PETQ - Earnings call transcript Q3 2020

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Operator

Thank you for standing by. This is the conference operator. Welcome to the PetIQ Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Katie Turner, Investor Relations. Please go ahead.

Katie Turner

you conference us call. thank quarter PetIQ’s and earnings XXXX afternoon for on joining third Good Newland, On and Susan John Chief call Executive Financial today’s are Officer; Sholtis, Cord President; Christensen, Chairman Chief Officer. and

from management issued Securities could results adjusted remember to time Commission, implied expectations please and release management’s the today the this statements begin, gross Exchange we or statements for may the are and management that forward-looking differ Federal materially Before make call, of could current These a statements. measures, refer cause course expressed during of actual today. made differ from of described call, beliefs any adjusted refer statements with Laws. materially profit, on meaning to net on within that among the those including actual uncertainties and involve detailed Securities in annual Please those forward-looking risks risks non-GAAP events today’s XX-K reports company’s press note into and the to in the that company’s EBITDA, these Form and financial Please and discussion to or on time adjusted others. certain filed will from report other forward-looking the income based

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

the reference. on presentation In I’d to addition, Cord Christensen. for a to like over website PetIQ And call posted now its supplemental turn

Cord Christensen

on overview Susan more our and Katie, quarterly We results our detail. you quarter. to good will today for John the detail results. and today results services our will begin us will discuss segment quarter you, in our and financial third I afternoon, with provide discuss of appreciate third business an Thank joining strategic everyone. financial

John believe our will The model financial this available the Susan, has answer the and diversification financial of reduced us has of questions. year. year-to-date some helped results Services to our fueled and We really Finally, business be Product impact I your segment. from segment the

positioned you of incredibly As years of our for dynamic there challenges many ensured second was capitalizing business prior includes as best to team, pet this were wellness stepped opportunistically on given hard. and than our be of for health our of third whom This the possible our operating business solutions They not to products. in as a was impacts the That know, COVID-XX. and where quarter all navigate from I business PetIQ of worked and XXXX environment. could on areas proud up said, collaborating harder and key need

As and temporary today’s I an episodic extensive the closures. demand atypical has This business year segment, press our Services in our we surges of release, and clinic resulting in the for Products veterinary business our in trajectory. planned in noted made majority than experienced XXXX, in have we on our the for programs and year-to-date indicative less comparisons confidence comparisons and measuring future of already momentum trends. key year-over-year quarterly underlying when our cadence tremendous year-to-date growth results strength our Based

segment more company’s in sales and history Focusing delivered in the in both largest recall results for detail, product quarterly our on that quarter the QX, the profitability.

profitability in the we product that compared to result, sales be QX of quarter to would and and a year-over-year both XXXX. segment you communicated As second our down

at sales partial to support retailer resulted were contribution early detail. discuss adjusted in program an product of due from more more guidance we EBITDA in key quarter transition below to segment for While our a unanticipated from full Health sales our net anticipated than benefited with will owning a expectations. Perrigo slightly a down end of Animal we this our for Capstar, This John the a lower growth and XXXX. and

believe of is volatility outperforming transitory that net COVID-XX. this and is Products The expectations year, a segment sales result over the important XX%. takeaway Year-to-date, our the is for up here we with original

years confidence many in As distribution early to a which and we plan XXXX with result and ability beginning expect longstanding next our This our retail with significantly capacity distribution grow and in continue year year. of production in partners, our work into relationships supports e-commerce this to grow we come. also collaboratively and to invest late partners, to to our PetIQ’s and

the XXXX. we to for XX% Capstar. clear sight conservatively the million acquisition successfully During a Taking greater Capstar, we achieve for $XX QX broader months, X the segment business than over last Products completed year. at business grew of will e-commerce at year-to-date year versus quarter, believe up looking were was the the momentum greater incremental stated it line EBITDA our of full this in sales of and owning the look quarter, for have results And XXXX. closer led than contribution after of our we When the of market, third that into by our continue we believe

Our e-commerce business up year-over-year non-Rx was XX% QX. for

excluding XXX%, Capstar up was business e-commerce or XX.X% including Capstar. manufactured Our up

on is winning team paying emphasis retail at e-commerce both off. and Our Products

