PETQ - Earnings call transcript Q3 2018

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Operator

Greetings and welcome to the PetIQ Third 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. It is now my pleasure to turn the call over to Katie Turner with ICR. Please go ahead.

Katie Turner

you. Thank thank conference us call. and quarter PetIQ's for earnings XXXX you afternoon on joining third Good Officer. On and and Financial Chief call Executive today's are Officer; John McCord Newland, Christensen, Chairman Chief for Susan Q&A. Sholtis, also President be will available

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

adjusted Finally, income among management on today's G&A, to adjusted refer financial and including note adjusted profit, others. adjusted will measures, EBITDA gross please non-GAAP call net

or measures of with in While for release the a provide with this presented investors, the isolation refer the be substitute reconciliation financial information to information the presentation for GAAP. Please measures financial accordance in accordance is measures believes as most non-GAAP non-GAAP, to useful to company in comparable a considered of these the will information for GAAP. prepared not financial today's intended

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

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

McCord Christensen

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

answer Finally, your John, Susan to available questions. and I will be

very strength of our third pleased results. We service The with quarter are our diversified and model. business product demonstrate the

the of fulfil lives Follow more veterinarian Pets pets growth plan better designed mission affordable to our enabling of products to accelerate us making and Our with PetIQ's services. growth and is accessible rate

net in million, also are achieved had the We gross the high-end our second margin this margin was early dollars. XXX%. and sequentially our in-line no increase year-over-year provided quarter on sales growth for third to towards EBITDA. to distributed sales growth in generated expectations third we record shift $XXX.X the in This in grow rates April. similar as outlook of EBITDA a drove we the we an improved of on adjusted quarter resulted stages opportunities profit further quarterly yet effect Adjusted sales products, animal year. with from the net adjusted realizing quarterly of with highest and of sales of incremental of quarter in profit our sales partners the margin EBITDA adjusted our and We of quarter, gross our product our gross health were Net capitalized our but QX. million $XX.X Both potential, mix

extremely non-flea enabling to relative strong seasonality in result our to momentum Overall, us business with As growth of tick. periods for outlook year. and a pleased of less net a raise sales are year and rate our the prior we

XX% in net net by Our sales, targets we sales progressing confirm deliver EBITDA well of to our XXXX, growth an margin in X results accelerated that adjusted track towards XXXX. we’re financial third-quarter long-term and and are on growth billion

category through September was flea outpaced down growth. measured the and tick category and tick According results channels period. measured result channels well the our over to quarter, Nielsen PetIQ’s and same in third X%. performed outpaced dated this the flea For Nielsen business XX

of sales sales pet meaningfully, The in market, channels, mind, better with Our that up unmeasured sales overall were macro and veterinarian club, channels were performed sales for Keep the was XX% sales channels. and the XX% specialty channels were up the of and broader and market. trends our our our QX measured tick in flea in than sales Nielsen in sales flea PetIQ outpaced significantly dramatically in RX e-commerce, brands particularly in-line non-measured channels. only and prescription tick measured the drug

to one categories, in XXX different plus SKU both the and over industry. well-positioned future consisting for our spanning diversified see bases growth increases in and continue solid is most We success. We the of of and business X believe items, velocity distribution customer with PetIQ

As includes rapidly opportunities increasing us the I this to previously, participate have for sales channel. e-commerce growing mentioned in

For the QX, faster growth much growth at a the rate rate company for quarter e-commerce growing seventh generated rate. highest channel the consecutive overall than

retail were pet beginning and we at our partners QX We of the partners. to e-commerce products growth one have existing key introduce excited e-commerce starting of to strong existing experienced our RX with

initial reinforces this pleased category time. over results rollout optimism pet and our We RX of believe for with the this been have very this further

trusted More our QX, prescription pharmacies to are of number scripts of instead go consumers their rate and all run products, across tick PetIQ and are our future rate for the for partner For strategies of a highest and market significant options. all flea to a program category strong product drug sales channels. product is have fill OTC growth using to continues brick-and-mortar prescription both parents with chewable click-can-pick growth pet a categories. our using

of newly centers PetIQ existing wellness the for and VIPs We quarter. opened locations opened centers. centers, XX wellness For our including the wellness total a third two

in at third of operation the end the We regional have also quarter. XX offices

with been and very mobile XX our be QX quarter dollars pleased months. revenue business has strongest represents to clinic centers from and than pet continue that average for pets We our VIP more have operating this clinics reported. the wellness per per

tremendous wellness improved clinics profitability on efficiencies mobile of our the increase help period efforts. will based integration have to pleased our that the operating we started to profitability In opportunities centers to our have business and through lower are we ongoing on greater work improvements made restructuring the from a time, gain we and efforts to team's with to service addition, segment. generate In short continue VIP QX of cost

are pleased also this with the We of first XX clinics VetIQ in new the opened half we year.

