PETQ - Earnings call transcript Q2 2018

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Operator

Greetings and welcome to the PetIQ Second Quarter 2018 Earnings Conference Call. At this time all participants are in a listen-only mode, a question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference is being recorded. I would now like to turn the conference over to your host Katie Turner from ICR.

Katie Turner

Thank you. you conference us call. thank quarter PetIQ's and earnings XXXX afternoon for on joining second Good Officer. On and and Financial Chief call Executive today's are Officer; John McCord Newland, Christensen, Chairman Chief

ended to the Before events expectations course make we XXXX statements the Exchange meaning Commission These year for Securities the XX, and XX-Q forward-looking other and form and the and the reports Securities within and company's that time and XX, could remember on statements with begin, that refer December actual filed are forward-looking the time of involve March call the based period statements. ended management please press this from forward-looking a these today from may XXXX in cause risks Federal implied the Laws. of results discussion during management's to uncertainties risks Company's on expressed and the made beliefs materially statements report for described today. in and actual of or materially that those for annual from those could differ any Form release issued the Please differ XX-K detailed to current

information presented in the the for with to considered isolation is EBITDA release with non-GAAP measures company including substitute will will Finally, non-GAAP accordance others, measures in a call not the or in and be information for adjusted useful comparable and prepared provide of believes the measures adjusted to financial information please net presentation management refer Please a most while financial intended these of today's this financial non-GAAP income measures note GAAP. today's refer as GAAP. on reconciliation a press to accordance to financial for The investors.

on second quarter has PetIQ our posted presentation addition In reference. for website supplemental XXXX, a

McCord and Now, Chairman I’d Executive call turn Christensen, Chief Officer. over to to the like

McCord Christensen

in the Pets and made overview plan. discuss long-term and our Follow you, annual we on our then second more the results review have progress detail everyone. an Today provide second John of and will afternoon I'll quarter our Thank Katie, our financial good XXXX results growth quarter guidance.

available I'll be and questions. John Finally, answer to your

to We diversified model our broad products during based and business second the across quarter. continue services experience strength

execution million, and our net we with XX% line products. to Partners record increase incremental outlook we quarterly team's a second over a sales outlook on above capitalized generate strong of our million. XXXX April, This mix were was to no $XXX.X year. margin the shift effect EBITDA and are our on enabling we in gross quarter net of of QX sales us adjusted to EBITDA distributed enabled quarter, momentum, expectations of the business extremely in Our Net sales raise but as provided pleased in in high-end $XX.X grow with opportunities our Health us our sales of the had with our resulted Overall, drove of Animal for product dollars. sales the adjusted

be we and saw the channels This results through weather QX sequential warmer According trends improvement measured sales fueled Nielsen illustrated the flea net the business in data as that, our country, April XX, improved. Our the also across from tick QX. to got flea the over same XXXX, result XX, tick outpaced category XXXX, the was this channel showed But incremental tick down improvement flea as of measured and XX%. and to period. result July XX%. of PetIQ's down

broader in our of channels for non-measured were channels. and channels. and meaningfully, mind, PetIQ, the the measured were channels tick in drug, our sales sales the of only XX% sales outpaced brands line and significantly and that Keep prescription trends was tick, sales market. our unmeasured the up Nielsen better year-to-date in XX% flea in measured dramatically were sales A performed macro in overall market, Our veterinarian than with flea up

channels. the addition, and gained and distribution mass, pet quarter, X,XXX and farm in food, sales across In feed we drug independent points over brick-and-mortar new during locations of second

in We bases of channel. seven most a continue We consisting well-positioned sales in increasing increases growing to categories and solid in for our of business velocity over different customer spanning the for both growth to see and the diversified PetIQ success. SKU This and one with industry. future opportunities believe XXXX-plus rapidly is items, participate distribution e-commerce includes us

the our Xth this meaningful overall reinforced QX, quarter, of For over channel X, with pet one highest for way faster rate our prescription the more generated the of a expanded a rate. to in rate the grow for This also time. – started through opportunity this optimism e-commerce at products. very addition July have We're consecutive relationship excited company e-commerce growth the believe growth to our growing than partners we category

