PETQ - Earnings call transcript Q2 2019

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Operator

This is the conference operator. Welcome to the PetIQ Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Jeff Sonnek, Investor Relations, for opening remarks. Please go ahead.

Jeff Sonnek

you. Thank thank conference us call. and quarter PetIQ’s for earnings XXXX you afternoon on joining second Good Susan present On Chief Q&A. John Officer; Executive call, Officer; is today’s Cord and Newland, Christensen, Chief available will be and Chairman and Sholtis for also Financial

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

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

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

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

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

Cord Christensen

we’ve plan. the afternoon, our everyone. growth we XXXX providing our will raised XXXX, on our the provide more progress will Health highlights you, related have discuss to as Animal and an quarter well as then Perrigo overview Jeff. revised Pets second by on detail a detail long-term made a from of in outlet John Follow review basis, recent and our contribution financial standalone financial which for acquisition. results our Thank start the Good I to

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

exceptional an an of quarter last of adjusted consolidated EBITDA XX%; quarter. record second $XX.X net increase over had sales We $XXX We of generated increase second of million, an million, XX% year. and

savings health record continued positioned services broad-based reflects veterinarian uniquely product growth in care sales our remains pet segments. sales offerings. Our across growth our channels for both pet complimentary service through pets’ products on PetIQ their increasingly seek veterinarian as net parents and and

in Perrigo care. deliver We make pets’ believe health further industry access our on our to lives recent improved we affordable acquisition leadership solidifies pet our position mission the Health through of to Animal better as

to stronger are teams continue strategy. to combined our more forward, on Going strategically our Pets and execute Follow the positioned growth long-term

accessibility. business continued include which our in which on trends business greater powerful of well as detail; being XX% little a is more product driven a segments forces, secular the quarter, momentum variety favorable Focusing by growing as for our demonstrated

that position marketplace greater the from in demand growing and value suited the ideally within retail consumers are Our is partners. our meet to convenience seeking

relationships, ever the grow strongest we attracting which been. all new the to greater category, they’ve visibility, are and is of which market. strength Additionally, our by possible consumers access made the the through consumer are is helping This total manufacturer

strategies executing both and to their our sales unique with online. channel existing SKUs partners with pharmacies results prescription velocity in to our We health within and see our accounts. all manufacturing segment in-store reflect partner wellness within thoughtful animal our support, drug direct all needs health are engagement the the within of continue our product consistent The increased pet And retail strength meet of programs community. we and

of product me. and for we With managing is Michael product held aspects relationships, the PetIQ’s strategy, responsibility packaged retailer where reporting appointed directly he largest brought Products Division. us a industry will experiencing, and the he and of be pet joined strategic recently and personal With pet veteran Michael Vice product within roles all our retailer, growth world’s care Michael revenue, consumer been are to to goods leadership various our Smith that from Division. has Products partnerships, has categories. on we Executive lead the President

strong leadership month contributions our retail significant a packaged companies, having Animal grow background, existing Michael’s at a has several look job, team to we he already integration pet Energizer. In including Michael worked next goods leading our addition Gamble to continue and the Procter and consumer the only as consumer experience, Colgate-Palmolive, delivered on brings of and over business Health products and his the we Perrigo forward to years. & the

June result flea tick a quarter, growth. channel For X.X%, through our outpaced business performed According down to PetIQ’s same XX, down outpaced basis and was over category and flea through and the it this the the result the period. in channel measured X.X% second tick measured data well date to Nielsen on June. quarter and category was Nielsen

was performed brands were line with market. in prescription up trends a significantly flea our than Non-measured overall veterinarian drug Our meaningfully and better channels the macro and up market. and broader tick in

quarter sales mind, for channels. second our Nielsen-measured were of sales in in only Keep PetIQ, XX%

sales our outpaced that in of Rx the dramatically were and channel. measured tick XX% and e-commerce and other in unmeasured sales sales The channels, which flea particularly sales channels,

solid generate distribution. SKU to continue and We velocity in both increases

to needs. continue e-commerce growth their from We and wellness consumer to migration benefit solutions for pets’

brands biggest strategies. online for We’re providing access various health the our partners, in pet retail to

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

producing rate categories. prescription Our also the all drug performed well our program of product among growth highest

us, infancy. very Pet a to animal our with still the our to have customers with our remain to and further as filling reinforces for health rollout but our of made of preferred time, addition and in more this vendor the believe drug wellness several tailwind commitment strong the for its prescriptions, prescription that online continues In this Rx pleased the pet pharmacies choice. PetIQ of program to category only expand as using pet this large optimism partners over be more of results We look

July, the on At long-term and to that of Health. Omaha, help And margin of accelerate manufacturing manufacturing we our as high scale state-of-the-art can such facility their complimentary acquisition us beginning PetArmor greater Sentry, brands continue growth closed provides Nebraska. with Perrigo transaction plan. located PetIQ’s in Animal with This

scale, improve all our into brand and and sales opportunities to synergies capture while product significant and customer our capitalize We’re and cost the fuel family excited to diversity, we team have reach and to on PetIQ integrated our their net manufacturing profitability. increase savings greater expand

of a highlight we as the financial a key strategic to expect like and of this result benefits would I transaction. few

existing First, their with will sales and margin and products. brand potential company. than branded profile the for focus accessible have enabling on now PetIQ for product expansion business PetIQ’s significant category, channel a even business, diversity veterinarian product wellness has the preventative meaningful stronger and a affordable, margin combined more high-quality