Shifting mix our to Our our improve manufactured XXXX. in reopening XX% continues team beyond XX%, QX. Services executed see in plan to organization, and mix improvement sales historical the distributed quarter, the for to expect our sales aggressively further product and we

to and wellness our the pleased are of of mobile XX% stages stated our We all having and clinics segment reopened, reopened. in centers objective with Services final reached have of we’re the

is line prior-year related we an profit This absenteeism. count to XX% to by our to average ahead caused continue caused per in demonstrate having in calling to returned COVID-XX of that close in of openings pet, employees clinics with to COVID-XX ticket pre experience to and due our period, pet continuing hope COVID-XX are from from across our for We numbers Services have we the Although clinics by XX% would the the headwinds contribution operating employees’ operation the we very with operations. network. we illnesses segment expected year this prior The to those below closures. the but in that symptoms soon, with albeit quarter expectations will are improve temporary services line were our expect individual as national pleased results are are the report delivering that and

the approximately approximately third was EBITDA. of these Our revenue our service management $X.X closures Services for in the operations quarter the of of remain Total July EBITDA million million if the adjusted budget. the closing been would healthy temporary for segment Services $X.X we of during the adjusted and a segment million million approximately that financial $XX.X team estimates Despite Capstar and Services the segment closures, and have impacts revenue position. in on achieved $XX.X of quarter its headwinds XX,

on We our under and continue to financial credit existing cash revolving flexibility our have cash availability hand, ample generation with liquidity and facility.

future in in our our growth segment addition to Products Services for trajectory. fact, our In manufacturing to also long-term strategically adding capacity investing support segment, we’re

XXXX resources to We doing to have Dr. needed beyond. a Lauren on an expansion Susan in of and our the to pleased robust Officer. telehealth Chief organization our working are Olavessen with support and to fuel both growth She’s job as out our excellent build team Medical

and next strong enrich uniquely value. believe PetIQ organization products never wellness a as center remains our parents with access mission and been and convenience We for a more positioned in platform options a improvements distribution In unmatched stronger. lives services convenient pet we affordable in and product medications smarter summary, services, Services an of platform access prescriptions OTC have normal manufacturing recruiting our place industry through to national with to integrated health continuous veterinarian return and plan opening to year. has and to delivering the for are position animal help to veterinarian making pet PetIQ’s We at best footprint their vertically

many by impacted increases very Services complementary continue dollar us resonate with industry pet experience per results for health COVID-XX diversified our convenient in to and believe be financial will our and e-commerce continues pet XXXX reasons parents. affordable, and have emphasis to beyond. spend to excellent pet an While adoption, pet retail and with maintained care. have We partners have in interim, sustainable Product an our on model our relationships growth rising Both that we the well about and optimistic in teams positioning been

new exit We expect stronger growth offerings. services XXXX opportunities to to and our Susan. turn products in to would incremental call across a pet overview, sight like the line I clear over to position now that of with With

Susan Sholtis

Cord. Thank you,

for and energizing Third about quarter partnership Services nothing completely but segment. and the been teamwork has

wellness strong of We expectations, we quarter. we that our our are community September are and position line reopened clinics of XX% at end to grateful as in stated with third report XX. centers of In a the

together both I’m more and all in QX. serve. remaining our the We wellness we partners for pet reopen safety to that team centers to our employees, and and employees who health even parents that am will our the are together tirelessly and And clinics. our partners of our reopen work ensure balance, the I we thankful retail worked pleased community

process As lines. remains a community, line focus concern. you service parents’ can imagine, and but to and every both we also or continuous curbside needs management clinic implemented in manage critical maintaining we’ve distancing virtual social a In pet meet order operate, wellness

wellness the all the In and addition, community openings XX% in grand conversion. our and third planning center and that of we of of operates resulted clinic our of protocols partners. schedule. retail of protected our set celebrated help people safety The were to relationships in were this, a new of X openings clinics quarter staff strengthening under all with ahead our clinic In pandemic keep XX% greenfield the safe. long-term midst

relied bring our a of pet their centers to to care XX parents These partners to known pets. wellness made of openings open it our for on QX. now take they services total that us Our

XX slated We our have wellness for openings QX, on center keeps for XX new new XXXX. track for us which commitment

launch In slated diligently on already clinics working been for we’ve our have to and XXXX clinic in plan building QX. open started addition,

of that that like years clinics also one, wellness for in I with protocols in up prepared with in the two, we long-term our this veterinary X To we re-launched want the Services and retain our centers. getting telemedicine, organization platforms support of the team Lauren with XXX Dr. along to the Our sustainable build-out the and growth that place. in the center right XXX for organization, innovative veterinary our and space. into recruitment new Through and next telehealth But continue early our XXXX the the back player statements for future. medical affairs require in reorganized launching build to mentioned total become Officer, of range on, well to the to I and have attract country will across QX enhance recruitment our being structure XXXX emphasize pandemic, a one objectives team running to we Chief to in growing end, plan efforts be Olavessen, number and worked wellness a and our previous talent build-out. the Medical veterinary

to compared clinics in operational, wellness addition our continuing reopening open XX running ramp as and twice In many August October. are offices the and community in our clinics, of field to fully September to and

earlier, and/or As our Cord illness is with mentioned symptoms teams. our COVID-related managing challenge newest

XX% is with While approximately to traditional XX% at centers in COVID-XX often clinics additional temporarily infections. week-to-week are or we due have to the and required are This staff minimum staffing wellness clinics a with our support veterinary protocols levels dynamic with backfill. no as employees kept closed of and community procedures place line in to symptoms

are optimistic forward, we near-term. much But can of makes you the will as forecasting As results difficult we it level in more improve. this imagine, absenteeism move

