PETQ - Earnings call transcript Q2 2021

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Operator

Greetings, ladies and gentlemen, and welcome to PetIQ’s Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Ms. Katie Turner.

Katie Turner

afternoon. Good joining webcast. XXXX for conference quarter on and call us you second PetIQ's earnings Thank call Cord Chief today's will Sholtis, Smith, On are of also President, Officer, Chief EVP Q&A. and Susan be Executive available John Product Newland, the Financial for Michael Christensen, Officer, Segment Chairman and

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

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

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

McCord Christensen

results. quarter our will then discuss begin Today, our today business, on review Katie, highlights, and detail appreciate financial you us overview greater joining and segment; of second We you, Services our results. Susan with Thank an provide everyone. financial to strategic, I financial our will John good afternoon, and will

Michael gross their quarter generated the wellness the products sales pet year, due as results, had that our a as affected had highest unique the very want our overall that when to profit for had Finally, It Last and sales the net demonstrating I Services year results stay-at-home available quarter EBITDA and to all dollar even increases, closed. quarter gross strength questions. accomplished via and clinics centers anomalies quarter. was second diversified record John, and the was we last to of We still ecommerce will our this We additional segment our results, are pet have environment and your we through Year-to-date, best I in going year. impacts for more one-time COVID our second of and and significant we a answer to quarter, parents Susan, timing pet as Prior Products be margin offerings. the remind community purchased company the prescription to the well Services everyone the from partners COVID-XX. drug in where quarter company. adjusted operate experiencing continue quarter, history this highest dynamic orders of

second anticipating year. to QX volumes of inventory Our the quarter closer ecommerce in customers QX purchased last

look for think take much rate, QX these This nature in growth. compare fluctuations, approximately them channel and XXXX the you for results to million. last points volume $XX.X our one-time reopened, see purchases. However, to very into year-to-date same million our have pre-COVID at their to accurately when caused year. expanded on and the net the strong $XXX.X of the than increased returned important it’s less our QX excess net increased inventory net X.X% feel year-to-date and XX% when gross million customers in ecommerce we Adjusted margin increased veterinarian our from account growth of sales adjusted and basis to and Year-to-date XXX period you year-over-year. EBITDA XX.X% $XXX to our sales to net XX.X%. sales sales performance XXXX XXXX, increased Based

parents to to unusually from online. high pressured to seasonal a sales products their ensure to well purchasing strategic sales. benefit in pet pets with at lapping year this done quarter flea tick they second and representing where look $XX need has objectives with shift pet approximately team of pull-forward from the QX our from net sales and and by quarter a in closer health channel wellness the the parents year our are the Along of associated programs impact segment, sales drug more of last needs. in serving it ecommerce and pet to QX Our the were execute fulfill to a we prescription their channel of COVID-XX when mix Taking due the on Product in million veterinarian and

when looking of clear year-to-date picture our performance. However, a results, our you see

further six to even channel For XXXX, occurred wanted period the consider that also a our against the this in XXXX is to environment. purposes, more record impressive months segment back to Product of Taking of pre-COVID six months a increased step look comparison same compared last in year. we first growth rate it when the that shifts This the for X.X%, associated volumes is you XXXX. with first

From sales. drove to XX% distributed This our to the increase XX.X% of distributed year on Product shift compares portfolio profitability. and to margin XX% product favorably sales in second EBITDA the mix expanded quarter Our XXX net this points first basis mix our manufactured XX.X% year. overall quarter stack significant and manufactured XX% XX% and towards consisted of This six from QX a our sales for business mix XX% our the two and own standpoint, a of XX% in segment XXXX in increased year our Adjusted basis. mix manufactured last sales. distributed a of months

better segment even net than with delivering margin in strong for a Our sales. lower quarter, expected Product profitability played profile slightly the second the we role the key

the sales higher Product which distributed go-forward XX% categories we and more and trend Our with of the as approximately year PetIQ second solutions Product QX. we health to is such mix segment sales EBITDA delivered growing tick our and industry fastest to sustain wellness. expect of of in the in the flea along maintain sales in margins largest helping manufactured indicative model us XX% pet of half than and several within participates the