pet representing humanization, our the distribution provided rapidly aging pet pet pet Second, trends sales opportunities customers space a and teams this potential sensitivity rising provide that complimentary actionable with in rising channels portfolios. product realize and to depend to white care health sales where on to Health’s believe both Perrigo for in better and We that accelerate health PetIQ industry, and Animal growth associated by the macro pets the existing of increased ownership, the ownership, new costs allows there’s care. acquisition the heightened net opportunity us current more

procurement increased addition will Health to scale add capabilities. Perrigo in Third, benefiting greater and manufacturing and savings, expertise operating outstanding from marketing Animal

meaningful the benefits organization XXXX, more reaffirming provide to costs rate to synergies our PetIQ and future to more run costs million $X benefits XXXX. meaningful We Together, million expect these we than to $X and cost to growing provide expect by by expectation generate to future in than combined PetIQ. are

Our platform. greater the service of leverage due fixed and community the more disproportionate business another operating of achieved costs income the our and consistency our produced growth clinic quarter. offer implementation of our across key great base learnings growth of to realize customers XXX% to drive segment We XX%

since President, the is greater January. business last continuous and Our been VIP leverage. Sholtis have improvements see operating Susan as result, her a implementing to beginning And team acquiring

are service accelerating those and our extrapolating operating to model unit segment our incremental openings quarters center investments. capital optimize wellness business returns emerging clinic model on long-term community our position our We profitable in coming these and for we refinements and service accelerate to years the as growth

are XX in year-end. growth center an which seven additional plan wellness going was by our with our units XXXX the poised second We plan opened initiative to meet units The opening well. consistent extremely quarter, and of is

the and units We our will have our opening that open website be soon. highlight to locations updated XX

performance and some are prototype of to spoke an beginning such from quarter, labor, consistent clinics as wellness relationships. retailer about customer last their The week five, we our community convert mature existing stronger increasing operational per incremental with one as model is to but operation days by advantages of As significant day our we to centers. host engaged base

to and ramp our improves result, ability significantly succeed. is our accelerated, which a believe reduces we As positive drastically complexity to cash flow

we XXX terms clinics. In of units target convert from of long-term see community approximately of opportunity our an by XXXX, or these our X,XXX locations to XX%

our our as development partnerships optimal pipeline Our robust, criteria. and that continue we greenfield with new opportunities locations remain fit extremely emerge fill to

fashion. wellness are country across initiative. that to have and this provider with spread the centers are infrastructure team the rollout national the service in an like we we organized our Today, veterinarian proud the executing a banners retail only of different in six is in place this extremely I’m support

our operational affordable and achievements access lives demonstrate summary, the healthcare. We financial better results the through quarter services mission quarter health second make In pets’ wellness reflect improved believe the strength to well-diversified to animal of products business. PetIQ’s our and of for strength and pet our

population consumer to We segment convenience and of continues underserved demand brings parents. a value grow pet large, are the to PetIQ the pet for and targeting

second deliver believe existing strategy positioned new half committed profit will in We strong channels. and incremental look XXXX, growth We our to executing we against sales distribution across remain sales are to growth. and generate in and our to and gains brands where we continued well both a forward velocity

to over now I John. call the would now that, like turn to With

John Newland

Thank afternoon you, everyone to Cord, on and call. the good

products our and speak of clearly Our strength of portfolio results the services. diversified to

the pet message with health smarter and resonates Our parents. is unserved underserved and the pet pets

significantly As the over to meds things key continue and well category. the counts of are pet message Also, received. growth see our the grown growth drivers prior has has success. affordable prescription to access exponential our we two a overall convenient These and to up result, pet And year. market are in that been continued

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

by primarily within pet existing improvements counts. the driven segment within be Our greater operational strong driving which to sales service product well growth, as continue the accounts segment, as particularly is

Product was quarter second year-over-year. $XXX.X XX% compared of segment operating increase million, to year. an the million, increase net $XX.X were sales quarter Segment second of an income XX.X% for last

efforts distributed our We existing penetration traction well continue and to SKUs on excellent establishing on with focusing relationships. increasing business, additional as the have as new are our accounts customer of

and see that by believe needs, and more both will We continue cost-effective over and of we channel the channel our PetIQ, the driven carrying pet for tailwind from their assortments assortments distribution growth solution full robust SKU a significant choosing retail traditional increasing convenient an our is This awareness of greater consumer trend a consumers category. doors for to serve pet a partners their channels broaden as veterinarian-recommended as as products. wellness number in of growing

source prescription the supports a program retail retailer, are in fulfillment adoption across growing drug from and the pet industry of Both performed we traditional We channel growth. our expect an of to ongoing be brick-and-mortar channels these which located and pharmacies e-commerce this medication a benefiting country. of

the and key further animal within innovate expands manufacturers awareness health consumer As categories.

tailwinds filling. more our pet industry driving are These towards are customers retail, which prescriptions

who channel wrote In network platform and volume our growing with shift prescriptions able by pharmacy prescription the service broader incremental drive over addition our XXXX. X,XXX X.X to with in their million to staffed traffic to the veterinarians market, we’re

both strategies, PetIQ strong go-to-market brick-and-mortar across click-and-pick a future for for a all and sales runway partner growth channels. trusted is with

$XX to Service segment second net increased revenues quarter XX% for the million.