However, as nature ongoing particular, believe months. the which view as begin in well-positioned incredibly COVID-XX product-only to dynamic to the do am have and and we improve increases outperformed related per report in experienced pets in operating a environment total, the even transitory pet. we impact solid and this services in whole, we in to last said, dollars clinic have X as I in relative related to per That businesses, that very are thrilled businesses,

pet even the year and experiencing veterinary have fact, last these due to back our encouraging often times them are prior the to procedures coming escalate line limited as get in the Over parents results full-service safety their many but of veterinary schedules metrics our can COVID-XX. considering for seasonality a a are same our are of are and very until services. demand business continue pet new, or result veterinarian, shorter wait of they enhanced speak for already more for and the in These long traditional historic industry quickly In in pent-up metrics XX% to year. with for business with period and

recommend So XX% pet used new survey pet friends at services are how our have upon we results our over with our inclusive to parents our likely that to are are which reopening, In surveys of doing family, parents? recent or us procedures.

very pleased perfect uncertainty, pet And for rates. time veterinary affordable solution pet PetIQ’s with parent are at seeking We In are network parents clinics, satisfaction this to care and needs. national high of the of the convenient rates. their are increasing solutions out meet affordable heightened

PetIQ’s due of remains to to component parents that cost. our parents to Our the veterinary this the and less the position Two-thirds of and capitalize more relevance years retail for in parents age. day on this leadership news opportunities pet convenience. provide the serve health the relationships of well services in team believe in lie COVID or minute I value time, knew boomers value and challenge other the every have lower strengthens position seek parents key consistent years XX the cost year, for as place in pet a and impacted We per a us in focused PetIQ’s focus caring business many challenge growth pre-pandemic for numbers At opportunity baby their in the do for to wellness. than proposition and welcome already $XX,XXX and financially to We becoming to that they pet about veterinary channels is want locations pet on are cases. and are serve our than on more same of services and we’ve the market, know them we of demand talk these likely We before. us within proposition future positive ahead pandemic. their parents their our have Today, biggest higher pet services to the ever of strength that are was tells of value record-setting host ages make than our pet circumstances been believe tremendous partners, we retail and those millennials to pet a are XX% during increasingly that XX growth. to put more parents. pet with is data the

for might parents to you digital our boomers them of As We and we pet our each expect, millennial platforms differently. differently. talk leverage

on new experts continue pet how add to existing we both alike. continue centers, new will and engage we As also parents and become wellness to to pet parents

to Finally, in professional we I telehealth to pet today, proud say that, XX/X. order am our offers in available enable PetIQ operate services that veterinary a us all XX to to have parents states

we establish with XX% allow of parents platform states via We include the us as telemedicine to in telemedicine. expanded QX that addition, cover relationships currently approximately Ohio pet to well. In our

support that which seeking in parents pet throughout have learnings parents and importantly wellness groundbreaking to and tremendous when resilience there the the team generated have has I weather Every health conclusion, pet like this in marketplace member and would We our definite where advice, most in found of never us for are In often they process and wavered that need a storm the the team information. tells pet process. COVID-XX. want to basic thank is face the us to helped receive

the We John. call will are beyond. pass With us will pandemic this a which over into serve well contemporary that, from I and nimble more emerging XXXX and with organization, to

John Newland

Thank you, Susan.

in second results is business a quarter historical outside related lumpiness from Product third demand seasonality. This to was which reflect our e-commerce benefited evident in business Our our segment, quarter. our certain in which retail a particularly and the in surge COVID-XX,

expected last down year-over-year net communicated in product would quarter, segment sales we you QX. be As we to

and a program segment significant the transitioned in loss adjusted the product late of sales third which earlier a fiscal anticipated partner quarter, Product than In key million to resulted retail million of net in XXXX, addition, approximate of $X EBITDA. $X

EBITDA expectations. As Animal Health Product and a a from and range, sales full-quarter at a our from million additional from low are Perrigo net QX did to Keep below in the $XXX guidance consolidated segment our sales Capstar. contribution $XXX million partial products, manufactured adjusted result, including benefit mind, contribution of of the quarter end was

basis, would EBITDA. EBITDA the services in million sales Importantly, at up sales of on QX. due million. expectations the impact and in remained outperformed million a and XX.X% on Consolidated $XX.X of surge QX for which related $XXX.X adjusted COVID-XX, on our net remained a net revenue EBITDA $XX.X opened segment million net primarily $XX.X basis, our clinics and Services the in with sales estimated $XXX.X XXXX the in in in lost existing the of with performed following of Services Based budget. of loss would COVID-XX a Services segment service We estimate On to in if temporary Product unusual adjusted an the estimates, corrected million locations performed existing have has a net at million segment year-to-date if had segment adjusted and our sales to reduction at quarter the revenue equates increased budget. XX% net of XX.X% $XXX.X net have related been net closure and be closure $XX.X million $X.X an $XX these approximately million year-to-date third decreased in $X.X adjusted to sales basis, segment orders EBITDA. been and for itself to million had Product million, $XX.X locations adjusted EBITDA to On temporary this to corresponding open quarter year-to-date reduction and in million