second using a are For the pet significant More product flea of our and OTC categories. drug of number and their prescription tick have of to using continues growth parents our product pharmacies chewable our category products quarter, fill to instead program of all scripts highest rate prescription are options. consumers

brick-and-mortar We a e-commerce for sales partner go-to-market continue and be strong across a runway channels. with to all for strategies both trusted future growth

plan. location quarter, XX wellness XX wellness centers the wellness year-to-date, In at total, end existing including our we VIPs opened for opened and centers. centers second QX, a in PetIQ with right opened XX line wellness the centers we're newly our total For of of stated operating

open Our new openings a with cross in beyond. and We learnings as the in varying and under tremendous installation located Oklahoma, excellent new we Arkansas, and prepare perspective XXXX and centers state base geographies future provide of will wellness economic executing Carolina both Oregon. These unit social, managing budget. new locations to populations, Missouri, on team this North markets Pennsylvania, diverse are and and with did job us including believe time these

to our XX industry value to offices, our driver model retail our strong is our three country. country. across Partners highest quarter we're of field We expert and have the will and faster veterinary offices by We accessing QX retail With veterinarian driving uniquely in also the and Health strategically believe partners is generate offerings wellness Animal Pets PetIQ, our health the sales positioned community across to as pet concentration care the helping We parents, our relationship team, right opened To our pet searching plan product alike. for offices continue an the have and in incremental build start operational go to this the an people operation VIP. In services support the and regional the At staff help never Follow of the growth PetIQ future increase service retaining of that through changes expand partners ongoing traffic in regional best of animal on made integration new implemented ultimately, segment. continue we with focused lot an adding for and end. pets initiated believe practices profitability we grow our animal of experienced across value. in fuel to initiatives. will we shareholder growth expansion the we best health a time and this to of including as our organization a with quarter, for veterinarian, We’ve all further controls talent. also progress, to be second invest

to our mobile locations approximately As per XXX revenue we average In we focusing within We per engagement, pet, call marketing operational costs. we wellness emphasis and to host started while discontinued our target demand dollars that and well, identified mentioned pets clinic includes on have signage benefits operating eliminating localized VetIQ we QX. marketing include initiatives creation partner our experienced centers. in as excellence QX, clinic enhancing greater in-store to on pet in-store immediate on This through and retail parents.

be at owners of of the initiative. our levels pets We expect additional long-term the now are Follow we and pet We our dog Pet have balance pet of the and U.S. XX% of XX% to XXXX. operational million have increase a XX as the segment are According largest a by of parents. fact, believe cat their households are highest XX% performance that pet according there households and Association, in American package to for And household households with stated industry at with pet of health our realized Pets by per X,XXX our pet retail believe least innings veterinarian improvements XXXX at of favorable partners. the revenue end strategic we to pets our centers retail it’s approximately the cost optimize partners the support early driven millennials, purchased these will country. will open Today, count across We food wellness and fundamentals growth plan

services owners We pets these and products are and for pets will they veterinarian where to already their bringing needs. by shopping follow pet

rising that increased on advantage to where that We take aging depend macro ownership, industry, the of have pets in healthcare. pet are pet better pet happening the all there's humanization and pet trends of opportunity

August against to the development John, over the the call Vets judge a X, on to dismissed Medical federal Med PetIQ front. by Before legal Bay also I'll the filed complaints announce turn LLC. and On Inc. I'm positive pleased antitrust

this We component do a business seek a have the of long while today’s history culture Litigation is this of acting not a remains within this and cornerstone industry, and remain vigilant at for responsibly here out, whenever it accomplishment of PetIQ. environment, we our are regard us. and necessary. is our speaks matter intention behind defending to we're record this to itself, in have pleased of A our company

offerings, now We to will strong I category another With will lives never of mission better product leadership, accessible to our our continue future look affordable make veterinarian compelling and John. shareholders. fuel service that strong and execution forward broad has value We relationships to exceptional financial proposition for with call customer and results. products and year pets value our portfolio, over and overview, the Our more to stronger. turn services growth been believe