and winning are we continued share seeing products to pay-off our retail in manufactured ecommerce channels. gains on Our team’s emphasis as strong both across brick-and-mortar both

within the and XX-weeks gain tick. by the XX, For share June period. our brand the which PetArmor, XXXX, This same of was share ended for portfolio basis points led XX was XX% gained flea up PetIQ

wellness, our from across important pandemic the over business segment, to the abate. As the the will portfolio these in points months of we space. while category also this that point Services very half XX our start starting where recall back gained first our reached to we the segment of share, leveraging for Services noted basis increased assets as growth we and the robust increased ship to the XX%, new the in a health saw gains programs markets, accelerate of in headwinds inflection share are year. believe QX, Shifting our in year six we XX% as continues. This We

compared labor to XXXX. the compared expected our community to of We COVID-XX. This mobile offset to see XX.X%, Service fewer wellness our by in QX we the clinics, closed of result increased running clinics the a as first and continued revenues QX was shortages. to with segment improvement from sequential partially were due growth when prior centers results as in net of quarter reopening year than

new based pre-pandemic improved While illnesses, of in normalized our started more into issue, for low-single-digit community to COVID-XX-related as week-to-week translate number closures to clinic rate labor schedule. an of began plan unexpected resulted absenteeism on we a closures, shortages a and

nearly profitability the second basis, year. quarter clinics of we approximately our in clinics and were down as our second from community we overall our example, quarter impacted revenue number this to of quarter the XX,XXX expectations the operating second revenue The This clinics reduced missed running both the for open XXXX, quarter. not community the percentage a clinics the on For in community in versus mid-teens ran compared quarter. was leverage XX,XXX net community the in

increased to the the million Services center XX.X%, estimate would EBITDA of to quarter outs. and impacts While XXXX, adjusted revenue of segment to COVID-XX-related $XX.X an build that $X.X wellness adjusted contributed net of have quarter company's delay EBITDA million Services clinics additional first due to the community we and second in compared segment the

the the Services impacts. that year, For EBITDA, million revenue $XX an of six months the would the $X.X of same of we million contributed estimate taken net when first have into consideration and segment adjusted additional

While we improvements last areas we expect performance generated all improving improvements QX in and to make impacted in This situation key by and QX, we've continue sequential for believe to our COVID. sales Services three the operating segment labor near-term, includes similar the will quarters. the

veterinarian growth. position important more continue ample the From This their in through it facility valuable continue to expect to our health on and is Importantly, And products have KPIs delivering cash company's industry our future long-term of perspective, of the convenient availability how sheet liquidity Services affordable across the mission than entered a in fuel lives differentiated parents our believe are is confidence access cash history. in in delivering to we into segment we we community strongest model our and hand, ever. our that pet gives centers support our clinics our smarter with growth. and to and are wellness country. We under us open generation, credit ton that will to animal a existing parents the mid-April balance for to pet services flexibility and and enrich options financial new cash help pet’s and the

our the outlook from to Our for to business. Covid-XX-related remains uncertainty continued impacts suspended year due

over budget approximately represents calls adjusted our our the in have we to only potential, Today, estimate sales EBITDA, mind, million. variable impacted on began I approximately headwinds sales this XXXX years ongoing our As and this heading million lap Capstar with largest $XX year, million and quarter. net month prior, for adjusted the this to to addition from segment XXXXnet plan or Services QX we previously in this by Covid-XX $XXX stated significant by in adjusted segment. the Keep net in EBITDA being company's August reflects sales of internal affecting $X.X to million and of EBITDA year. Similar $XXX Services our

segment into We to and profit expansion demonstrating margin significant great of leverage expect to year visibility continue our another maintain accelerating PetIQ. Product generate of

growth, as our industry well-positioned move and Looking accessible footprint believe remains platform product a manufacturing distribution veterinarian to services. amount forward integrated disproportionate we with of we and and pet PetIQ a ahead, convenience capture the national of vertically

an from tailwinds continue in rising increases all We per expect and great to us. spend dollar pet, on affordable benefit emphasis convenient adoption, industry pet to healthcare, pet for

at as on been to an publicly to XXXX now role our been I'd and team I John to new to over team of executive Before CFO of executive expand a the transition seven Product PetIQ, John's call XX, in smooth significant helped in as to traded for initiated a future and business have having of the entire wish search CFO. and contributions I'd have has member behalf his that to Susan. company. well privately turn over years like John ensure will us turn remain to like and him service John CFO we drive Services an With held identify sales the important to from our Susan, transition overview, March our Newland his through successfully call and efforts margins. business, his grow expertise retirement. to thank