XXX XXXX, Adjusted the and temporary gross third of basis X.X% closures to segment $XX.X and gross If $XXX.X experienced margin margin to profit to have gross point were approximately costs $XX.X million, was quarter our the the gross a year-over-year. quarter million, adjusted XX% temporary closures for COVID-XX. been these and XX.X%. of increased also was headwind are adjusted sales XX.X% due points Product with estimated margin XXX included, gross for even XX.X%, added margin services segment quarter loss basis closures the back. increased from the decrease from would when profit million, an Third company associated level, the our services segment was net as At

mentioned are to year-to-date net Product I and million on segment adjusted a approximately as $XX.X sales earlier, $XXX.X increased XX% basis, EBITDA up to million. XX.X% our Importantly, over

adjusted for of e-commerce ahead such experienced our trends, network. had coupled $XX.X operating we to the outperform nice G&A as which are able revenues results strong growth, of lift We period the the when realized segment year. were million same fixed year-to-date. business is year. a due leverage, sales our at the XX% and the integrating brands continues generate primary with success Within customer growth the to our segment Product Product channel dramatically with in year-to-date had compared the of Combined, expectations last were recent Services net segment, our for Consistent that we $XX the EBITDA Our of into gross growth start million healthy segment. our disproportionate margin our in driver PetArmor business goal a we’ve manufacturing to to

than year revenue As COVID-XX related the to prior discussed, the Cord period. much generated quarter the in lower of locations, closures the Susan during service company due the and temporary

of we result, $XXX,XXX of adjusted XXXX. a the $X loss earnings As third quarter compared in to EBITDA reported of million

adjusted on Finally, we basis, adjusted X.X% a And EBITDA year-to-date million. $XX $XX.X to EBITDA increased million. was

assuming estimated million, EBITDA of EBITDA of quarter been our year-to-date $XX.X adjusted million our performed for locations of been of are XX% EBITDA of and you guidance would in this loss year open in original EBITDA In $X.X approximately line million adjusted existing $XX.X remained would add our from our or adjusted Services have factor we at an budget. with XXXX. actually adjusted $XX and full segment, tracking increase services the million, year-over-year, have If third scenario, back had

was is long-term sheet million. and credit comprised liquidity of of facility, balance, September debt, had revolving of as XX, our We $XXX.X our XXXX, to total balance largely and which Turning approximately liquidity $XXX and debt term convertible million. loan our

available outlook for of liquidity. the the primarily million convertible of the $XX ended XXXX September available available to additional combined a the and as positive to drive ahead on the the our build consistent year feature also the perspective, total net contribution million by accordion as in When $XXX position an period offering, due offset $XXX.X free prior fourth guidance and to full to million a providing purchase the XXXX of our COVID-XX credit increased agreement opportunistically have liquidity, Product the from versus This in year. quarter at an of proceeds not note impact of flow time of business. is PetIQ $XXX pay puts From Capstar. an via with segment for this from due are uncertainty capital Services Working pandemic we We million a the debt. down well cash cash XX, or duration quarters our surrounding year-to-date

continues in earnings centers clinics absenteeism reopened noted level while we September segment the wellness experience due XX% illnesses. to company’s As of elevated related Services to of of COVID-XX and community today’s have an as the XX, release, been

As we and a fourth contribution through Keep at XX% inventory more now to quarter, Capstar profile. Services in effort in week-to-week segment the pet product historical have margin temporarily for that margin safe. sold product expect normal our of the the distributed the are that mind, employees closed parents an to from operations keep XX% on-hand was we result,

business. We pleased we the CapStar the are owned with since months very the have in X results

our financial about closing, long-term very We $XX greater we and XXXX is in pet year-to-date maintain growth from Our achievable. confidence financial us estimate business million financial has view team an strategic emerge incremental potential we broader EBITDA In the and the the we pleased fiscal products now in for that completed with the convenient are bring acquisition, our to are questions. environment, have results believe and particularly I operating and year our we today. dynamic model environment disruption last broader strategic product and lives. services three in and important strength have our what segment the stronger affordable with like highly the face for an nature complementary to in of position in to component The your that an to uncertain to acquisitions as continues business PetIQ, resilient provides that a be the overview, years available we diversified parents a that formats their enable of capabilities believe this to us best and of position. have flexibility fit provide Susan period X will completed our even Cord, the Operator? pet wellness With been

Operator

Thank William of you. comes the with [Operator Instructions] with question Our Please proceed Blair. first question. from line your Jon Andersen