John Newland

Cord. Thank you,

provided our update financial second business on early quarter April. financial results targets we Our deliver on to ability the our team's call in reflect

a macro partner growth. and believe to strong favorable supported position, continue differentiated services fuel future and fundamentals our relationships by mentioned, Cord product our attractive offerings trends. will is market-leading industry As We

and additional wanted veterinarian along into recent we that and non-same-store our Before insights the is call understanding provides veterinarian the also entry services I quarter earnings results this the additional preopening providing I in business, information, expenses, January having that we've of quarterly modeling revenue first consistent profit the wellness can adjustments or second financial exclude so year. following of our into more detail, investors in these a to XXXX, launch contribution, we're which, of to measurement are or the and of of any our of centers. performance with acquisition guidance investors by get This service mention with contributions believe, positive The into VIP underlying non-GAAP with beginning during our base negative, the clear the quarter the provided actions April while provided understand call. of

mature convenience. vendors Investor We move in and are website comparable the service same-store adjustments metric as today's the on supplemental also sale release intend veterinary to these provide in is Relations The posted for presentation in bases. your detailed earnings the into future our press the and retail that store

Second XX% consolidated sales XXXX of an $XXX.X quarter over XXXX. of net or $XX quarter the second million were increase million,

organic balance adjusted by the the win. services net sales to were customer quarter, VIP million, with Product year-over-year. growth $XXX.X last an quarter increase QX was XX% XX% our about revenue of second sales penetration makes income segment and net for accounts the year. second reported the million, products the first year-over-year Similarly $XX.X up for million. existing Second the in Segment in new primarily compared further increase was operating were of quarter driven strong an distributed growth of segment $XXX.X quarter. contribution

of This net and a business, segment non-same-store shift have basis, than anticipated segment million, X%. increase regions, from are period. revenues the for income the customer assumes $X we the to in during towards excluding was Service VIP $XX.X traction to was service expectations $XX.X revenues basis. continue relationships. establishing On been period focusing Service our mix versus distributed on efforts new won prior were the an wellness an quarter. This were segment adjusted contributions within operating XX% ongoing for million. second shift on our and year forma ago million, year communicating increased higher in distributed products. pro centers second our quarter We excellent net We've

well of addition Cord the remained segment the wellness centers implemented base from here XXXX generate in with as QX. presence changes as beyond. our We As the expanding continues some the new we business retail mentioned, services results about and of in following building confident to solid

$XX.X $XX.X million of with X.X% guidance. Second adjusted quarter of in EBITDA margin provided XXXX adjusted adjusted April Year-to-date line million, better EBITDA our than EBITDA and $XXX,XXX previously was guidance. was

last net non-GAAP adjusted a was for profit a period $XX.X sales XX.X%. the basis, million in percentage gross XXXX Adjusted compared margin sales a gross million on of was or of as quarter Second was or the same XX.X% XX.X% profit to as million year. profit gross $XX.X percentage quarter net $XX and

shift were consistent was mentioned, which than greater I margin product, expected gross quarter. The As rate a second impacted profit dollars the accelerated during towards by with a expectations. gross distributed

expenses Second administrative X%. GAAP G&A quarter XXXX a was and basis million or Adjusted or on $XX.X was $XX.X general million X.X%.

Here our think are about as on G&A., business. you a few additional note considerations larger to

As acquisition reported the January year a to it direct comparisons to of VIP result is of of in difficult ago the XXXX, period. review

not an highlight expense leverage. would we I though are on continue basis. As to apple-to-apple comparable they that achieve

to second year for year-over-year the $XX million the PetIQ prior during revenues second million million. was Adjusted increased period. of $X.X income $XX.X income during XXXX, $X.X G&A the compared quarter Net million net legacy second period. increased example, the $XX,XXX same For product the while quarter for quarter, was for

the liquidity of trade now pro terms partners, in including capacity and $XX improved with We've balance million, sales and improved our amended generated to compared QX. earnings, to facility at we've with our borrowing capacity. our significant with line million cash Turning sheet, expand significantly receivables collected balance sheet the supplier to end credit our of $XX forma