of take important While conversion. that and This the VetIQ our best base of they hours, country. the sales openings parents. wellness prepare the VetIQ's operational for economic and creation target we time operating installation opened appropriate and continue expand will to initiatives strategically from all and enhancing beyond. as we and a localized to centers our XXXX our profitability. model to understand care our in-store level In higher legacy with retail new on rate future ensure within of through demand and excellence that to VIP PetIQ of the QX, learnings and of clinic open be on these budget to drives parent in social engagement, across were marketing learnings continue able affordable expectations on this our marketing wellness with perspectives varying new and on XX greater through achieve wellness locations staffing, first centers to development future offices to started in-store regional ramp positioned We and to combined include marketing uniquely pet pet knowledge emphasis partner diverse support these centers. focusing work This their successfully maturity, geographies and in to gain includes our veterinarian us growth support markets all is and to signage, populations a QX, across

be the and expect additional XXXX. We balance pet of XXXX operational increase as into performance that and to realized per pet improvements revenues we our cost optimizing while will counts

added invaluable service contributions company, on proven will have executive our will and of are to to segment. help as We the lead total our have Executive of service functions started President. XX two she XX initiatives experience as She our largest including with in the but a industry. focused service she and leading providing move health to having accelerated of wellness team our commercializing since fortunate of of Susan us as over in very pet our our for perspectives multinational animal October director yet in only Team PetIQ for to to growth a particular. and the some record about our been has working excited and Susan several consumer and years our with and executive we're especially strong has on year. Susan a days foundation she although last years, this already the be segment forward, started, served directors developing on and It’s us business Sholtis track board is we X, strategies known healthcare build

continue treats to drivers growth. for We pet adding and parents, have PetIQ, animal partners, our generate in health and Helping We believe strategic animal the of are At subsidiary offerings pet industry and supplements all sustainable highest we go fuel initiative retail incremental right Enterprises sales Subsequent alike. place will PetIQ. accessing traffic by driving value health and and the developer long-term grow or acquisition we to our will our XX, pets for this HBH the LLC faster partners to become team specialty quarter the retail services wholly-owned partners. concentration generate new product then value. An of don't shareholder will HBH. completed manufacturer third a to October of on strategic innovative the veterinarian and routinely pet and ultimately, of that

Springville, with consumable to the of HBH important the element be health together customers, category. complete We’re excited growth success years in control our to us wellness business particularly pet and OTC within structure bringing improved our our in has and provides will to PetIQ The facility. production this an our organization acquisition welcome enable partnership HBH treats. team and working of strategic unique products for to manufacturing This after important our proven PetIQ accelerate of to several Utah solutions

to transaction be We in earnings accretive expect this XXXX. to

As plan, initiatives continue sustainable the stages strategically in and continues execute we believe to we to growth Through increase. as move long-term early investments PetIQ's achieving to support our pace will long-term team follow pet growth are disciplined potential. our we that humanization continue our to of of operational on the forward, the pets

levels, highlighted driven owners highest pet As pet’s pet in at of XX% its are before, approximately their our partners retail by we and food millennials. households purchased have

pet veterinarian by Now, accelerate XXXX of we generational that center our stated centers believe beginning parents. we health dynamics open retail the closed our offering plan our wellness can proceeds believe at rollout. least partners. support with QX, our and favorable these the of to We with stock of the largest from segment in industry the wellness end X,XXX And VetIQ

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

affordable take that more depend to healthcare. opportunity With the for of The advantage our it now have expand pet overview, rising trends over and accessible for demand better increased to ageing our pet strong, is ownership, on the services and the our turn and fuel we growth our value whether the in to products to that happening remain future and pet We position industry, category of humanization, macro leadership committed are veterinarian all pet pets call and is I’ll John. shareholders. that

John Newland

Thank you, McCord.