Jon Andersen

Hi, one start you wanted source by Could the thanks. there was everybody. with business while EBITDA maybe customer little fourth relative I Or the into in carryover was about is it is a asking, unanticipated the Good quarter. that little afternoon effect in to initial a something rearview bit of that’s sales more really quarter in event, of that bit quarter, the a just shortfall sounds a a is the like the the Products transition to talk your – meaning that mirror now? plan? there

Cord Christensen

Cord. Jon, for Yes, the This question. is thanks

QX. this, a I will to foremost, customer think, a in place the place, you a us that understand that them there’s very fall in worked much significant and plan put side through and take we’ll see first and positive a of better where

the on it’s anticipated, not if us much given accurately year sales significant EBITDA but so we from for business We an when principle reviews great that just significant. we And a The things impact. the Products next into it for hit and be again, such unknowns because we’ve margin the so isn’t don’t extremely again, because after have impacting have believe significant believe of positions in took that’s line million will for you’re amount we fairly there, because the we going into well. why be the earnings we’ve That’s range also captured So to impact and place line were on year. guidance. QX the sight given for significant, $X quarter accrual it wasn’t healthier it we a our accounting it message aware the in Obviously, would coming. for the was of But as that was of a QX is of impact in the it’s the well, XXXX and for business. And exceptional been QX some our there’s other revenue here.

Jon Andersen

helpful. really Excellent. That’s

Service maybe the say Has what been getting weeks side, or is been more period I the that a and Has about in trend, there thoughts that to be kind do as in there improve? can place I steady now that tiny, anything Is you for are be that as that mean, are guess? proactively on to can anything facilitate of of good the can you or to all sequentially for your On challenging? months there, absenteeism? mechanisms it already you

Cord Christensen

I’ll answer question. that let Susan

Susan Sholtis

questions. the for you thank Jon, Hi,

the since stays September. the the beginning of and range, has absenteeism So within now it right

XX% So to fill – XX%. those We the the fill between and we to a in more behind COVID illness. minute with to fill the do that But what it and at scenes there’s is flows that It them. ebbs within very work stayed cancel when to clinics XX% hard order last XX%. to just we’ve difficult – becomes have in staff staff to and issue much substitute not and

every our on that with clinics, We literally sight going have monitor to that review For if have in is the individual example, our registers and individual be we not enough able what’s it’s take a working for important we community and it’s also that our think our clinic And then – to turn clinic. do for temperatures prior the daily. that morning there are that standup someone we staff obviously have close clinic. we to going range, we then clinics. temperature our be to to higher that basically have refill time something don’t But that if we to heels every We to be routes. of in closing that to adjust And day. not a the time note particularly to day. we’re also the line veterinarian, happens that, I ability have backfill

the is we So the areas to we what in do pet we have a minute, have we higher we adjust that routes we’re if that. – routes our And can count. ability ensure that do have we know last those targeting

last this the well obviously same was the that that other with think Pet service as who’s comment Specialty, other who close I that is veterinary facing because standalone clinics make veterinary I close in of I as just would thing. stores to speaking we’ve had retail a is partner to – businesses, bricks-and-mortar morning remained

would country, are, good we’re we across seeing to that place be to our it at I my the XX% to completely in we’ve balance within say positions. got of year, But So line to ability sight XX% I this I subsiding. those probably in it’s stay think think, the least be to but just that continue try facing it, in until service backfill businesses now of that better that, that, of able would we’ll through range expectation a

Jon Andersen

helpful. there to that capability of retailers of the you a there them to you a like enough Okay. the mix talk hiring for that? some of new about? little the or Last how just sounds Is and – in The visibility And the Thanks, you finding do talk recruiting next committed? one me. pain sense internal could out. staff or you’ve could vets the of year, centers That’s to already you’re many accomplish clinic terms building plan? capability into have build for some point bit XXX mean, built locations Do and kind those of a as it you how are Susan. Thanks. you that about and centers outlook internal XXX, or try number of I

Susan Sholtis

question. Yes. good No, a it’s

first the – the of spoke the all, clinics XXX that think that so XXX. we – I to about call, the in we

of full of line a have all clinics. We sight on those

I in call, think months. literally our to beyond also out during retail something I that that plan to mentioned the the pandemic, the relationship our really with partners. start We was important ability XX happened had

of into X X are these and these planning partners well So we out locations. with and some years

build comfortability level our in out. to is my So regards XXX%

– But clinic, in will what we more as in looking towards But I and well, two, think, I types shift open. number recruiting mentioned A we’ve we affairs we clinics Olavessen. we – are of will is crazy. a think before, we – recruiting, our XX% we’ve we we with have moving to very in be be start start Chief how place things mentioned I up structure are a couple And sounds recruiting ahead. to Medical Lauren months we’ve medical of done that closer also in recruiting in advance. And X as we our that put organization that one. in type Dr. know of the early And is literally a to XXXX, regards Officer, clinic number new our we mix. beefed greenfield we conversion – more XX% importantly, we team, so too,

have we out. we go place So programs where in

we with have now partnerships didn’t have that universities previously. We

good And ability so, we feel about babies very to these our running. XXXX up get and and

Jon Andersen

Thank you. Cool.