Susan Sholtis

Thank you, Cord.

that the our as unique XXXX, strong I we fuel of Services fundamentals Today, favorable business position are will of future pet and on in this QX since and year were versus our Our our as demonstrate believe market results industry will last pandemic help the in well tailwinds, wellness to commentary second mobile in to growth. veterinary quarter our results second centers all and the focus of our prior closed year. quarter my clinics of the QX

being Covid-XX-related back During of the the restrictions the states rolled we quarter, mid-June. more in, business with fully our California to relevant their the rolled State in most the operate

parents, consistent scaled pet of health we the state retail pets back our top safety While and/or all remain requirements. and our partners, employees, and with our of local almost pandemic-related priority, their protocols

When adjusted quarter estimated gross XX% EBITDA segment to XXXX, had and Services QX Adjusted improvement mentioned, continued improvement increased first and XX%, to profit KPIs. not This in adjusted to include compared that for the doesn't both the net and in The second compared We adjusted EBITDA fromXX.X% and Cord increased are improvement impacts. Net X%. profit pleased of of revenues significant was XXXX. the and quarter Covid-XX-related we the in is revenue with revenues generated XXXX our experienced increased the This adjusted gross XX.X% of revenue, XX.X%. quarter QX. sequential of third up contribution EBITDA.

We continue to QX XX.X% profit our on are get to expect gross to of and to XXXX. track improve in we adjusted delivered back

being labor taking QX experienced Our than fewer offset any of partially in was industry. And increases reflect as result across Cord expected not running price to growth a wages clinics, the yet the by community the higher shortages mentioned.

for to beginning price offset the business our cost pressure. expect Services help take We wage-related increase Xst a September to

benchmarked industry success veterinary to Importantly, understand we're veterinary QX that we data, the that from versus how also XX% service grew growth Using to we service know revenue our QX. better doing. sequential

We grown are pleased to service than the more same Veterinary period. industry grew volume for pets or the X%. have

pet our QX. XX% quarter, second from increased the For

Services addition, dollars our the believe We clinic parents. the of per services double-digits. In per grew to business convenient, pet pets these great providing signs are meeting clinic our affordable and both all needs is and growing in of

to During protocols. the continued back quarter, pandemic we procedures and roll our

started a we to Covid-XX-related operating As expenses. reduced greater result, added we as efficiencies see

of EBITDA points quarter QX improved Second basis year. adjusted margins XXX versus this

half margin of continue expect second We drive in improvement the XXXX. to to

in of This on stepped the wellness up QX. new the to number the focus year. new the team centers detail. Greenfield wellness for openings in new total centers I our of to addition a in openings wellness quarter center moment of XX want us with wellness Our center brings to take a more XX

fourth to the during Greenfield quarter opened This pandemic. we XXXX. season centers recall of XX the wellness winter You'll in the was just prior and

we locations with partners, including also site Covid-XX. months of rest the opening, a on We to to all Services due only selection close Greenfield had execution. along the few these collaborated marketing and our our these locations the retail operation But of with into

locations of which represented the XX during first Now, second peak XXXX, fast-forward into quarter the season. time open were a these

achieved mind, the launch in of pleased to are QX, of centers Greenfield selection be pet customer attributed can count report no in targeted and PetIQ with since location these the Greenfield to any success partnering We that partner in highest by performance centers location Much marketing doubling efforts no this wellness on our accelerated marketing base retail their ever exponentially executed the consumer and our teams. Keep XXXX. and awareness. start in

investment increased services and paid is count, accomplish ensure and our objective season, throughout services efforts locations To up presented this drive resulted are. peak campaigns are the both pet where in be further retail owning, Location search. in our and parents like, marketing proven consistently actions location easily To ramped more in times partners. actions their we've and to vet wellness us Our we've pet together has services get and to by success consumer geo-targeted open search found. paid work an search between four the this, PetIQ correlation evaluating we've has result a location our intent a Greenfield Greenfield improving The with intent prompted directions. increase find and this to and count. paid These parent pet pet in pet increase center and veterinary in acquisition