We’re financial pleased with our results.

resulting third pet value, quarter, veterinarian consumer strong growth. compelling relationships I service an offerings our of accelerated in the rate customer For at our products, convenient and feel

million, the half XXXX of trends VIP makes reported million, organic XXX.X third first third an existing customer increase the or quarter the was in last driven were XX% of penetration in the new Third XXX% increase of year-over-year quarter wins. to over net operating the on net to with XXX%, for our contribution distributed compared further XX.X third million, services segment year. third growth revenue sales quarter. strong increase year-over-year. growth was and up the primarily million by XXXX, XXXX. were $XX.X income $XXX.X of accounts of for the of Segment the balance of consolidated Similar products sales segment quarter Product quarter an remaining an

versus establishing quarter, on in with of to third have and towards this and excellent QX relationships. customer new Services sales distributed experienced of an the prior pro focusing had quarter income our are we million. owned period. year continue to basis, forma in we distributed prior traction the net million, operating for third Consistent assuming a business We ongoing the the of revenues was mix-shift QX $XX.X Services period segment results an year XX% period. compared the the ago in efforts VIP on product were increase our year X.X year, segment during

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

by mentioned, profit but dollars As towards an products, were gross expectation. I gross margin with was consistent shift our impacted ongoing distributed

quarter were G&A Adjusted investments Third on a continue XX.X growth. Note, we our administrative or XX.X support our XX.X%. make were million future services to XXXX, business million disciplined GAAP general or expenses XX.X%. and strategically basis product to and will in

Third think quarter XX.X as of XXXX million, XX.X our margin a considerations EBITDA adjusted few Year-to-date EBITDA you was EBITDA was X.X%. on are G&A and adjusted There of million, was margin additional reflecting business. note adjusted a about XX.X%.

comparable the not reported continue of on VIP apples-to-apples leverage. January ago, XXXX, of though difficult basis. that review it they would to I direct an as to is in a are comparisons highlight year expense we to As acquisition result the

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

believe the address to X company After generating cash offering just primary which following growth common the the our great have as end approximately to Now, company's of future but the approximately the of September use would Class A million of turning the of to shares We successful the cash balance proceeds, and is net giving of equivalents, related had after sheet. quarter, of XX.X third liquidity stock, in XX our XX, million and XXXX. closed offering proceeds effect million. position

XX $XX have last which remained increase on availability the in million. quarters creates shares In of to we liquidity proceeds selling in their by the $XX converted shares offering. of interest LLC September increase amended total our our will of on of for XX, of balance and $XXX million, like as income benefit and a secondary shareholders of a This these million over amount a secondary This million credit Additionally, facility asset had tax approximately cash the the event flow $XX interim generates tax a Class revolving with we a our years. tax XXXX. to approximate in call, offering, the shareholders step an all we deferred purely was basis. August is the it available including agreement to PetIQ million savings Class In total as next $XX the that anticipation A mentioned the Combined, our secondary up connection million item the deferred basis total from on offering, is and assets, reflected credit not B $XX one-for-one statement.

seasonal quarter Additionally, a on for comment slight third provided a of quick ended million which inventory, quarter. the cash the at and source XX

with maintaining inventory need. our in-line are sales levels We

in great receivable accounts and outstanding shape. remain sales days Our

Now, onto XXXX outlook.

XXXX have continued year. within well We reflect product year-to-date segment, the experienced to we our for outlook product, a distributed remainder are our primarily of strength sales as raising net results, our as from including our the the full-year

Specifically, we XXX are to full-year which sales increase XXXX expecting an our This million, issued year-over-year. of represents million. guidance of approximately of net XX% approximately previously XXX compares

represents an the XX previously, EBITDA in I guidance increase placement which to million, wins XXXX. to This XX XXX% are We sales adjusted XX% a XXXX in in closing. of shift the reflects million our customer new year-over-year. range reiterating In product mentioned of mix

about quarter pleased results call very with will remain turn growth that are the to I With excited our overview, McCord. future third back prospects. and We our

McCord Christensen

and pet the strategic wellness pleased we and topline and our in with quarter. industry achievements momentum remains are robust summary, third In health the

As about we we XXXX, very in product and are we look to of an we excited majority growth line position. excellent our are reviews our prospects. complete, The believe are

our like corporate all our goals. in plan. In your financial us nearly XXXX are Susan, our our year-to-date to to our the rollout addition, confidence Center their results. our team now and thank available field for robust I long-term and of deliver questions. achieve John, results help is to with of our ability would Wellness Operator? us outlook, efforts teams complete take These VetIQ development and gives to I

Operator

today Chappell Thank from question coming Instructions] first SunTrust. you. Bill Our is [Operator from

now Your live. line is

Bill Chappell

Thanks. Good afternoon.