Cord Christensen

you, Jon. Thank

Operator

you. Thank

comes the Wissink of question Please with line next question. Steph with your Our from Jefferies. proceed

Steph Wissink

e-commerce. really on comments your Question is on

growth. disproportionate mentioned you think I

channel adjusted mix you, the quite it, an for over didn’t about us could then, I about or going XX.X%. question catch just perspective opportunity but I the a gave gross just that us one square margin forward? help figure John, helpful. then how that be Can opportunities of think couple and an mix either an us you help and you If of margin adjustment where would think margin you And factor you then next are you. you Thank up at quarters, see margin adjusted gross XX% and from thinking

Cord Christensen

the we relative first question margin. second take let gross our Thanks, e-commerce the your channels relative Steph. to with question in of the product space. saw answer XX% we through I’ll quarter And online then with our the peak Obviously, almost I’ll sales one in a of significant mix and online sales. John Steph, saw second in point, a quarter, increase at to just

from Here a in perspective. below than to stronger share much a is our seeing start prior now seen, sales, normalized definitely but number channel albeit XX% get that of product QX, brick-and-mortar we’re down more and we’ve years, number the

we seeing are definitely that. so And

without and days take coming, out of obviously, brands started seen sales. of focus of One online anticipation increase the significant sales just that increasing, drive just own of build hold in the where how good seen are an our have and we’ve positives real Capstar X our of online to XX.X% we and really contribution capabilities seen, our those we’ve almost is own sales

the channel we COVID But saw is customers as of believe and consumer that purchasing seeing incredibly ahead. part are a habits John distribution it definitely albeit, of habit normal and all some as during have still the quarter, be I some to not brick-and-mortar people So well. in purchasing more second patterns online it’s the let is a channel only that and we’re going normalized and panic important is it, what the changed more think, we using is definitely the go I’ll available becoming definitely across seeing. we’re more

John Newland

Steph. Thank Alright. you,

gross XX% adjusted gross with XX% then is On impact. associated of they contemplates not your in. then where overall. margin additional run remind headwinds percentage there. margin that we came And would Had have me higher we the at present, been I’m percent, sorry, question COVID-XX second

Steph Wissink

gross understand Just and think business underlying us would about service balance? acquisitions like for the to wanting product you structure new the the that to with the under margin the

John Newland

Sure, question. you a It’s great bet.

more As you into associated business year Capstar and with the to know, overall over of Perrigo expect XXXX, we margin line seen accretion accretion see Animal acquisition, the margin past our Health portfolio. include as the going even we’ve in we great

So what going the excited year. accretion it will into continue, and represents we’re about really next

Steph Wissink

to accretion referencing that XX.X% to could to I is the accretion just bridge? understand you’re saying the are you that if I the you’re what XX%? clarify, about baseline John, want just And when thinking or

John Newland

all we’re to COVID of Services this, fiscal XX.X% organization it the in assuming on Yes, because be the our effect accretion in ‘XX. normalizes would

Steph Wissink

Thank Wonderful. very much. you

Operator

Thank you.

Truist line of Please from with Our next question. Bill proceed the comes Chappell your question with Securities.

Bill Chappell

Good Thanks. Alright. The… afternoon.

Cord Christensen

Go ahead.

Bill Chappell

me just and because from it the else tick PetVets in-cap they to for ended. mean, terms in And was the something or plan an center-cap in you tick. sounds I and there October, decided transition had Can the November, or September, guess layman’s understand help put flea Walmart I season like customer in quarter? they flea felt

they of XXXX. fair it so Is just to punted that it? characterization a And

Cord Christensen

accurate, January to and look significant results and for forward not do response usually program the year determine stays in, move was Bill. the at customers’ We that very we that and the in on club to them program where shipped even the year. their decide we This that. could together in for better. market that and That’s best based opportunity There what’s a way the each particular was prior put gets channel, said data

had impacted we have ample – not the access were was where getting to believe, restricted. COVID opportunity counts to perform did restricted during people Some that, the as an item COVID, of during customer and store

the sales could there. for management the the we their into However, transition end at the COVID and would data take of I we purchasing item look a but determined the and make accrual. the created them, more we think, be inventory And off due profit would issues decision turned made a in We that XXXX. executive accrual started, Once program year. that the it which and impact team, that did sell-through did inventory together generate well that that towards and to we to early, had the

that what next for be year year. an now into was we to us to So this do next and are well But going numbers positions unanticipated the have how had we’re We to year. budgeted intact be next to impact going extremely the it able for to year. for going sales is were deliver