the year the the XX% second was wellness initiative, million, contributions $X.X quarter of our Segment to grew $X.X an prior operating income where XXXX million. generated increase from or XXX% $XX.X segment million revenue income year service second center we Excluding $X million. last versus operating net to of adjusted quarter compared

are refine segment enhance in and be place. further total driving community our leverage well great is our sales growth These a As pet as instrumental in his already organization to Cord remarks, ability discussed our fixed clinic done in model. service drive the infrastructure significant lift has long-term as across initiatives which job a that the offering to the will platform, in

$XX.X net period $XX.X sales the Second $XX.X last quarter XX.X% our sales, percentage Consolidated profit million XXXX adjusted margin gross XX.X% as million of segment as gross supported was or service service percentage profit of was further net compared a in by Adjusted or gross gross sales and for year. million influenced a quarter positively the same XX.X%. was growth segment margin. margin was by improving and to

quarter is to approximately expenses G&A Adjusted were in administrative prior XXXX, and or basis of general compared X.X% was sales, period. points which million. First X.X% million $XX.X the $XX.X year down XX

be are our as within efficiencies will scale-related that similarly As platform. product our service we apparent previously, the have grow segment we we stated generating

continue future product of the at support a after performance in services we half more first becoming demonstrates strategically we business VIP team to considerably by dynamic. through the investments this make business our growth, of and service we XXXX believe While investment of the our tipping disciplined that profitable and believe to our is point decades

increased Second in is to million margin year quarter adjusted XX% $XX.X increase X.X% margin which X.X%, from prior EBITDA period. adjusted and EBITDA XXXX the was an

The XX, $XX.X cash and XXXX. of equivalents Turning the of June sheet. now approximately had company million balance to cash as

$XXX.X our In available at our had credit revolving total was $XX.X liquidity addition million approximately to quarter-end, million which facility $XX million.

acquisition we existing new at on facility. quarter cash financing the remaining of million $XXX Animal Health. end hand million closed $XXX existing X, million revolving July second the loans with finance on $XX PetIQ Perrigo the transaction the credit of Following and balance and through term

points, As PetIQ cash our for part the our revolver was total basis manage believe demonstrates transaction, improving which of of of able flows XX savings we loan both to term business and evolves. quality that as in

an Health the ratio EBITDA June leverage of estimated would of of compared company giving X.X acquisition, million XXXX had have After debt to translates effect our year to guidance. as net which XXXX, Perrigo the $XXX Animal to approximately net adjusted XX, when times full a

strong that reduce feel business, place business we growth X.X capital balanced Due have to can Animal believe structure Perrigo be cash of generative objective. to rapidly-growing the products an achieve Health basis. by confident We we long-term should our in support turns that nature leverage to we annualized the service on able stated that our and

Now on to our outlook.

effective half the channels. to first in outperformed our of The that XXXX due expectations and channels retail part our to traditional continued cost of convenient alternative adoption

to We continue in business. our great have confidence

As such the providing for Animal the year. of guidance a Health PetIQ we XXXX forecast are the raising contribution balance and standalone our for Perrigo

results XX% increase net Our to consolidated which updated XXXX PetIQ XX%. least $XXX year standalone sales to for an represents guidance exceed million, of at and calls compares grew XXXX by full which

which our expect increased long-term strategy EBITDA adjusted results standalone net XXXX exceed updated versus XX% we guidance XX% year to target. to XXXX our at Consistent PetIQ exceed half growth XX%. guidance, second for well sales updated and an million Our least increase full of $XX with

second However, of of estimate the sales given quarter fourth. in occur net our we seasonality XX% XX% half in business, product third the will and the

As we’ve the we XXXX, and spoken XX.X%. versus will flat our be full about XXXX that adjusted approximately in gross year full approximately year margin anticipate past,

follows PetIQ sales million of of $XXX in our adjusted forecast, adjusted $X standalone combined sales $XX excess in PetIQ our have least the million. excess least addition XXXX; and we standalone acquisition of EBITDA from Perrigo In pet contribution our for to with net EBITDA expect with When Health consolidated of Animal $XX net as million contribution at contribution guidance, balance at million. of

our confident open locations. mentioned, XXXX communicate we’ve we these remain XX Cord the than to wellness new website ability our centers As in to more in and updated of timing

The EBITDA XXXX. greater the standalone XXXX connection than end acquisition year of full provided at company billion, the in center which of wellness remains to intends $X in sales long-term the net margin XXXX of growth on including was its Health adjusted locations. confident XX% update basis, approximately with company objectives its X,XXX outlook, Animal Perrigo a and The announcement

closing, our about prospects. excited performance In pleased year-to-date and very with are we growth remain future our

and are that overview, for Operator? I Cord your Susan, available With questions.

Operator

first comes Bill Please [Operator of Our line with your proceed the from question SunTrust. Instructions] question. Chappell with

Bill Chappell

Good afternoon. Thanks.