McCord Christensen

afternoon. good Hi,

Bill Chappell

more year get to a McCord expansion massive all is a kind about can just three, you mean rollout year give this in $XXXX? retailers other that of store and it does us a path on year, primarily the you to color massive or look, expansion I little say, that Walmart a on are a how two commentary the talking does you’re then when shortening and by in

McCord Christensen

question. Good Yes.

talked communicate time I before oiled you team period to to machine we’ve well be and a how to to to and able is it. we’re that just running the accurately going the think there well get accelerate

months back worth we've next time we’ve would said moving that rolling cobwebs you make As kind communicated. retailer the programs is what get were before, be the previously the toughest information down it get of months The it XX the up the decision results the push get ran forward, was actively got similar off schedule and I that time that the the than John to because take us a months machine XX and XX to of by major and stronger took to pedal the and and schedule we significantly running. we

enough We locations. are with discussions and at in this enough stage

that our one are XXX will XX after of the more promises retailer our able next but between year, best We that the to on trying provide across locations be we and than more still we’re be in year. keep discussions color to first to

our the retailer fit a more program number well fall them by an years. it have could really as time think negotiations hit a and five we of next schedule and than in able we that retail still single XXXX, but are three for we and with see negotiations will year, hit We be the I to goals you'll of out partners be Those our accelerated think XXXX. XXXX,

to I be pushing think meet going we're to commitment. just next year our

Bill Chappell

Okay. And idea spring, distribution there? then good us new product for updates give any the of on now the new you a have and by you listings side, can usually pretty

McCord Christensen

Yes.

feel And ends, normally I few we look think, that us on leads We long-term path And like we’re through I working margin. towards the that of tying XXXX our path about we revenue on process the we’re track a we up. continue are XX% great at still that of the to we outlook we’ve this growth loose build plans business. the tell believe had would to communicated on along of that be think billion you point. feel we dollars to are a that EBITDA would and our I

to So, write keep there of is that front from we the or that now is us right going we momentum in see in this continuing the nothing that see us category to in protective our we of we growth ability around we and sales that’s and the business PetIQ unique at through have capture [indiscernible] disproportionately the channels. happening piece that look to business its as

year, ready be but a knock we Pacific this we position not to confident see So, great next some on won't saw in – distribution, in or our give absolutely any specifics to year year? like another retailers ability

Bill Chappell

side, ever here, partner not And on competes who guess what want is someone to we the why now but other last business, some, who to against from phone. who used health you're were me, of PetIQ would you, type kind of do study it. can the one of Got great on one with case market sceptics was I the are companies side. Susan then only animal on the kind you Welcome, from since

also, on to color your can Animal you long? little and a maybe PetIQ chose Health then and the so give on being relationship of So, side kind why background back work for come you us versus for

Susan Sholtis

grow to job, XX you continues thank emphasize I and business To because first on your continue accelerate. for to to to do questions. point, and excited be want I’m afternoon this Good and that the Yes. it for only the days and I incredibly foremost officially

parents I upon very the I business with years. with It past at in health John only to as of team end And real for and And really had an have here essential don't to think build their business. to And at many want quality, our the with in they McCord continued focus from need relationship day, all their where as the I a much do is proposition. partners about bringing is a of know, marketplace. disconnect couple a of care see pet that they you all. the the manufacturing have affordable

think very it is quite think I my clinic that and I in the We’ve moved, employees more are our is that everybody to to And to in finally, harmonious to structure I forward will growth direction to that X,XXX moving we we I and going fact, XXX number progress. it’s emphasize want in forward. continue and are and relationship ensure to we It targets really model evolve. that we to To destruction time. In one, moving to specifically dial then employees continues is the focus that make same moved from has make carefully having for know moving business mindfully important to And XXXX. do continue to that and as also for order in be accelerate sure business. needs sure drive all organization we meet levers have really to our this think our in our investing we record have clear demand. it’s

Operator

you. Thank

and from is Oppenheimer Our next question coming Company. today Brian Nagel

now line Your live. is

Brian Nagel

Hi. taking questions. afternoon. Thank Good for you my

McCord Christensen

Brian. Hi

Brian Nagel

Hi.

impact color more if just and better within short but time, discussed to products So, these, amount metrics also how these, prepared are the be drive sales in sales expense those little of see a stores? in is of having may seeing just and the starting are recognize how it your your there your initial you underlying yet, comments, the again I clinic performance the you maybe actually discuss Walmart the ramping a at bit but of are obviously of helping then round clinics, we of on McCord, little over to

McCord Christensen

for we it Yes, and to Yes. metrics with Brian. seeing lot in-line we the at question would seen have are rate key them Brian clinics. we the the schedule improving in in what Thanks that and is of expect other a early

are in know initial hitting there legacy in and letting on early an pet an and on and you are they line standpoint with per clearly revenue your pulled knew people better producing you be model. announced a the right in seeing a what pet we and that which then significantly this new was activities we faster our where business are up, conversions drive way you for the business basis, to moved are conversion targets kind to there have highly Obviously, pet of locations phase drive but the just a in are seen back exciting per we’ve we is increase count. We the our promotional You our – from cost promotional activity. dollars per pet have

that project we program we a that – about. recently. was time launched have There marketing the that Alpha at We talked we the project marketing just called Project

