate Intrinsic Value | $ | $ 20,332 | $ 6,266 |
Weighted Average Remaining Contractual Life (years) | 7 years 7 months 6 days | 8 years |
Stock Based Compensation - Rest
Stock Based Compensation - Restricted Stock (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Unrecognized compensation cost related to unvested stock options | $ 10.1 | $ 10.1 | ||
Stock based compensation expense | $ 1.3 | $ 1.4 | $ 4.9 | $ 4 |
Number of Shares | ||||
Beginning Balance | 133 | |||
Granted (in shares) | 271 | |||
Settled (in shares) | (45) | |||
Forfeited (in shares) | (10) | |||
Ending balance | 349 | 349 | ||
Weighted Average Grant Date Fair Value | ||||
Beginning Balance | $ 28.85 | |||
Granted (per share) | 20.73 | |||
Settled (per share) | 26.54 | |||
Forfeited (per share) | 22.27 | |||
Ending balance | $ 23.03 | $ 23.03 | ||
RSU | ||||
Unrecognized compensation cost related to unvested stock options | $ 6.9 | $ 6.9 | ||
Vesting period | 3 years | |||
Stock based compensation expense | $ 0.5 | $ 0.3 | $ 1.7 | $ 0.8 |
Stockholder's Equity (Details)
Stockholder's Equity (Details) shares in Thousands | 9 Months Ended |
Sep. 30, 2020shares | |
Stockholder's Equity | |
Exchange of common shares | 1,332 |
Non-Controlling Interests (Deta
Non-Controlling Interests (Details) - shares shares in Thousands | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2020 | Sep. 30, 2020 | Dec. 31, 2019 | |
Common Stock, Shares, Outstanding, Beginning Balance | 23,554 | ||
Stock based compensation adjustments | 370 | ||
Exchange transactions | 1,332 | ||
Common Stock, Shares, Outstanding, Ending Balance | 25,256 | 25,256 | |
Continuing LLC Owners | |||
Common Stock, Shares, Outstanding, Beginning Balance | 4,752 | ||
Exchange transactions | (1,332) | ||
Common Stock, Shares, Outstanding, Ending Balance | 3,420 | 3,420 | |
Amended Holdco LLC Agreement | |||
Common Stock, Shares, Outstanding, Beginning Balance | 28,306 | ||
Stock based compensation adjustments | 370 | ||
Common Stock, Shares, Outstanding, Ending Balance | 28,676 | 28,676 | |
Holdco | |||
Weighted average ownership percentage in Holdco | 87.20% | 85.70% | |
Continuing LLC Owners | |||
Ownership interest by continuing LLC owners | 11.90% | 11.90% | 16.80% |
PetIQ | |||
Ownership interest in Holdco | 88.10% | 88.10% | 83.20% |
Customer Concentration (Details
Customer Concentration (Details) - customer | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Customer concentrations | Sales | |||||
Customer Concentration | |||||
Number of customers accounted for more than 10% of sales individually | 2 | 1 | 2 | ||
Concentration risk | 42.00% | 23.00% | 42.00% | 35.00% | |
Customer concentrations | Accounts receivable | |||||
Customer Concentration | |||||
Number of customers accounted for more than 10% of sales individually | 1 | 2 | |||
Credit concentrations | Accounts receivable | |||||
Customer Concentration | |||||
Concentration risk | 44.00% | 61.00% |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | Sep. 30, 2020USD ($) |
Med Vets, Inc. and Bay Medical Solutions Inc | |
Litigation Contingencies | |
Litigation reserve accrued | $ 0 |
Segments (Details)
Segments (Details) $ in Thousands | Jan. 17, 2018segment | Sep. 30, 2020USD ($) | Sep. 30, 2019USD ($) | Sep. 30, 2020USD ($)segment | Sep. 30, 2019USD ($) | Dec. 31, 2019USD ($) |
Segments | ||||||
Number of operating segments | segment | 2 | |||||
Number of reportable segments | segment | 2 | |||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | $ 162,083 | $ 186,025 | $ 615,843 | $ 555,095 | ||
Adjusted EBITDA | 12,007 | 19,258 | 54,771 | 50,960 | ||
Property, plant and equipment, net | 60,409 | 60,409 | $ 52,525 | |||
Depreciation expense | 3,030 | 2,404 | 8,886 | 5,587 | ||
Capital Expenditures | 7,387 | 3,382 | 17,811 | 5,128 | ||
Domestic | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 160,444 | 184,413 | 611,949 | 551,850 | ||
Property, plant and equipment, net | 59,116 | 59,116 | 51,397 | |||
Foreign | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 1,639 | 1,612 | 3,894 | 3,245 | ||
Europe | ||||||
Financial information relating to the Company's operating segments | ||||||