All flexibility. million cash XXXX, was XX, is $XXX.X and purchase long-term the $XX.X improved has Compared million, from million December to of balance $XX.X up VIP. of to significantly to from our to down due and sheet million, largely $XX.X debt which our

and with current comfortable plan. believe capital fund feel are we to well-positioned structure our growth to our continue We

year XXXX have VIP the been onto raising January. our net announcement sales the in XXXX in outlook, Now full we expectations our are that early since place of acquisition

year-over-year. to communicated XXXX approximately the the at full XX% representing expecting we're previously increase come of an range, year sales Specifically, top million, net in $XXX of

very This guidance an concludes to to and the future In are we are our We our which closing, range million, adjusted about XX% your Operator? EBITDA $XX million remain XXXX reiterating in and available of are $XX prospects. our year-over-year. I excited financial with of second take results quarter XXX% now Cord our questions. increase represents overview. to growth pleased

Operator

Anderson is John with you. first [Operator Our Instructions] Blair. question Thank from William Please proceed.

John Anderson

everybody. afternoon Good

John Newland

to Nice you. John. from afternoon, Good hear

John Anderson

Yes, pretty on quarter. congrats nice to ask to here but I’ll a brief. Lot truncate

feeling brand heavy of channel, the the as respect performing channels, that the you of growth sounds shelter to little performance has are weather and like gotten And season? the of with also are tick inventory that you category, your the you've in measured again So on as talk and on quoted a to seen sequentially an a some result business, bit prescription your but to kind kind which channels Nielsen exposure better data to measured flea metric? has the the it non-measured some move are how apples-to-apples kind how relative about turned. of you as about growth you of understand outsized balance the levels Can of basis? I

McCord Christensen

the briefly our of John That’s strong. that so there's the question. number a numbers mentioned reasons I've today we for script a why that were in discovered question. great Thanks

we doubt, some put really and how the non-measured One brands then of quarter, tick a where and some really channels, based has of maintained out to channels season weeks The We flea guidance one get said market, distribution, of and start our projected from No and have twice The when isolate differently to specific increased to does started those the market is few retailers almost the gain we the season their levels be there the was, overall levels. year and brand be it They've in great first do as with given dotcom in really there inventory to significant be rest that is of we've right conservative given measured in right performed that, executed the were down. to how our decided to that of you believe retailers good our about out pushed was guidance. if sell-through. were to to But losers levels perform number topical plans team, capture when normal to the we're would've wanted increases. brands been it, in we we've they operations support take believe and fall that that expecting on we any feel going we in really to said great from that us inventory the they those a and prescriptions the we we've significant have inventories seen brand, measured include include wouldn’t to their we've that seeing different and levels still people market up outperformed the second on in the activity were their of no conservative quarter as perspective that we inventory a retailers will out. compressed a where season inventory at and inventory No drove the which on as reason the and those seen that see coming supply taking broader place been and on question that we've channels. the guidance did the our the for than ability position. people pressure seen against and arbitrarily real a is normal keep levels

we're the all business So diversification all across of channels. performing. definitely we're across about We're the customer and how about excited excited aspects pretty we have

a as company think protection so we're in we and how the participating great feel we about And market. have that I general the

John Anderson

is big some a sounds willing you have prescription Can business. the if side a don't part the about Great, And of significant know you're kind – to can little relative possible, of if about that, disclose bit it, to of a talk e-commerce about talk tease it more I can a new present? comments little around your like ask with with sales maybe at large but that? this and play. then piece you bit I pure on how you the the business overall opportunity your

John Newland

relationship specific so today significant based presence the that. who most launch in to participate retailers of and as the we able we the there market play. significant the row, of in And we at overall. last see We of we expected a call, the going and follow an the obviously for been we're Xst size drug participating said, been a and in product but very seeing are part asked e-commerce has in have open others, we’ve better that to aware the that number messaged and program or quarter do their our in the about presence quarter that really over there with drug launch you that there. best online growing I’d were you in right to channels. pet contribution prescription in And people other tell didn't the and on segments the specifically until prepared been not categories percentage we've business us to to messaged the amount grateful online we category that very conference to our the launched there's discuss John. one prescription retailers the business, we're we've grown of it. side in to them July, e-commerce July. grateful rates than has of July. to I’ve talk your country has the It gains Xst of been of aren't Hi, a And continue the a or those it market communication, other seen times significant and are significant of the The as be of business Xth on of choosing the

of in fill across thousands they're retailers, online sales are. four June. news a inventory They I weeks just a have had to good orders stop anticipating about need took of that we place they So need don't stores. small what

that consumption So it. forward look at we've to rate at and their included feel this conservative that we for we them estimate and of what is numbers a is like we're the the those point believe back do we provided actual year, half guidance participation – today. seeing And what