just and think you clinics has to the whole started program that different them and hitting we’re our the I of we recently getting clinic. in with them getting as in engaging it and and their path how a know level talked customer

of that out is, obviously already IP So, better being she expert here. is nothing, think and and health and the animal actually, this expert the but they the the from already this things week it. are Susan have week place of And type team and It’s work she in the that I to done. getting seeing marketing was that last we the

working right know the in-line with moving we’ve footprint is lot board you we to probably definitely a XXX the our driving partners much that we’re out I of a get we're our that across can the stores. confidence has first think we quickly can anywhere learnings We’ve in our that it’s from where identified the as phase you locations funnel, one schedule affordably office with to across country. up absolutely close go five learned final Again, right we’ve into and did and we’re also but nothing just said, open put with to locations structure the development and to next the bigger is. for the about, start we the is a way got are forward and now early, that the to so, going the ability regional us through it – And And prove progress changed, progress. we have

most clinics, and We our concentrating our believe definitely hire, are how at veterinarians can we the we opening retain our train, be within we where the result have we and fastest a affected from perspective. where will ramp

pulling balancing in The that And store thing our a and think business the levers letting right be labor we to real mentioned is, the of estate hours improving. doing selection so, I and process were in dug point side really We expand. is haven't position on where start other we last in could and right we starting standpoint. in every the to from things operation to

way these to making that way every not what over not nature and right bunch in us I of invest having right direction levels very All-in-all, a people we and to enough understand we’re behind things because for wanted We to kind are in said, feel are locations we're billboards and of for having running decision to but in the rightsizing It’s get for a are feel Brian, I things have grown just we’re now that But started so that to the the confident ready up overstaffing we plan stores specifics retail so. we business, confident the that, now of waiting ones the will because second working. then or and you tell us hour. you right stores we we’re and that is build frankly more pulling seeing. those heading the those with

Brian Nagel

That’s primarily, that apologize be looking at seems I but you open clinics and have discussed am mechanical very now is what way that’s the of net XX if a helpful. year, the A were follow-up question, you for guess opened months. nature, shifted excluding, missed This Why before to adjusted in this. now I if using I to I kind been clinics income or shift?

John Newland

Yes. wellness XX the that said, maturity whether Brian, this our internally, up. is enter looked the new John. into We or it That’s a when and at retail we’ve all thanks messaging clinic with we partners, is great along it’s question model new new our for markets model maturity and on or we ourselves been center bringing months.

at sales exact looking therefore should So, when way. be we it the same evaluate the add-back same-store

have So, and our we with operates. an reflect [indiscernible] accurately the way business just

Brian Nagel

you. it. Got Thank

John Newland

Thank you, Brian.

McCord Christensen

Brian. Thanks

Operator

you. Thank

Our Raymond from next from James. coming question Joe Altobello is

line is now live. Your

Joe Altobello

Thanks. Hi afternoon. guys. Good

saying, but right right your they obviously hey that or First about wanted is run and to the you we of build-out, rationale are is to in but number? retail the in can ask it we if the guys that little something you I more XXXX could and economics here, what bit center north your you or question, to touched have improving this want XXXX a are stores? the time? our run more acceleration And number is evening, centers the partners aggressively on for see the mean, have I wellness coming over

McCord Christensen

our balances, model schedule expansion to that is definitely receptive their our and expand are there beyond away there, [ph] at still are everything hear very to apartment. it our is voice. Good a rational and interest have the that people, base no more, clearly your Thanks in and their talking us to a retail locations aggressive being a on is and in a having we number. how of pet out pet nice about confidence addressed interested we’re our big enough you're The of feeling. is and and stores the how retail hard starting it to when the build fast and Look, about importance parents of towards, available pushing from we’ve and the but again doing running in there partners are If pressures some and set XXXX real a for store to Joe. intention online they pet stop estate XXXX. systems Obviously,

have to excited opportunity. we’re the So,

enough seeing expand. are to it of We out

put analytical We select are we excited to and locations out and be how there. more

indications all right are So, I the in think spot.