the We significant to service markets. which one partners and us into strongest entry veterinary one is excited our announce are offered expansion of Texas of a

in or levels. also to state conversion pre-COVID will this our Our headcount look We coming with this perform continue line locations to in exceeding well back later add locations locations year,

conversion the partners due our center However, running expected locations are the locations new wellness plans year of to due for to retail out behind to starting build than Covid-XX. later

build shift due with half schedule Greenfield our the second with timing into is associated locations for to Based build centers the prior plans XX% we locations now in new open conversion. of on of of approximately conversions, and XX% of first Greenfield the XX our Greenfield the delays incremental and expect locations. XXXXto expect opportunity to we shift shift For XXXX, we of these the out conversion inverse year, have XX% conversion to half and to This location retail XX% the Covid-XX. wellness out

of timing build within the Greenfield the Importantly, for locations our is our control.

to We of XXXX wellness In the with clinics. continue have center doubled to in our XXXX and in total. to of continued to XXX team the both half our total parents build also for range the first XXXX Call virtually. XXX target out pet to year, be connect compared QX, volumes

again In and about wellness. QX addition, with pet in their X% pets’ grew our most versus parents calls advice seeking QX by telehealth health

Importantly, campaign the become calls over telehealth receive launched pet to XX% clients. parents a of nurture current PetIQ encourage We've these to not we are clients.

in the last drive monitor. initiatives two are we As I've mentioned continue two and there to quarters,

initiative were new services of first parents of is we on experienced QX, PetIQ. convenience. new for that XX% pet two Our also utilize coming pet over using QX. services affordability to similar and in pet parents to parents. our In focused new attracting rate our parents Pet PetIQ Recall, reasons, are a

of way products. provide SmartCare the choosing plan. fee. plan their an for for low traction purchase pleased plans annually pet wellness affordable have to SmartCare and a We wellness annual $XX SmartCare access services, Our parents nationwide pay second wellness visits in a using routine to unlimited plans initiative we focused our discounts QX. plans, on parents care launched monthly initial a Pet which subscription is with pet this care and our of fee over X% remain with to monthly on parents and pet

of XX% that of offer some their industry the issued a our average new are in AVMA closing, veterinary for recent for over medical X%. on parents is again, opting Conference, U. are clinics high-value three report unique to reported came by S. theme continued and and recently relevant ticket In I into focus the important? from Another veterinary the revenues this X.X%, pet XXXXwith increasing plans data XXXX. XXXX veterinary that U. balance for which a benefit into create the existing reports PetIQ. term The highlight are year-over-year issues. majority to managing compared year S. more believe report that from like PetIQ’s this X% practice pet The would wellness this program. to At will care. generate once year-over-year complicated longer we the growth declining future. times continue is Animal flat our Health pet. this the parents that them to pressure. compelling stated clients, through increased QX and were and veterinary We in were sole parents AVMA our this business pet pet services by Because revenue visits this AVMA. this vet helps relationship relieve is way when to us our SmartCare with wellness revenues in believe trend pet and We of incredibly Full-service busy Why Innovation

John. also services. of that, convenient, to pass I'll We for parents call is to affordable, positioned the With wellness needs who the are PetIQ pet believe uniquely that over meet looking

John Newland

on $XX growth quarter high veterinarian an due and the quarter QX year, sales from last XXXXand was of quarter This quarter you, first $XXX as growth of drug XX.X%. net slightly prescription year timing offset reduction lower segment of Thank more to the sales, COVID-XX. XXXX our increase of caused our clinics the in I last second a now associated increased by second QX shift closure of year, the from financial sales. in sales detail. the product compared and when of driven The a reduction we was on for Product strong and increase strong Services during company results approximately ecommerce lower a flea million during million, lap with segment pre-COVID tick by to partially sales to top generated by The X.X% of seasonal Product sale a the segment sales QX in of net record Susan. of will focus

In the the contributed company's to segment an any revenue, additional the Covid-XX-related community without that and we clinics outs. estimate delay quarter, addition, have would wellness in the million headwinds center Services to second build $XX.X of