Cord Christensen

Bill. afternoon, Good

Bill Chappell

some you into out need you they results, digging I are been Rx of I the that out, their also to or what situation they big of going stores, are that to imply help that do online talking direct to would other could products noise understand there in and may that us of no kind X.X you Before your revenue to past how your companies. about to just pharmacies how has base? and pharmacies And and base longer any now if will product the the wanted margins market right month, about be of get then to months, plays – So the much – a online or those anyways? cutting what your animal how health that lot the guess over the and

Cord Christensen

Yes. to looked question through noise address been Thanks, to able question, appreciate has be to yes, a that about Bill. and of it this there I quiet and and directly. getting talk we’ve period forward the lot

all in two space under volume other in retail other the roughly the across excess of just XX% space. in total manufacturers representing partnerships and great that’s estimate a we animal done partnerships or Those the XX%. manufacturers have large two right channel sharing As the close largest major are we with now to company, the the two XX% are the of close with very the with manufacturers very and all health in

two where we it maintaining do XX% all majority through excess we handling we’re of pharmacies, in the that the large the XXX% large due as do business. a to share, – XX-hour online ones the delivery other and Excluding the and our things efficiency are still we of

relates direct online I to paid nature pharmacy online space various of we support map in to incremental and carrying as the represented funding what to pharmacy are marketing the XX%, of product is and of it in the change the all the our the As the the included heavily involved of business in they’re through XXX% the both of been and no total. alignment manufacturers contracts, our sides handling two providing And anytime This with that implementation the into business, online happening of and We’ve how with believe mischaracterization in soon. with going of large the delivering excess length there’s nature a And that’s strategic doing value the retail, which to we’re category channels the online. them retailers through that, flow policy across as manufacturers PetIQ. been order the relationships. far supported we both to on that that still led receivables the cash is see and being the to of developing inventory

I’ve market the increase And past a total the a drug our across company. our you that the business that, as for far percentage or prescription we IPO online doing. they’re confirm do on speak had to $XXX not do remember, significant in specifically business, much program not ask to out that. how seen I of we’ve in As will break million business. us the the They commented would if

end as run our number that And percentage $XXX XXXX Rx We’re of in against I the XX%. percentage up had the our a from the believe low now of that rate the grown total is million, sales into perspective. base in of At over over XXXX teens range. million, XX% $XXX low sales an

flea with any consumer that our macro to has of have trends well capture prescription, And we going the general misunderstanding of things nature obviously call I our such by our are together direct in of general of participation online a and key out to facilitate the relationships major helping us the sales. a the and information. transfer that that all about those so sales business. change their tick in desire dispels moving have channel way put with that a And such of growth that and I overall conflicting aggregation in the hope manufacturer the forward being would our pharmacies to player shows are very doing significant seen or and the PetIQ in both what increase

Bill Chappell

the to be revenue expect Just negative from don’t your pharmacies in to it in future? the change you’re clear, or to which generating transacting meaningfully at or revenue, the margin you for that perceivable side online least

Cord Christensen

the just No, opposite.

seeing teams we happening. the can have growth support of volume anticipate keep dedicated with so we rates the up We’re changes in trying daily the continued to supply what’s need weeks and to

Bill Chappell

I wellness but wellness XX% expected? then doing? plan And still How from turned on the just you’ve guess, in said this, on have talked update converted it. of conversions quickly about centers, you centers how they’re Got may an maybe kind on you being and have faster those are the the of, new profitable than stores that November

Susan Sholtis

Bill, Hi, Thank question. this for Susan. is the you

wellness are The posted would absolutely is where that centers. XXXX that we our website, centers. to to first hasn’t say a chance recommend building the to had XX locations if I wellness go the point, thing that petiq.com, the think to everybody for I we to visit track you want on And I

backwards I one really My was want optimize in to started October, step wellness model. if understand number how say a and to quickly you real back that just learn to take to that, objective remember. we’ve clinic

was that matters. location most obvious gate One of the learnings of out the

our end it developed our the be of for partners, model for a we of into both place, California important a building that we had success. us to discussions locations with in for and large Windsor, to clinics have retail win-win So Once drive because at partners. that was likelihood put predictive day a that here ourselves retail the would have higher model

spent time adjusting course. learning and So blindly we

to learning, the are number I’m our the that’s learning. to community But which number is clinics. So two secret call the critical weapon, absolutely one success. starting They my

because their our market mentioned to clinics. absolutely community Cord the as out our of there true importance fantastic how wellness in both model. a leverage John our any unlike and space, And learned to those it amount learnings You competitors learned them tremendous build into we it’s and centers. from relates heard We

will we of model. our to stay close clinics that continue from all XX%, track, be So of clinic to XX% coming on community

John Newland

year those locations, conversions XX community of this XX% clinics. the Bill, are Now

six as far normal gets that think we in opened locations months sounds something we EBITDA over the and As we’ll And did we bigger, locations a course. that is and around months crossed up those probably quarter, how about those lot and with position like a four those we positive fourth continue are as the size the progress sample share to performing. a

expose ultimately will accelerates bright but X run to we XXXX. treating the pet number from at to and drive want investment over important, our clinics a by is fast speed counts we pets a of more that which we position treat margins get pets a the And do our ultimately see over ramp just will to because But capital million million what the XX% to spot is treating is targeted EBITDA that community of pets. clinics conversion the X,XXX how very important. reduce to and risk, the And can see faster to

Bill Chappell

Great. Thanks for color.

Operator

Altobello Please comes the next question question. Raymond proceed Joe your of with with Our from line James.

Joe Altobello

Good guys. afternoon. Thanks. Hi,

Cord Christensen

Hi, Joe.