Joe Altobello

then And housekeeping questions. two, helpful. of I could very it’s sort No, if

second you sales a fairly First, product guide fourth does range, what the growth of or the EBITDA? end comfortable quarter upper be And your for quarter more the at organic the Thanks. wide ex-VIP? for was lower EBITDA would the guidance for imply in full-year end the

McCord Christensen

funny busy I quarter the a and excluding things so organic been calculated on efforts haven't on we’ve is the me. Joe, and initiatives growth, that VIP yet, apologize. other so so miss many we for and that it’s

had delivered in margins that less that all view customers better get year-over-year higher translated I the get number view I an had forward will that the seasonal execution quarter tell third I was from quarter, it of quarter weren’t the percentages. the it you the and produced standpoint standpoint, dollar dollar ton Everybody, in in you. it the it from though looked same most and will sat better even to biggest I of. and was impact want into we’ve categories, We dollars which biggest key We we’ve year-over-year, the as and going other We since the earnings wasn't business is company. seasonal but to fall quarter the see third that started from things. at quarter and had the the and standpoint metrics the a on successful a

absolutely So, growth. we are them had year-over-year that the categories helped best

talking clinic company. the the we’ve it core-based the of quarter the I is but but because Specifically, business all that the in had ever you I tell exact exciting, the will about are don't is have we time best expansion history it new, spend percentage, the will

Joe Altobello

the lower And end EBITDA or for guide, end full year? upper [indiscernible] Understood.

McCord Christensen

us quarter-after-quarter a we’re is know track we’ve I distributed our been the to to going that we're and it, guidance the above of our the to in yet. done coming for been the our at with change dollars change we we the we think, yet. to just it as there be if Joe, think are coming don't items that a better I perspective, had, sales originally EBITDA seeing so low-end us guidance end are the margin deliver we're of for have high-cost it of so the be about do process you were We business in plan you lower really to numbers, you consistent on in gave dollars still far have gross from those half, but be but what in quarter. look the in guidance, guided margin seeing says if that excited math, and you should fourth lower lot the

you to when more come guess talk time. I we to next So,

Joe Altobello

Perfect. Thanks guys.

Operator

our you. Jon question coming next is William Andersen Blair. from from Thank And

is now Your line live.

Jon Andersen

for quarter. the congratulations Hi, everybody. question a on Thanks and nice

McCord Christensen

Jon. Thanks

Jon Andersen

think continuing bigger that’s of know might distributed I lie, to has a I maybe products kind relative the or a shift back your higher wondering think look you prescription guess a to balanced does been this one my you’ve bit Let’s products you're you're said why out, questions understand and that you side as have see. at know where is on of the kind little always business, complete distributed profit I come own you more about the you you year that and of your there of products, grow brand XXXX chasing of answered, not dollars, case you opportunities rate towards Most and some the makes normalize business, your see see where but pronounced been just start OTC, and margin chasing mix? I'm a so of rates, to it the and own business brand. sense.

John Newland

business. the catch manufacturing market about largest and the business and times growing. are the is done effort billion more, I what have business it we margin on up they our Jon. and distributed are veterinarian dollar aligned in business business few there that mean players The kind doubt point. of this category, think to perfect helping better feel our going you're the concerted see HBH participating to seeing mix we ever our are Yes, absolutely get fourth the acquisition OTC improve But that with us business that influence no the across a with us from to in think our $X and our can spending is to coming consumable to pretty manufactured a The structure that money, growth. in we’ve helping very a the and is, that I dollars the business R&D see significant It’s products going bringing hard When we see retailers. had to items get job close is is to I with rate great the but say, a those back again, you're conversation expanding going and talking allow your there to the you're spend really product and goods new leading

with consultive be it’s stays the and the best to it of is incredibly getting lot are accretive and think, of that significant business, customers amount and leverage is product know product side we amount it out like the G&A is business of getting new business, significant going a news it a And future drive in healthy so going just on the of a what is, product is we industry from the going. are for help you We’re our helping through if and, coming of growth the I the to help great see total. fantastic all

but just how on time are a helpful, things So, now working. it’s hope good us that’s for right

Jon Andersen

business. Absolutely own helpful. On your brand

what do you year share you you OTC kind and from the wellness holding – market own at current of of tick and perspective a that distribution flea as whether and health expectations, any the look those say pet for So, brands, that next brands, your year? it are or be

John Newland

Yes.

the we’re the you look at and total lead with us of retailers presentation what in you that leverage to enterprise providing As value total position.

after It’s to a you that We’ve store manufacture. see profit the number of another way wins, existing more of about be will talk it fuel for once I’m the we of in increased board distribution year, contribute We’re an we but great of across the had customers will broadly, getting to communicated be and business. the our sure ready gains our items area business expansion going they to first on the will sure. counts have that we

know of for So, we’re lot seeing. but don't it products. the our looking we're excited the there, for out won’t and competition see things we business next about are we you bright there through is until is what what is our very year, lens doing Obviously, a and

Jon Andersen

be side? a what benefit tighter How you’ve trying does On working provide been HBH my with does facility. understanding owning you whether you're integration How would to anything Springville, product Utah the or them, kind accomplish collaboratively acquisition, else. to know HBH is, the on of within that your it

McCord Christensen

Yes.