Property, plant and equipment, net | 1,293 | 1,293 | $ 1,128 | |||
Products | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 150,063 | 161,534 | 580,650 | 482,224 | ||
Products | Domestic | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 148,424 | 159,922 | 576,756 | 478,979 | ||
Products | Foreign | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 1,639 | 1,612 | 3,894 | 3,245 | ||
Services | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 12,020 | 24,491 | 35,193 | 72,871 | ||
Services | Domestic | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 12,020 | 24,491 | 35,193 | 72,871 | ||
Operating Segments | Products | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 150,063 | 161,534 | 580,650 | 482,224 | ||
Adjusted EBITDA | 26,318 | 20,506 | 92,448 | 56,030 | ||
Depreciation expense | 1,201 | 1,228 | 3,685 | 2,134 | ||
Capital Expenditures | 5,072 | 188 | 10,337 | 1,462 | ||
Operating Segments | Services | ||||||
Financial information relating to the Company's operating segments | ||||||
Net Sales | 12,020 | 24,491 | 35,193 | 72,871 | ||
Adjusted EBITDA | (223) | 7,048 | 2,878 | 18,147 | ||
Depreciation expense | 937 | 547 | 2,674 | 1,591 | ||
Capital Expenditures | 2,193 | 2,984 | 5,966 | 3,290 | ||
Corporate, Non-Segment | Unallocated Corporate | ||||||
Financial information relating to the Company's operating segments | ||||||
Adjusted EBITDA | (14,088) | (8,296) | (40,555) | (23,217) | ||
Depreciation expense | 892 | 629 | 2,527 | 1,862 | ||
Capital Expenditures | $ 122 | $ 210 | $ 1,508 | $ 376 |
Segments - Reconciles Segments
Segments - Reconciles Segments (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | |
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items] | ||||
Adjusted EBITDA | $ 12,007 | $ 19,258 | $ 54,771 | $ 50,960 |
Depreciation | (3,030) | (2,404) | (8,886) | (5,587) |
Amortization | (3,821) | (1,807) | (8,313) | (4,364) |
Interest | (7,829) | (5,742) | (18,500) | (9,921) |
Acquisition costs | (1,083) | (1,960) | (1,815) | (5,425) |
Stock based compensation expense | (2,147) | (1,601) | (6,549) | (4,747) |
Purchase accounting adjustment to inventory | (2,403) | (2,403) | ||
Non same-store revenue | 2,884 | 2,583 | 6,119 | 6,254 |
Non same-store costs | (5,378) | (5,394) | (15,476) | (12,690) |
Fair value adjustment of contingent note | (2,310) | (3,090) | ||
Integration costs and costs of discontinued clinics | (307) | (1,166) | (9,611) | (2,308) |
Clinic launch expenses | (767) | (672) | (2,046) | (672) |
SKU Rationalization | (6,482) | (6,482) | ||
Litigation expenses | (290) | (723) | ||
COVID-19 related costs | (1,600) | (6,033) | ||
Pretax net loss | (11,361) | (10,100) | (17,062) | (475) |
Income tax (expense) benefit | (53,168) | 1,304 | (52,060) | (77) |
Net loss | (64,529) | (8,796) | (69,122) | (552) |
Products | Operating Segments | ||||
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items] | ||||
Adjusted EBITDA | 26,318 | 20,506 | 92,448 | 56,030 |
Services | Operating Segments | ||||
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items] | ||||
Adjusted EBITDA | (223) | 7,048 | 2,878 | 18,147 |
Unallocated Corporate | Corporate, Non-Segment | ||||
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items] | ||||
Adjusted EBITDA | $ (14,088) | $ (8,296) | $ (40,555) | $ (23,217) |
Related Parties (Details)
Related Parties (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | |||
Apr. 30, 2020 | Sep. 30, 2020 | Sep. 30, 2019 | Sep. 30, 2020 | Sep. 30, 2019 | Dec. 31, 2019 | |
Related Parties | ||||||
Accrued estimated tax distributions | $ 40 | $ 40 | $ 400 | |||
Notes payable to Seller's of VIP | 27,500 | 27,500 | 27,500 | |||
Accrued interest | 500 | 500 | $ 0 | |||
Payment of interest | 500 | $ 0 | 1,200 | $ 700 | ||
Rent expense | 100 | 100 | 300 | 300 | ||
Colliers International | ||||||
Related Parties | ||||||
Payment of Broker's Commission | $ 75 | |||||
Chris Christensen | ||||||
Related Parties | ||||||
Payment of premium expenses | 700 | 600 | 1,000 | 700 | ||
Commission paid | $ 32,000 | $ 28,000 | $ 50 | $ 35 | ||
Mike Christensen | Colliers International | ||||||
Related Parties | ||||||
Payments to acquire land | $ 2,500 |