Bill Chappell

understand kind the that’s you year, do and how incremental? to understand I’m of And trying every how it maybe was just maybe pushing program help here. it me

Cord Christensen

we reasons program. know program higher we’re a doing one has the it. that in we’re that program of that Well, contributions this That’s the than putting is

we vendor of of and being the have So years years and the historical years record.

tried performed. performed how exact for have and better different And from And what things we reasons, this historically this has the it’s one different so did. information than as we’ve looked

made retailer into decision year. with the to the that for we So move next

Bill Chappell

of staying Okay. with this manufacturers, so aware exclusive sure as I well spring. switching And – expire am I then you your on two the think, product, – animal agreements a are the

out give or will you actually put announcements the now can anything whether – and thoughts update that? maintain any helpful. there that, any So that, – movement any on relationships you you that would then on would and maintain some you be us is for between be if color if exclusivity, matter, Or

Cord Christensen

appreciate question, Bill. I the

next fully end to we first companies clarify not the the of So contracted year, with through point, through those the are spring.

in the are see continuing this allowed very for middle are if at to to include risk place XXXX, end finished, expanding how them next now, budgets relationships of our of year. finalized in next the conversations right through and going. beyond see those to about We renewals. and conversations on responsibilities exclusive go no They have we will, taking the customers have calls, with positive are We numbers were expect to maintain and verbally announce with the channels. for it across updates when as we it’s in around renewals we type we and agreements we point, discussions those they And well. the additional but they of to and based those formally numbers fully they’re renewals won’t, will year how all will current give do have budgeted their numbers. them, exclusively internally as next us they budget we definitely year these it, some what But in of with that’s say, business let budget that about our what of and flow-through through have people the them And our in

that’s great next beyond shape of in are conversations We like next we’re year. And So all it said for goes how I going. the believe year. well

Bill Chappell

great. That’s

they think realize I type contracts. don’t I were X.X-year

of build-out to understand you it was year’s mean, because squeeze next build-out. hear. Last have this I I So kind one, in, one sorry, Susan, great visibility year’s into that’s

even potential see where possibly could the locations of that XXX weren’t year? expected new next for or XXXX, to but is already terms in we kind what have of XXX upside XXXX finding So moved a been that

Susan Sholtis

for you Bill. the Thank Yes. question,

is this of we XXX both And with for partners. We where just with from will orders, all really our partners literally in we parties, top-to-top range So literally, retail months stay that probably we partners, XXX of were the work and stay-at-home standpoint. three a Cord meetings had ourselves magnitude our layout to our plans ago, all within midst as of our retail for to would landed. for the

we that, – slowed is expectation our year. this put So we again, the

eight actually build quarter the We and up of year ahead started we’ve them those towards XXX commitment are year. third in and And to XXX plans, to already our for meeting the schedule. for get next this opened to running of our

Bill Chappell

so much. thank you Great,

Operator

you. Thank

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

David Westenberg

to specialty the am health Hi, retailers? Thank going just did stores Can of both to bit in then about saw secondarily thanks slow We retail? growth retailer. and talk the channel, about see my online in for that layer I one plans I or which first clinics and then products you. long-term and Steph’s terms of little question huge brick-and-mortar taking perspective, kind in question. on just you implies selling want one to close kind talk of terms of And adding XXX in to. We a in terms of

Cord Christensen

news the traffic, customers in companies retain that good look this ones for share their the channels. doing where are our companies space. definitely of other retailers have issues our all year is is customers have environment. brick-and-mortar question. the you we assess of wash out. our away, get the finding that very we’re of expand weaker health business. watch the there doses their actually customers, are we operating our ones Obviously, seeing the And across some of categories closely the in well have up our share unusual Yes. no seen that companies that are Thanks, And companies most all across versus the that channel brick-and-mortar which go doing and keeping is that surviving. the our that seen And to The for prior our than years, companies doubt us, now brands number Dave, seeing of there’s our in We’ve of gone are we’re really that all better of when weaker stronger at stronger. the And online right really for and we the implies are stronger

that. in have really And have that basically case. the around I Good been environments. volume and and move retailers our so we are some surviving what just And to products we those seen see in thriving able that’s are maintain of think

look and doses go competitors our the for all-time of right number share in and virtually main up. any categories. through all And second one we’re can data up highs, if pull, at in now, now is for Our you think you share doses our are I running right

David Westenberg

right Got it. of now a getting long-term help And us frame from then can online size the announcement you questions lot where recent talk telemedicine? about you the go, and we’re here around Can the strategy maybe an on because market monetization it retailer? maybe that speed can with one

Cord Christensen

Yes.