Product results period an of year, at increase this quarter-to-quarter of year. Looking our segment. in of the underlying increased of basis, our the year XX.X%. the the XXXX XX.X%, our shifts fundamental for six This the months first On same our orders demonstrates compared a months two removes sales net of and were million, first to the timing last sales some $XXX.X for net strength stack six of

of $XX.X and COVID-XX-related at temporary amortization of largest was despite profit year was driven as second profit basis these in for $XX.X cost on of our Capstar, compared of stock-based were General impacts of increased and and history for headwind gross in an $X.Xmillion. an year. $XX.X of selling period increase the quarter administrative in increase point Services compensation The resulting to both $XX.X being XXXXwere XX% by that $XX.X in general as for the the million million, the million, XXX increase the occurred segments. improvement the record million compared to of to $XX.X Second higher of XXXX, year and in in gross basis XX%, margin quarter, asset Product XXXX, prior expenses expenses quarter an well period, in same record XXX million. an second and the expenses points. prior increase marketing $XX.X Adjusted of Services compared the points, acquisitions gross administrative prior increase million, margins and XX.X%, representing XXX estimated company million an was was highest the an when the an in We margin the basis from achieved Adjusted quarter segment. adjusted increase gross

was points, period. of XXX increase SG&A percent sales, net basis a an of adjusted As year compared to XX.X% prior the

year. $XX.X QX EBITDA compared helped million, of us XX.X%, for and sales strong gross of adjusted products Our of an last profit to higher achieve margin manufactured mix increase the

plan. EBITDA XX.X% For second our compared adjusted the in in period. consolidated Adjusted XX.X%, basis XXX than points our EBITDA better to increased quarter, margin to came year the prior

call, there million, well a seasonal earnings R&D million. as of mentioned as we shift was carried of on our flea and tick sales of $X.X the expense in $X.X As timing that QX

XXXX. these $X by shifts looking last QX EBITDA million. months at period the approximately adjusted our the million reduced year, increase. While to When stack our in two-year million noise EBITDA and it On QX, $XX.X six XX.X% benefited removes of it adjusted year-over-year XXXX, $XX.X first of the compared in same timing for demonstrates a that services strong a basis, to EBITDA existing compared We EBITDA have estimate would locations XX%, did of impacts additional increased in segment EBITDA, the to the $X.X increased contributed first Services all from adjusted our have adjusted second quarter. XX QX $X.X of million segment months $X if not six last million. an COVID-related Services adjusted million year

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

million quarters is convertible seasonality XXXX, segment of which facilities working AR total We capital $XXX.X flow point its result was interest June annual comprised opportunistically to XXXX. greater build in balance, million company rate decrease cash of June XXXX. of cash of contribution from a its segment including and free facility, million in available as facilities, support XX, favorable The and down The into June pay our $XXX.X facilities as debt increases and XX, as significant replacing capital basis company growth, $XXX primarily long-term new of XXX as success Product $XXX.X credit the Our the as debt liquidity April well to liquidity term term Working improvement and credit more to XXXX. inventory, existing the the sustain and positions largely and the drive believe of business. in flexibility representing in a company's the as debt. Services increased given terms in future of XX, our the ahead, million on loan to new credit revolving entered of provide

the been Finally, and like a making everyone such at thank I to and of for PetIQ rewarding. to questions. working I the are Board alongside look Operator? during so team. would Susan, a of seven the the overview, to talented that work your the Directors years Cord, I dedicated rest and It's forward team Cord and transition. past Michael privilege available with With for closely

Operator

Jefferies. question Please first question. comes proceed with Our line of with Instructions] the your from Wissink [Operator Stephanie

Unidentified Analyst

for Blake Steph. for This is Hi. taking our questions. Thanks on

the to I make you sure had your the want was QX line just know and On that product quarter. I so e-com expectations in sales, pull-forward with comparisons. for the the

So those for your quarter? the expectations compare does how versus

McCord Christensen

Cord. return for to Blake, percentage channel. what e-commerce the was to Yes, and with and one-time was thanks market - are they stay of vet business from question. the position over higher a retained supplier came to now all think a that I going channel is be this Both the the year. estimated going trying project and us This We to to in percentage retailers add to

little expected it's it So we be. a bit to below what

we it's expected did our However, by across reasons dollars be for from you expected as saw the up it in ultimately is far and category lowest our we margin margin is what than us with no better make virtually one margin, and an that of manufacturer company EBITDA the perspective the the line quarter.