Joe Altobello

wouldn’t your deliver growth first, I year? guess, XX% questions. couple sales your But typical there business a ex-Perrigo I to why you’re ready not is any talk yet. understand base XXXX next reason So

Cord Christensen

going of the that no job shouldn’t. the the predicting reason that we have Joe, consumers continue why to Again, to it dirtiest we rate come into are channel. see

conservative means And indicated than The keep more base but and seen faster isn’t so that that’s over more people and meaningful, nothing continue far XX% gets normal. to we’ve at bigger we be a case. which coming pace the is

updating us XXXX not not from it. away is guidance our And shying us

We’re of well. season. It’s the review in line extremely going the middle

we what to better improvement than it’s a XXXX can year. We’re of getting people for for is message XXXX what we what think want already will should accurate end waiting we’d and we’re we negative the can at I more XXXX have expect be we’ll will And it we news. be expect news on And positive, the next the when really give that be – about more so messaged. delivered not that information

Joe Altobello

And declining. part business been reason for been right. of All the It’s big growing for of part not XX%. has or And that a has at the that then Perrigo PetIQ. been reason the

you you at can do to think how get Perrigo business XX% the that grilling rate? So quickly

Cord Christensen

Perrigo believe will XX% Yes. better next The deliver growth base business we year. or

of a assignment been XX One gaps. the We was We quickly there how strategic and meeting of the team entire on is days straight have good able close. been leadership closed has teams the days, day of had match. last the to how we’ve The transaction. surprises culturally aligned, three great kickoff planning account into we with went them then across the item

of now confident to was return I’ll in that if we out decline profile growth sales business. the that of problem total, best very it customers, that’s don’t significant very trend in the opportunities a part the on surprised advantage, we’re have for us very of those going is would is have the yes, we’ve our company they quick in and since And I their all business allying our meetings extremely margin And, that we’ve consistent past. had we’re the there of but on And have market. meetings of rate had what with a us, say to exciting be going which back because had

Joe Altobello

Got you.

guys. you, thank Okay,

Operator

your proceed Our the next Grundy with comes Kevin with of Please Jefferies. line question question. from

Kevin Grundy

quarter. on evening Good guys. congrats the and Hey,

Cord Christensen

Kevin. Thanks

Kevin Grundy

sort there, revision big least it XXXX playing change of the just on at as Cord, the in the upward down on for both with business with on seems in break you clarification of general expectations, guidance, respect point like a no you to services see fiscal line Rx, the side, relatively then the Can side out. us? was product the of the then quarter, of the and where to and sort guidance upside

Cord Christensen

are it’s I pet catch. about segment the clinics the counts where we think as what up, the number has quarters. past actually we’ve better is that are good Kevin, down than but in reporting talked of at expected base Yes, start year, service the been doing of

obviously, numbers base into that better the we’re good And a fact be did earlier to of kind have thought the new will with and are coming the in and able the wellness we so year, community a that number, maintaining significant doing larger that has we contributor a we’ll to centers been from. report acquisition have surprise than business. clinic, So next the start optimization our and clinics to

So that’s the good future. news for

business we with been anticipated total, Kevin, the has we’ve across categories accuracy be numbers in been from and been in in increased space. company the our accuracy able see to upside from right and incremental and to the prescription and with excited line growth expectations. the from those that almost to the drug been attributed free prescription the service flow all project perfect can the virtually the business, XX% the XX% drug Literally been and of contributions those XX% and numbers balance remaining being The have The increase. we’ve budgets program has to Rx budgets all that slight except

channel beyond the for is the what we’re and a had consumers line seeing still business anticipated the been the for traded expectations we performing And our have and what than and business has in so product is drug expected our nice what business into surprise It’s I definitely prescription over accelerated think more for results. in with XXXX. we had total

Kevin Grundy

that? cash follow-up modeling a John, for So flow cash correctly? be should from which Cord. guidance. here we next for I a EBITDA. EBITDA pace Because pretty that given the half free the several free John, the should here accelerated hear perspective should Is that is roughly where years. just with the you of way growing about over will one thanks, quick we business ramp be the significantly thinking turn what flow be And did Okay, a that

John Newland

Yes.

didn’t upside as a it So for leverage the growth is is modeling, there There of with should the year. of EBITDA unallocated per this net in off is upwards top a X.X turn yes. Kevin, potential to X.X a It’s we cash of but that on well. all of could turns of our based free it. half off time associated be That we component message flow current that, based to a see. expect

Kevin Grundy

Okay. I offline. there we’ll guess take will and leave I then it that

you, guys. thank Okay,

John Newland

Thanks.

Operator

question next with Please Blair. your proceed the Jon line Andersen comes of from William question. Our with

Jon Andersen

everybody. Good afternoon, Hi.

Cord Christensen

Jon. Hey,

Jon Andersen

overall about of could little out, in And mix it to that now. on of brands towards XX Does your if opportunities e-commerce distribution segment business is, maybe are bring your profitability more that I kind to I and there specifically the own business right business. the of of bit talk you to more was the or SKU fastest mix relative Because more think of and quarters you pursue as can more a the more up? sort growing that mortar brick just you going pointed business, it prescription? growth manufactured the now portion the business wondering that

Cord Christensen

Yes, great question, Jon.