we can pet get parents to company. the we that added the that let fact to telehealth Susan on it’s retailer good not attention sell included help have So but obviously part, and will veterinarian, more missed bring love first a We fill a find information, well, something. and off – you inside I handed does of platform will give to that platform then the obviously, comments the teletriage advice answer I the they’ve and veterinarian really I in and some if but

the customers’ that and because our attract we way obviously, it it. be leaning to veterinarian hope that seeing a to we work because been are the going there’s the them. able they’re a bring So program, are testing prayer we’ve to to love We do back and heavy already acceptance

do accelerate profile we the across And our margin revenue We’re in it. have seeing growth feel closed-loop where from it we included veterinarian that significantly can the like to business. use our comes the and

helps get attention acceptance teletriage, as do accelerates secondly, us and believe with more which think it, that telemedicine which to allow more revenue governing and into various it, done more of more. and bodies the more things local be we it and I telehealth more to brings people only the generate

telehealth one three and capability investments growth you’ll bringing making of excited be are in think And and it see be as do are revenue making the very is the vehicle And talked about more veterinarian even as prepared So we we in of talk are are next Services profit organization, all and and I I those for as as few better our seeing Susan, missed net to platform our to positive key to there. come space we it’s through. to about, in some we we see months able progress more anything? we about continue those start this results the as more company. to a

Susan Sholtis

No.

XX/X. our I of our all, is David, is only service out would in that think we first add, – that have I rolled the that partnership thing we that,

take number a that the then have we all Cord to as call. think, we veterinarians, capability with where So permitting video said, number two, of – because have the our permitting, And XX/X close the one. we can we And loop. where are parents, I ability states pet have

a problem. we that. can a be optimize that prescribe veterinarians to features works end. And let helps you to really solution. visit. on a do know diagnose that solution charge to They in pet telemedicine parents and offer, But are I able today, understand we few quite Our think, be to holistic us to what a more to testing for I order then can able a want our do

David Westenberg

you. unwind sorry back not you to Okay. QX in I then guidance normal kind last already. to unusual that. then that giving are here go and there’s I an I’m if of product an Thank but Do been here, answered missed if you has is just everything that of and in year maybe feel un-winded know order of pacing? And stocking going next terms – one that, QX you

Cord Christensen

answer didn’t David. that yet, we Yes,

we the it put at we on even place have in looked order of to because have register together abnormal our than XXXX planning year very level impact things, growth solid around. was reviews, at leaning and rates we wins and look a is order an on the various have. at of channel COVID and the we’ve when veterinarian business various at we’ve the in consumption, customers do look we through side And the think shifted we the always what due more at I through the basis as item how through to consumption our such looked line continue look all sustainable. the But budget volume the the just at had to we aspects looked across the our the various roll-up, believe that

impact we just that next plan can’t of normal COVID a very But ordering our from seasonality the to the of organization give feel and will business, together consumption. Product of and we normal return impacts. I having for we’ll place of like absentee in said, solid, of a of us see the puts put cadence have the growth COVID the We cadence formal without uncertainty year more internal because where a guidance And some service that continuing. in budget

we top $XXX be of We to to up be be have And will EBITDA of ourselves $XXX line believe going measuring we going for against. that year. we’re number adjusted above around million a million It’s sales. next

we’ll against ourselves be deliver seasonality, able next about year to normalize, what solid we not and that’s and So measuring formal as we plan our But a guidance, will and talking about and next normalized very out have about but a what consumption. for That’s internally to we this very year. COVID be year. look good ability starts operations, we normalized analytics show we’re normalized go feel strong very to our as

David Westenberg

so Alright, thank much. you

Operator

I management back Thank you. to closing turn will now it remarks. And for

Cord Christensen

us joining this listening to our evening to to QX thank results. for Just and everybody want

employees business started with seen a Product are metrics prepared housed want we of would year metrics, will profitable keep had expect expect watch we’ve fed absorbed EBITDA close do our the obviously, abnormal significant operating and very profitability with the have contributions And clinics to together returns the starting all seen and things contributions have COVID-XX. and with to as cadence be as in see we operating and that our future we’re of goes But And is is amount business consumption understand this families business, growth incremental I the be as in as we’d those the the our we’ve for we some the As a company. our seeing call, company. margin margin business. it through seen to through stronger the and closely seasonality to for impact and our their the the that to very family we’ve this everyone be we a that the ultimately, with stores, margins, to ourselves the used to Capstar the has are expansion, gone

we a do employees, to beyond continue we levels really are on harder plan are we strong seeing that have as that. our it’s this. as work XXXX as management we know And do all how healthier future And to our just talk can. means because shareholders day. all various those so through to fast we that have than been as get teams, And our very get we everybody delivering we about optimistic we results and thank with in details fingers And for a that’s as and what our the our every team, and the to ever back to expect us

very with Thank and we you soon. look very you all thank to forward you. So interacting of much,

Operator

lines. Thank your for please call thank that and you. conference your ask That does We today. you disconnect you participation conclude the for

PetIQ (PETQ) 8 Nov 202020 Q3 Earnings call transcript