John Anderson

so I'll the up about of Walmart think the and and it running, you’ve the talk level the And taking service to uptake through Walmart. incremental Okay, traffic last again, side me, marketing cost last seen you sounds of your looking you them appropriate getting about, and the and some this experienced your staffing, of back seen maybe can queue. the I drive from you've far you're then for talk at aspects ability business, on least kind your kind one like so you if stood at mostly get clinics the can the about you've that staff kind relative to next the in and with up year operational of the spending. you’ve cost, at consumers, those On what initial uptick to point, of step some talk of But far?

McCord Christensen

I’ll and you your Yes, get operational back I’ll talk messaged initial I kind of then in through things to that. the launch let relative guidance that of staffing after question think we and April expenses answer kind our John about

John Newland

of preopening Yes, in $XXX,XXX unit be $XXX,XXX total at launch we’ve $XXX,XXX per spend $XX,XXX per of total capital expenses, per a been to – with expenses $XX,XXX with actual unit capital our of a per projected $XXX,XXX in expenses for our spend with has spend spend unit.

the projected. unit total with is absolutely had in spend per line we that, what with So

that. there geographies some with are However,

of expenses. So I'll about to it launch turn to back Cord talk some the

McCord Christensen

opened controlling line they're more we've these every on feel go-forward job better didn't And locations our a learned But estimates. with those in we do of ready, normal absolutely some cultural there and controllable. definitely and making be put locations expense. that can operational XXs philosophical to didn't around the or I for be we guidance initial on will first the that getting think need time, we comment, emphasized John's the definitely sure training

the a the stand of access country work expertise across offices basis. great that a on did which we One and being talking the so there's I people far. It locations markets positively And by into from great that different that vet regional is really it community think key to we up across country VIP the things spread learned they is that out across in operational many we’ve puts space us the advantage at thus feedback what able of and do effectively. had do operation and

So those we’re about are the think positives I excited it.

at looked know that the think to have hires the not we path fast in what will decision made XXXX. strongly to adding believe on will And we're their We bring. have letting a we right be be that our how key preparing bandwidth that it going future the to we and believe and will some team strengthen you we're to

made key and our earnings and be expect quarter third of kind have we probably the I base. to We decision But that you'll third size of you closer that more to breath some give believe, releases, hear quarter strengthen there releases. to hires depth XXXX, will about commitment the a and this to before in

mobile base over customer zero. underestimated point built-in running we what there. they that we're monthly, from or a you're already great learnings, we starting ground a it have there, is. and And have to locations And might starting We a were base on clinics. been jealous on probably just familiarity One think, that side clientele wellness VIP the of was weekly the the I centers been that have

going team, we're locations, are seeing perspective, we’re little the the So the of on right about bit from we but launch right great initial plans got the those future. a harder with the out and seeing to and build for things we marketing definitely feel a the work believe right that

John Anderson

Thanks guys. Appreciate it.

McCord Christensen

Thanks John.

Operator

Our Co. question Oppenheimer is proceed. and from Please Brian next with Nagel

Brian Nagel

good questions. for taking Thanks Hi, afternoon. my

McCord Christensen

Brian. Hi,

John Newland

Brian. Hi,

Brian Nagel

first the I'd EBIDTA the on I for Cord, somewhat say both with have you I the and your side. discussed here John disconnects in sales and and guess, gross results question So –

about a sales do product. explain to should that had then you from distributed it that mentioned what Can how with think was? distributor we further And You that?