I answer I’ll properly. So hope it all

that those I business think virtually introduction has online significantly is the I across question. business as understand online And we’re the with programs XXX% that retailers. The all distribution know ramped you a the based. supporting of Rx

And to that manufacture mix not company balance we online you online currently so across as the our the up at normal the business. is have mix

we with meetings and the We’ve that partners exact doing we’re together top prospects seat online do there’ll Not organized online relationships in businesses have had other mention been believe other very on. of that’s been into some the heading to to things that very negotiations that gaps open of that well, the are recently, with a running our one already back our the with due be top place now items right been at and to be I’ve the direction built even about the personally in to retailers can well Perrigo to had had lost. over coming addressing retailers how of realign that that a will bigger business and should things excited XX that are the all in are. and we there. going of And the that being the we’re subject that growth the the number next contribute things about where table large the dialogue one online space the start we

other it can It time company margin distribution of expansion goods. get see drive we our the parts as that mix And improve. will that hopeful over where and our out we’re So, in to for the do across as mixed place participate significant get normal yes, business. will manufactured we the to we mix very a

Jon Andersen

that opportunity And the Thanks. within helpful. kind facility, Omaha to have capacity that’s the capabilities plant that on Great, bit utilization? Perrigo, grow just you current of you the of How talk you acquired could much facility? with a about that little

Cord Christensen

would considered The the actually significant virtually the liquid Yes. acquisition. of It’s the of has to it. a health has and item chemical capabilities produce that everything component be over-the-counter that one an parts most wellness or to plant

location. caplets and as chewable well that tablets do also tablets some We and in

XXX SKUs and I’ve form one the far as just all the EPA cleanliness, So, and of of different the across the career over do those today products. been of my nicest certifications, factors. plant both they’re is The plants as automation amount ability producing related to in FDA

they proud So what we’re there. extremely of have

well side amount as the of just there has its as seen is It then I’ve and of well. with business the The as pick one how the automation. build advanced as the well of are in efficiencies pallet there distribution and most

came that part excited those extremely about the we’re over So as of acquisition. assets

was million, at From back, a of of And and that run of million, upwards true doing it business. there got public business Jon, the had information to $XX million the capacity business volume. its when go you standpoint, peak, roughly rate, there’s really out at capacity $XXX you million $XXX was when closing, excess $XX if

more additional business of we than virtually excess So the investment. with no or can XX% double there’s in

do the so we hopeful to shifts to well and days. up The and get in the And more out run we’re run things and we’re to back plant Streets doing more needing being

So I’m to able to very going contribute overall excited about what our be opportunity future? company’s the team’s that plant at that to and

Jon Andersen

– market if product that those the think share have coming lot are Okay. manufacturers? or your well XX the positioned months. you products with XX you the been primary Are And are months accumulate there that factors has Is terms new or there of in business next form you any category prescription – driver. – case, then anything that’s manufacturer the over well relationships of the to potential positioned to

Cord Christensen

Yes.

the the next Obviously, year part going those significant new those not like what the to disclosing have of market. next out been our launch launch year we’re the organized So because manufacturer are significant part partners that’s years. able fun things after. be that of items and coming couple to being that will items on be those will But that launched an for of open this surprise is the forum

would just And significant have It’s items that also program. in drug John, growth effect. overshadowing the significant to had been our clarify, is I We that an more than had just we’ve pipeline want in development prescription we’ve there.

far prescription has how the over the program our Just overperformed expectations.

incremental value we everybody been contributions. normal And the gains, run really said, that XX% distribution the across and has we all new items, for incremental did we’ve and been the so growth prescription and base to It’s start to off businesses expected. take like just excited just create about program happened the what drug

Jon Andersen

just one last And Okay. me. for

program it them measure brick-and-mortar and that a try not I So and prescription anymore, home from trying that? volume. dynamic. capture part the sounds you’re involved are continue I and think customers, doing a little mortar they to and time, like, outperforming treatment retail incentive more channels. brick to the consumption standpoint, in in what I’m try bit and but, a business flea it’s for retail drive big know Over just does And tick kind what the whole about more mean, of that and to are to get to your of category the in trends combat traffic service

Cord Christensen

pressure had to category. that model no has of consumable to the space strength consumer shift innovation of happens. heightened participate plant topical chewable we��ve the awareness a is and when seen definitely Hence we’re We’ve due of the amount where talked where Yes. in the matter always the that it the some tick the side positioned about category our to

it’s it so been And communicated we would. as out played exactly

category I is the think year-to-date. down roughly separately, X% overall

that with to our we’ve feel about great the and we’re support If we out decline topicals. topically, make can able be with in to working at how our sure kind actively you best and there look been the data doing the partners brands we brands, near of we’re nowhere and

you of said, a business. our it’s part As small

than they’ve They’re acceptable for leaning an into leaning on us prescription to redeem prescription. is more ever services. about. place They’re They’re talked their in people getting Everybody smarter. their with programs, being doing

is we’re So getting fantastic. its own side the that support on in

market, they’re and product. are leakage I down about large getting the Which retailers think how and they very how price of strategic think taken online compete to more place. some how brand sophisticated brick-and-mortar is I with on retailers slowing that’s much how they being they

so And agnostic. again, we’re

we’re We store have to factor what benefit of support in across and form or of to the channels John. total from type the retailer. part or positioned any any happens any

perfectly to to the So do of that to, now kind well positioned results we’ve really deliver accuse delivering. I continue and been right think

Jon Andersen

Okay. quarter. Congrats much. on Thanks so the

Cord Christensen

you. Thank

Operator

line of Brian question. the question with comes next from Our Nagel your proceed Oppenheimer. Please with

Brian Nagel

Hi, good afternoon.