been I think, we working have first all closely. very of

working the in structures integrated in building the been business have We same XXXX. since

mind, criteria compete. may The got is to with team meant had really us business two going So, one was one steps margin it market easy. structure of to before a key which commercial of the is you have profit the different two for did We’ve integration company, one centers businesses, frame independent big any transactions. for threshold the you had where P&L, the which to

more the lot structure know for accepted us. in would had have it business could in competitive be we if we're going to a the available past, So, we is what of and We what we we do there. know have still

out clean will strongly go and P&L, to think team I we're and One to of that accelerate and plan. here business improved structure. one it we out the close that’s able So, with structure is believe going a how growth be that we

Jon Andersen

I mentioned on by I did did Cord, accelerated that Excellent. and confirm then was you that comment say was let just you that, say will go, make whether lot that the One – one by business, question I to year? hear service one-year, accelerated you that you earlier it a I wanted Chappell you think didn't

McCord Christensen

out come it my has come mouth but before. did out mouth, my of comment not of today, That

to that the having and and the our a way possible. do team said we We we our that’s time, definitely out still think just be and take we grow in all have, from do but positive that that the schedule accelerated, if we of something ended to organize faster, self to original schedule any and think less we're do expand the have more, stores, that, the XXXX We in would time to do capital in a we you the an incredibly get company, hitting together. going the on it the for think development able that say to could year with we proposed ability but you're and a be economics up working schedule result going

So, more we're that definitely it’s Jon, to we start that put the that something organized possible stretching going as come ourselves to and get but on do. in board future is we to believe the a goal

Jon Andersen

though you XXX get year or first have right. a XXXX you have sure those to seems is where XXX really locations, you really then And like Okay. made two, it me

XXX sounds infrastructure happen. in of You first major role And it is this high operating have place, a Susan, hundred the part it part of then making like to it Susan's those have come about once of service know are at repeatable think you of business. a quickly. process the Right, process, we the becomes level, a kind more year XXXX should next as in an of investment

I get of to said, fewer and XX have trying staffing. trying may to to think like opening We XXX or to the you be, kind optimize just to really

about then to years. the the applied And in expectation, pet [ph] for of trying excited bake commentary know the too because a get comes and XXXX. future into a of kind for that of is, about in that people mix the up ask am I to and higher acceleration understand kind around this expectations set earnings counts get I so reason the talking to expectations XXXX, and acceleration marketing set instore You don't

McCord Christensen

take planning, that of to months exclude will contributing added that from talks new looking about start just now are stores of we our the the the to be the be couple a new results to what stores will have I a future start position quarter year Obviously, lot being goal first included organized, no of are online how how so, the [indiscernible] to build going view in XXXX. is Yes. detailed coming more like and to we doing which be to the give first The some are will clinics it a for see results think it taking growth first face lot opportunity a accelerate, modeling as of and accelerated means of after opened we we and the XXXX. we The in and maturing earnings our we in stores for months, XX location.

we clinics are Where we convert and And easy. will run to wellness in community Some got over very clinic. of successful health you stores, today. when community those very a clinic X,XXX

We the have moved big into that chunk those of a able permanent are be on to being clinic of sold. cost

that but option but that’s smarter pets, think been every way, get at here, gets the faster from that XXXX plan yes of from she that a a as better bunch but months. are to of on how is for yes, Susan it, it adds in affordable an the continue same-store to no best open we to added when We you Jon, looking of because be assembled really don't way, stores, brighter and profit year and in healthcare resources our and doubt bit XX part sense reallocates for just a there grow will to just we team contribution exclusion take a sales business expand and investment the way in piece already, the to deals we team a is that the

very a coming is going be in bright and still you're of in it see So, they that rate years. to but need you line, the to going keep fantastic XXXX a couple next forward to run

Jon Andersen

forward? all Thanks going questions good so for and Great. much luck the

McCord Christensen

Jon. Thanks

Operator

Thank you.

question Our from is from Kevin Jefferies. Grundy coming next

line Your now is live.

Kevin Grundy

Hi, good afternoon everyone.