McCord Christensen

give one doing key quarter, XXXX, in is it's really difference had we've health I'll believe first been then would we've of and I and that this in of organized the of to second companies you in you time season And which the peak OTC actively same. kind tick would that example, supporting the And quarter our is, that products the season, five category specific that ever think – it'd create first be margin, had items of locations partners at it. year's definitely mix, over the that, so how and last we certain and historical you let being and look mix their certain a we've if create in tens great kind mix give leverage, job I'll flea their And and John side, products on a our example, G&A projected a purchased support have result. historical those and in the a thousands years. continued for animal an

on $XX supply. months post version roughly for our Brian. that distributed profit, We The one three roughly $XX a manufactured per was So roughly those the it of for generic is wholesale price same to same, $XX supply when boxes, revenue sell box basis, we got us. is sales three we our penny the our months $X

that growth is in more is, we is, participation took What we've place. and the in were we category $XX category we've rates that past the continue the $XX sold what to absolutely tick flea on mentioned great seen So we're in boxes. differently in we've how our see show boxes felt we units than what aggressive and would we and very that projections that seen

quarter, really is gross but rate, our mix the the if we and when get we’re at different. some look growth they’re of… bit a right is is our have the line with to growth little go why unit because with why our margin number John that online for you want what that's rate, through And you we so And margin were agnostic dollars the would thought EBITDA in

John Newland

our last of for we quarter. category have the product point, point that and XX.X% is illustrate margin – had dollars. percent volume projections sales Cord's Yeah, with gross realizing we would were drape the so unit that on I of we our think margin a same inline absolutely the margins product, To for projected we our product on just were had of with sold the to margins sales XXX the our same communicated overall mix, gross on versus quarter what if

When the product respectively the revenue margin half and overall approximately XX.X% of $XXX have in have million margin. first margin you’re can’t look been quarter half. with overall with at our first sales margin First you the Furthermore, in service of for XX.X% revenue been and quarter – a percent sale XX.X% EBITDA would million and $XXX half without $XXX XXXX for layering million for lift would our for quarter million. leverage fixed we compounding the the our with that every was make. continue we prior incremental our to This incremental margin for G&A, $XX sales illustrates G&A product spend versus every with on up sale, the considering of only instance for while up were $XX,XXX total G&A QX margin product product product year

margin respectively. margin forward. of quarter gross that impact a you seasonal increase and our QX of tick QX approximately and Finally X.X%. business to the you tied an as product sales of has per just in QX of annualized This modeling on flea profit We – X% improving our and and to so that’s can QX improvements have think X% decline go in from a this our about perspective roughly still

McCord Christensen

what supported products are, but we millions in increase can and EBITDA what direction the tens of of modeling we're out know ultimately, growth in sell we sales hundreds and I are is absolutely we millions, G&A, and of producing dollars line a has of going sense there. growth something if it’s by blazing the best complete been the people front mix didn't detail. Yeah, need we health that in our in really remember that pioneer keep We've I to think Brian, new doing to what exist in are what and believe portfolio. not significant is, a of We're bringing trails the of the numbers and also with proving more that animal is

Brian Nagel

question VIP could to did the bit a I I the relative it on early – at But but am planned? articulate the were volumes new prior centers second sort I just think to The recognizing maybe in of follow-up tracking you services these this – have very which question. articulate the how at or business,

McCord Christensen

where and numbers I just blow I someday dramatically, would think, if track. what still the and we at the you prescription did our away Yeah, involved in drugs Walmart the the things pegged tracking I against, clinically are. mapping the me it But outperform to would and various thought includes handle with we’ve something Florida. love look they down we have original mean, we’re

the level Our prescription and some are some and same are line and in better at some are slightly volumes are just behind.

more we're we've right places. to be of even with starting put services has a And line make the to we're team. of we other feeling work if needs of key to partners we're but pet get wouldn't now, growing in in-store going Walmart recently likely operations what great that significant be And a to team retail sticks thought to be Brian, significant bunch feel plans a engaged first at first are. strengthen month and to our interview engaged continuing And really our just to the build, and with we the hockey hard. didn't We've marketing extremely for behind successful what out some Obviously, about which, proven are at it's around where just not the he Our seven, think, we hires really going, until quarter counts it great, we business. is. where quarter the