Cord Christensen

Brian. afternoon, Good

John Newland

quarter Nice

Brian Nagel

question. first the So

I the would you were aggressively quite on the second occurring The in wellness product these sounds follow-up occur the the evaluate And you’ve overall but it’s center as centers, about, the particularly on stores sales in more But to How, location. product understand now question. as a the performance the shift any of initial a rollout initial think made good. bit early, as how on question data, want should these be centers you stringently to of the stores? commentary it’s and centers, the now open? wellness I and started then just read these that better uptick question prior sales of more the think at we – I your looking wellness know

Cord Christensen

the last seeing the learnings obviously Yes. Brian, and question. more obviously, we’re up quarters, that to appreciate and we’re in things with few base. the this open I knowledge pushing the I talked that about applying mean we’ve and that we’re

first from The locations said the applied those locations have Walmart. those started Susan funnel we we built our were last opened decisions that with locations first make which the initial we we location learnings end As matters, of the opening to year, conversions, would been up first where at the matters.

with So from results decision we’re getting sample size our to The positive start very bigger going is seeing that. making. significantly

But XX% that that faster. we be another much size in we the as that segment clinic we’ll did almost that we in on selected That of times, locations greenfield information we’re opened is continuing going next up are mature, and we want are to providing gates the space. good things to again, confident Again, out ramp that two the have it bigger the community in sample consistently those give and sample small, more few we locations have what a that we are first I locations the the it’ll So come us really a see of we to I at the think excited spot, but open. XX to and type have out because think. We’ve of it. is in but see the of that center, had be wellness seeing a when now size we that change are

Susan Sholtis

from – the to most that you, seeing most we’re data something the want add can exciting too. I of just as recent Thank some I probably, that we’ve Brian. an talk you We had the opened about additional, of in XXXX, they into that opened. well previously fourth three that We and XX%. quarter centers exceeded by we basically heard wellness Cord budget is

opened clinics per So second to that wellness per four four of XXXX. year clinics do those that based incredibly ordered of going in where additional really clinic well. we were to quarter All centers our to work are we on continue at Cord quarter before, metric, pet. criteria all And centers an four basically closely that set locations they’re the this very incredibly pets doing But based on open and we of of the we second dollars well knew said look performing as well. and the in busted same the

Cord Christensen

our in the a past over had month seeing drugs the the in sales We’ve in any talked obviously clinic, don’t past XXX, a ramp drug have hundreds that and when trajectory sales product $X, sales stores The dollars a veterinarian the versus medications. ancillary to in for into been the question, counter your $X, veterinarian, up there’s the program we’re $XX,XXX, where of in not. a the about last the prescription $XX,XXX in XXX, whether prescription moving it’s month significant and in places thing change immediately

significant also We’re increases. seeing

today and we’ve stores traffic Windsor, year. focus was year. on significant of a California first the those this the half today, been in veterinary in back about at the strategic as Susan So But importantly the health the working more contributor to with of next As what’s and half involved I are plan happening the in

of going coming what’s well we’re to in And front be in.

caught be up we were going now a we clearer going learnings that about open – to into great on be the information. to And locations think talked be going But a that probably, balanced year. to that where the I should you’ll gives you Brian. see able PetIQ.com, open. to if you locations coming, going about what the you’ll on know will see be how a that cadence the go and website cadence now clarity quarters are as to see when from also we they’re we next feel you for have There’s to where what’s banner,

can to the I contribution that even to able start track confidence more coming. share we their can they metrics we be the give results should think getting people and more and see

business. service a it’s our in So great time

Brian Nagel

the all appreciate I Well, color. Good.

locations I website those question have, call’s it lay at as I and going, the just So well. looked out extraordinarily your the does follow-up been

As which about locations I year. of XX the the we balance guess think now, over

so from is recognize but of operated, I how the these months that? opening XX of how locations there through coming are half four here about into already is balance technically XXXX? you’ve next risk risky locations is or the So much

Susan Sholtis

take Yes. There’s at Brian no that well already are Those I’ll centers risk. zero. underway.

said another and did completely on we then well on that things the team as team Cord several got in XXXX. that’s And of XXXX one team that’s that as got months one think we’ve split build-out. too. I We last focused we’ve before, the focused the

they’re we’ve going year. already XXXX. into this committed to retail to, partners deep there, clinics already for out already we’re have and planning The that our committed are happen So to and

Brian Nagel

final XXXX and question me, yet. about looking gross and we switching then should XXXX? a think recognize it. haven’t Got guidance we growth, we was at I in QX, And quarters choppy beyond gears, you consider, then puts think that the the given for margins, margin, in as about just look but gross here on but stable it takes into How But before. the XXXX

John Newland

Yes.

we’ve it to way point. Brian, the that think, think are And continued about actually only the of to I extremely our the the thing margins messages stable this business. is at mix best

have levers never to have margin business. we’ve in the allow ability accretive us that so the And had to more

those delivering and of objectives which now As And you because expand, other toward get to distribution kind the chasing we in service of that. know as earnings. in there, all the the billion think And direction. we you’ll business improvements participate our about the margin product see quarters manufacturer margin we’re a two of the going business it margin be always we stated our row business makes to profile is $XX a the and have that

day, what you And the so G&A end the know is extremely at stayed stable. need of to

with of ton more a people. same business amount doing the We’re

be well and the can at plus or to a and significant leverage in had above we’re think or grow and margin, the have will why to off we’re I see the the accretive, the we future. where is very XX% positioned XX% mix it’s the back with from improvement confidence see continue you’ll expanded into and X.X% is to the then that margin XXXX we going we time grow So the good there going on into where track businesses on even to is in be in all which point chart forward

the feeling coming So about we’re out, really together. model it’s how Brian. good how building

Brian Nagel

luck Okay. and very Congrats much. you going forward. good Thank

Cord Christensen

Thank you.