McCord Christensen

Kevin. Hi,

Kevin Grundy

pretty on talk to retailers good as that this the looks would sort potentially call data do continuing positive out to is success back has steps miss anything question Nielsen just and or continues some in business you sort and are business? just, success you just perform can more is more, otherwise is driving I pretty of momentum competitive recently in the existing begets you specifically about well up changed or the more there of anything well the well, pick which products whether whether this Cord,

McCord Christensen

exist quarter acceleration what we in of us seeing a the the all of that a see but we perfect arm across we seeing is to the the that the in and front seen example story exciting. before tells I rate, out and lien a is in second-to-none a and things model, business. all then valuable and fire around we nearly in for Again, the to I years it we gas these industry didn’t that impact because first and contributed the are business very us to you [purpose by is such that of Kevin, the unique got mean, it seeing Nielsen equation. demand what considered and across protection veterinarians is data The really of past very what we’ve adding great seasonal the are the a you the third and a everyone the a company of it everyone put think total our infrastructure a car happens feel on back better all animal more that we but such that access allowed else. built] seeing this the numbers the think but very, industry this started. this not to who business health have that all comes as providing I just windshield as fundamental and We strategy have is, the the about business built the are have we’re because more lot pet more categories in retailer, a other need animal industry And strategic gain parent, do we past, in are mold participates

trying of taking to us going where just So, existing you an how limits guess is shelf-space expansion getting we going in all we and but customer, it like see now from faster are places than push anticipated it go, in competitors. we right are is can are Expanded away we to and we with the far success areas.

are of adding aware customers We are the providing value. everyone new and becomes adding new seeing aware customers, the becomes we acceleration we those as product more are and are that we industry

be starting quarter in it incredibly was like to typically the would why starting are against we we us because reasons things and are are quarter So, see go I results to did. getting the – acceleration for me, said, like positive you it seeing that is we

Kevin Grundy

the specifically Of the limited course, the days existence are to on to and starting early see with respect you all but clinics? side, the the business RX, an those at on to products side of of lift product products from related very services your and then in including locations early business,

John Newland

the is, legacy year, – it the nothing locations then what are is rate product added is like it said seeing in see our across business, and to compared number we footprint, only attachment that retail XX Kevin, a rate our and our XX we before, but we it and of chartable attachment huge visits with what have of some their scope VIP we the is base. locations and this

XXXX do even that hopefully it’s better, and it attaching, So, with ways the and are are finding happy but very but happening we we're rates rate we expand we the as that attachment so for business that projected, improve can should we XXXX happening a is it is the those result in locations product it few like out from we get our $XXX there that as doubt that to locations should, come no be million will us. will mind

Operator

Thank you.

Our coming Westenberg from next question is King. from CL David

now line is live. Your

David Westenberg

differences of Thanks in mobile have locations and in may VIP that a maybe clinics? even VIP what the past any seen congrats on services picked demanded in or the on have the quarter. seeing [indiscernible] newest for legacy big be at you you and taking locations clinics Are seen the versus some question great that you

McCord Christensen

there. Yes, new expanded menus maintenance requests menu and is see and and a bunch we some our starting wellness of of to guidance on-board our Because focused very on and seem health we’re [indiscernible] very with no we doubt specific looking that some talent the are service today. some things. we’re There have at

at service, diagnostics of We things provide and and higher turnaround conversion other to higher can are a faster time rate. do that faster just level we also

the things incredibly to that doubt no David, some early some accretive hopefully revenue adding going our additional the opportunity, will menu, be to be still things but days. drive we’re business, for So, to

we what will happens. So, see

David Westenberg

what’s then terms one question the you a that’s that in definitely of of last Thank the much. that of staffing maybe size clinics in strategy terms ramping for clinics? these been [indiscernible], a this And or look? I at rate, the number clinic on constraint just how faster run – so does of finding know

McCord Christensen

lot of lot in a a to Well, a lot I going to number we aggregated of we think and I around talent thought strategy have strategy but being it of we're and think any there if don't almost staff, are we model putting some know is that of But and how we always are kept specific right how clinics help high-level we harder had a and going to I strategy, HR say job. is a that’s that so this effort do do for definitely do. the community is

know up I and we get how done. against to think, know it we we are

So, let’s do go and it.

So…

Operator

comments. the session. further back floor you. closing question-and-answer turn Cord to of the over end for to reached like any We’ve the Thank or I’d

McCord Christensen

some such of year and our this for who look shareholder. protect core enthusiastic that all the to grow Thanks be and through delivered our quarter put for analysts great everybody a Thank the release everyone we’ve job and made today. for talking continue next results three consistent prouder in Guys, business to the of thanks joining delivering quarters we’ve progress and of that’s year in. the that we’ve and to finish the Thanks past team make to people our this ability we few the as and base calls the excited of quarter quarters. handled fourth all year, quarter base who the and quarter-after-quarter. and I we done and and you our listened have incredibly to is you Honestly, couldn’t effort we’re it our are business anxious as happen through days. for other into the the and year in deliver the Thanks next everybody. this all strong have all about forward

Operator

you. today's It does Thank conclude teleconference.

wonderful participation at this You you thank day. time We a for today. may lines your and disconnect your have

PetIQ (PETQ) 14 Nov 182018 Q3 Earnings call transcript