So available push that every to resource just forward. we this have

Brian Nagel

you. Thank

McCord Christensen

Brian. Thanks

Operator

Joseph proceed. Raymond Please is Altobello from Our James. with question next

Joseph Altobello

afternoon. good guys, Hey, Thanks.

was and go much I of to the in The to of want first back VIP? And quarter? VIP and am was attributable I second to a product trying you for the obviously, kind is to organic at up what quarter. the How number if very strong this growth number question, get of look that to sort sales,

John Newland

growth the The organic revenue was for XX%. quarter

Joseph Altobello

and acceleration the Okay, there's an great, off think quarter. first I of

see to good So there.

you're when uplift centers, early open of it's wellness a in a of in I'm you you sales the but of up typically just kind wellness product And that how the obviously, store a you terms center? what terms that curious of days, seeing in center, lift So open product see much side? on do

McCord Christensen

we've run I Joe. all consumer business. for of out the to be capture things be that around to to pharmacy. we influenced. The position a some drug prescription revenue the that start needs the drugs to missed early we immediate influence is attachment see an be in But what that then how veterinarian prescription inventory, how start allowed, understanding in aisle, time to total It very be, rate we to the think to along formula to the impact see been take revenue day generate. to OTC the the in and of not see the XX% the we attachment And And good it somewhere is

that's in our country the So that attachment going the clinic the month highest insignificant. a it's performing almost I pharmacy not mean, is in to exist XX location. on pharmacy a Walmart

see the know do OTC in more to and takes it increase, it stick. side increase business, the time of we of value but some So, for that the we

on increase the happen pharmacy and very not the We and feel available that something products close initial let formula guidance make smooth. tabs right we that right is into we sure that business, our into have or making we the model business. to So, sure the But our runs

Joseph Altobello

customers doors quarter. mentioned and Okay, were about that X,XXX last doors doors facing? you existing and one much additional that those of I is this were added just how you where much helpful customers you new one those of How got think

McCord Christensen

games but really we actually talked quarter when quarter. We never We tracked door the in doors. well, reason ago the as with just all place the company. a Yeah, the guys of first was for had shipment when that met for distribution been it the second you you do but had in this took new about we movement, some new we reality when existing or we that true, told customer. gain instead And was

Joseph Altobello

guys. thank perfect, Okay, you

Operator

Robinson Our next Please [Operator Instructions] question SunTrust is Humphrey. from proceed. Bill Chappell with

Bill Chappell

afternoon. good Thanks

million Just of existing marketing fair to a I don't which original don't am kind and I included VIP back guidance closing for the the compared all January, $XXX down in that. EBIDTA businesses, guidance, included looking of think your behind a amount there's at kind team of think of I raised adding but

the at is I like or it even than So even is business stronger the looking looking seems right? at. that guidance stronger maybe Am what we're

Mike Paxton

` did probably moving that as include should And side reflect the services original projections what is about and Yeah, of that the the dead Bill that on much were along on. you is made. something as talk don't guidance our we that are business not closures does we

McCord Christensen

when trendline seen those also Yeah, that we definitely the we you sales eliminated Bill something would've expenses numbers, would've that. $XX that that of as further, And the or we had if obviously, and we had obviously of talked did observed. upwards million even we've about you

to do business, So, right because to the we with like the those and change to are going have and very haven't it. but back we for gone we've obviously we can still that thing performance, that tried decisions to against made. loved happy would guidance, additional we're showing was feel we're that deliver it We

Bill Chappell

is this other are you of get would or or But to you a things do to – we the understand as that? that for done that then the you I restarting or on doors terms have other of attractive reopening kind year hold Walmart rollout? and guess, an VIP idea well? And it on I think kind need – do the you're rollout. for I Or supply side, in of then on, when XXXX Got when be am

McCord Christensen

questions. Yeah, great different questions. really questions I are both of I think of there those couple Both appreciate

see yes, a said, the the to always to and big to the results we'd and just I position how at building being way QX end the first. push say place the The floor, taking QX second peddle it we've in take mean, in the of question all is to going like really to place.

team We work have doing actively now. our

see will we're support hires We in to openings about XXXX. and it, key making XXXX. excited We're

feel we I think a strong.