Operator

the of with your David Our comes next proceed Securities. Westenberg Guggenheim from question. Please Line question with

David Westenberg

taking on for quarter. Thanks a congrats good the and Hi. question

of known describe maybe companies one product for volume So kind to describe that two can the respect of that – big at for Would innovation? company’s the either maybe known XXX% the privacy, you you the with retail. least maybe you of them have in

John Newland

about Or a probably talking from side? retail you Are perspective? manufacturer

David Westenberg

Yes. Like that.

John Newland

I and and who mean, share hard are. tick are. to The it’s they in Heartgard, one not medicine. Dave, I they is one flea heartworm say chewable the definitely in everyone Yes, or mean, number share

incredibly an innovation derm space. That’s company of The as in is standpoint other areas well well. number known strong in a from the a one been

So, retail. yes, product the their they are global comes maintenance extremely and well preventative but products, that type which maintenance to in known is performed what of base strength high-performers

David Westenberg

you All right. you. Thank very much. Thank

And they’re the – something that they from Bloomberg conversations kind of hit the Elanco. tape rumored today was being into was with being

one’s good online Now From of really market with OTC. say retailers, at retailers have the one’s power. kind might the that, same be, and might you relationship maybe around justification a of kind the good at possibly Rx,

might you that So right what’s pretty having Perrigo prescription for have and and change what’s your having thought asset of in that, now And the that you like kind OTC now? be have valuable. conversations maybe

Cord Christensen

in you talk about strength then I and David, market. question, the the talk you acquisition targets not sure follow I’m because about

David Westenberg

Well, that. rephrase let me

on So, of I thinking way having you company. right the OTC just can be their and maybe rumored and the maybe kind maybe Elanco now, products the impact talk prescription might Bayer, but the same market of of about kind they in

– justification. just and kind be just you had landscape What thing – that, just thinking changing similar maybe You animal about regards that strengths in of maybe have that? a the with and to discuss that – would kind dynamics, have market guys of health a

Cord Christensen

point where we’ve gray where where we’re talked and that gotten no has everybody a the a a anyone virtually means to business smarter, sure to go that data people is and have I we’ve to no make has done others right. real us think, allowed in left which place which obviously run at run done Yes. and have to the market work gray all harder done business with from Well, now gotten working there it’s market with you diversion, clean to about

far behind are heading animal is So days direction. how on and I going in general, in I channel, hard our right the be the as the and to think the it’s received focus acceptance the as us of into think health future

not about get back which work clinics that’s we’re a positioned significant a retailers a that only drive one is space. that in of fantastic PetIQ actually companies means the the category the they’re foot the going the is and glue of pets because Significant means with the business handled, in does that today of to do the channel. they how everybody participation that growth, how significant increases to well partners. we’re product to The not but about into is involved feeding and that driving to we this participate their vet few companies significant also extremely normal and this we’re manufacturing few one bringing supporting participate where dollars, job should of part very building rewarding balanced Us margins profit sales delivered we’re gets in new to in traffic be have reinvesting well incremental space.

to strategic I rumored participant mean, to grow people about being of job go that I the better a smart I’m thinking that we’re think this do And And the are creates more that us space allows compete. the all has things enough surprised we’re how other and now. doing nobody PetIQ become to in I know right and do in that ability create to for a think in they how not and value at. space really leverage the continue that is to be to

couple had both more the times from But, to the still it’s we’re a to still being business, are much and acceptance the big significant last is we as days the things. driving we Because when go there’s standpoint so share the come, percentage to just we brightest is years David. the still to see and be growth of excited earnings, future size progress of four in and are and are there still gains we’ve believe much where with early sales very made believe as and as as almost that the

David Westenberg

I the appreciate the able had necessarily answer comment on being difficulty to without asking that in that’s to because rumor I you having question. that

just guess expanding do So last in if thinking is you’re about for pie, as thinking question how kind And you be may offers in a unique sector, you, and to for competitions wellness competitive very thrive think way as you it’s in of well terms you model kind business being more because of about and be And do competition the see expanding competitor different might is for the of of clinic Thank awareness? the Susan, see it anyway, competitive, it I this to veterinarians or good doing do that, that competition of last your that’s practice maybe a the knowing appeal certain customers question. labor, competition demographic? space.

Susan Sholtis

the I organization. honestly, see I and you, as an Thank benefit we’re am Yes. David. the on I really, growing pie that’s focused here in what

XX% on, most customers veterinarian a past our the just that we our excited that I’m data haven’t owners really a One our understanding off, of our a years. the which three back shows recent to kicked about good is projects seen of Right the get that consumers segmentation for pet of results now lot better.

I the better think going owners more for better too. honestly, So pets we health all care for all focus that growing as well the we’re providing and the at that that also the – pie, to on pet be

David Westenberg

everybody. you Thank

Operator

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

Cord Christensen

In and products, PetIQ help partners increasingly that our to services of our believe demonstrate the closing, results. solutions pet they with we underserved connect and are differentiated We year-to-date very proud provides parents. grow

the key are animal sales strategic be partners executing that health PetIQ shareholders without all of we our manufacturing had lives improved support affordable make health community, which alignment and far day better always raise as the channels, The success our on and team, pet through as access thus who to would dedicated pets’ mission achieve. well and to we’ve can execute enables care. to not The possible what challenges bar across to every support plans business on consistently smart PetIQ’s

thank attendance. third when your great again appreciate participation with day. speaking rest results. of forward report for And our your a everyone We you look quarter to their Have today. we We

Operator

today’s conference. concludes This

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

PetIQ (PETQ) 7 Aug 192019 Q2 Earnings call transcript