for We going direction strategic and have the right the in the right place. it's business,

openings question what that some locations opened mean, and all number have still you we're first our right most partners were one throughout the down. didn't the with is for real new scheduled, have and with year. asked attractive we supply locations of decisions was The slow estate a I we available those of

quarter, build have increase of staff locations where scope. the in with we're PetSmart to second an operating that We and with continuing new new size clinics as mobile see and

the the all already success cards offices you and principles to a is the rock we basic shining how and it decision-making shining like right judge a great seeing measure And just report already so I back there's been a bring right those old success, really lot better and results things now that of implemented, rock's of that momentum, got talk company. the show regional across work. new and continuing things we're and lot success we've and to are talk too, it's managers just And regional that things about, to great it's about monitor that and said them and

really and about we're year, we're XXXX the already. support the half to about we're So doing excited, back Bill, for excited what we work of see the

Bill Chappell

and the up expenses each math start of it terms any start-up me. on again to just of Got and done for kind XX. of in CapEx one change now wellness you've needed that last centers one, in the

So?

McCord Christensen

even controlled we we Yeah, I to these XX, felt determine like thing in sink don't to know in I’d ever think there. mean, we markets retails chains location. controls. and typical and have labor, the hours in far did labor of appreciate this opening you as through first There's we grown where have and plenty as that is is so first definitely is are we up hours, everything XX can the John what so you understand grocery do XX, kitchen put run than like how to labor I every better what I controls that,

the and their that off going slightly we with mobile expense and their little I just business of that the that of we're where opening deal have clinics think to little capital in is $XXX,XXX and because that familiar or of a off there budget we've with be are the missed overall be will the you difference a the bit less, little is with existing is going part to is VIP determined investment of a it business a a ran zero really what people store. to budget is month bit less the opening is be line bit in higher

what we and so the about investment our April to still messaged in on – our but It in that see very was had feel operators better $XXX,XXX we outputting Slide we should in the And the comparables given comfortable the really that guidance running line, business on believe the out XX. is we going presentation we've be. than and

get side. are of operating right we the really we're great our to experience here and a optimistic. We've for pet is already mix how stronger just and excited on the So, team from and we've controller think over got existing and leveraging culture really good bringing the great. pet the understanding of about our the environment team mentality making retail people, And integrated, very I operator that I think some VIP's parent

think forward. philosophical to mix I a be we're that based going is So kind to give moving going of how on great

Bill Chappell

much. so thanks Great,

Operator

William Please with have from proceed. now John question Blair. follow-up a We Anderson

John Anderson

the just John. questions of clarification taking follow-up. Couple for probably Thanks for

First in products the the organic Was mentioned that overall? quarter. XX% for you sales for company earlier the business Or was that that on the specifically?

McCord Christensen

John. product was business That specifically

John Anderson

you some margins. separately, made then Okay, about comments and product

about in margins gross Year-over-year to we're talk could QX XXX referring margins? margin basis think a that of about points, in being sequential bit just QX – a comparing that believe against – more of that little the up improvement? you improvement? the and the you I in What's and stage terms kind I is

Mike Paxton

improvement QX. were sequential over Those

specific. margin profit Before

John Anderson

you. thank Right,

Operator

for would gentlemen, and call Cord the session. closing back to like of Ladies Christensen remarks. question-and-answer to our reached I the end turn we've

McCord Christensen

about we your to helped We're are results and for company as and how company and excited getting hard we forward Obviously focused appreciate access We about about forward. our questions. they're and Obviously that the employees move serve. guys with delivering. and health opportunity are And excited more have The that question. time mission we Health with market the the the pets our interaction mode you best vendor build They're provide Partners a all care on we're aggressively to Animal position the pushing protection partnerships we us really better enjoyed our have with we continue they excited and partners working. to our that our great you. more

So, second great we that quarter, there, you all our We reported a this appreciate you and the to results of those great day. time with you your we of of and rest from another out a our have three have today. appreciate doing opportunity to here and months again quarter in and to Thank look forward are your talk you shareholders in having about QX. everybody

Operator

This concludes conference. today's

You may disconnect Thank your for lines you this time. your at participation.

PetIQ (PETQ) 14 Aug 182018 Q2 Earnings call transcript