sales came the and the gave was comparison just transfer significant vet business inter-quarter closed when year-to-date from were during over the stack numbers vet to COVID? but for volume, that same see of the XXXX for why we how the get rid channel So, gave that's a to one-time soft you period against that for the reason also

Unidentified Analyst

the split. terms sounds Got it. That that makes for of strong sense. manufacturing And then, is XX really sustainable It on like that half. the you product was in margin, think second

lack make the sure sounds So, large that there was that you - e-com call originally just maybe that part that all else in driving of increase was like anticipated? faster out? of to than Anything a you'd - returning. what It so

McCord Christensen

Yeah.

still rest the it, of product all part sales accounted mix mix think a some transfer, The in positive our are I obviously our of which discussed being going a in it share share. give for way. actually highest of items. been manufactured the not our gains through less to We've we're our running it. margin coming very release, business We've in share you gains and small seen that of script, we gaining as and is, distribution

We having future trend to a led it's our what moving mix indicative it's that believe exact very similar now, margin seeing Obviously, us so our from of the say increase. believe amount, future profile. right And impossible see and we're do we'll forward. we but that

Unidentified Analyst

it so, for and in one, but sounds the the all? planning are size, you you just price Last increase sense. makes That anything Services like Services, at up for segment, taking product are

McCord Christensen

other Michael, with take want now. back do that? line right you Just

Operator

Instructions] [Operator

Michael Smith

Blake can you hear me?

Unidentified Analyst

Yes.

Operator

Yes.

Just in moment. speakers the one are just the getting we line, back

Michael Smith

just Yes. And we actually a lost some people second.

Unidentified Analyst

problem. No

Michael Smith

Services While, than we on with we being the the both But well the and with Product items the delivered are absorb for of how It's segment first we across quarter. business also answers, deliver they we've the things the are costs inflationary our which this those numbers year segment, half to and we've seen very to the more added. sign started a positive seen is doing get manufactured it. ever

costs they're on to at and increases cost retail of increases to being think right with changes those but our be as the preparing we numbers, the both will Xst everybody decision add seasonality us incremental year, from know on, the we've goods definitely We are have the side side you significantly. seen Xst put likelihood up But a for include and have company. coming, place hear these that’ll care the and the based us to those of Services cost where margin same price business of inflationary in increase effective, pretty had of that let to our partners is in XXXX. the that take them of cost would Product something going be take which else We our what's our of

Unidentified Analyst

Great. Thanks a lot.

Operator

rejoined. have speakers The

Michael Smith

I ready question. are the think next we for

Operator

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

Brian Nagel

afternoon. good Hi,

McCord Christensen

afternoon, Good Brian.

Brian Nagel

we're right I rate just QX but than kind the is is more to with question, there a the given regard number backdrop. moving of a temporarily of number? type think bit fluid it's of some lot that Cord, My first Should question, depressed, of number prior these run very at it's the follow-up parts of now look normalized sales, a dynamics? we recognizing is more a Or and product

McCord Christensen

Well, Brian, I anomaly. think, itself, QX an is by

other And slight anomaly had numbers. saw that closed. the the odd year in of a Product quarter, with worked very those as vet explosive the where quarter comparing the are have in channel tick part was partners this we retail ordered we they the last seeing We flea that very businesses growth that heavily QX. also we're in and to And sales the

so to inventory. returned And normal going sales absorb you're when obviously, their rates, growth with to the not that much

quarter. to quarters from for we And work and so higher out itself will shift the projected purchasing the QX and had we they more have It to than we in had needed means to QX, it QX where in return saw second significant that was we didn't QX increase people volume balance those more out. and that normalized

on QX I more see but should the that to year odd the for you normalized an So, prior purpose one explained. was just definitely product business, comparisons

Brian Nagel

Got it.

then, I for Service my more probably regard question guess business. the that's helpful. And second to Okay. just Susan, And with

So conversion. composition Greenfield you more to in from mentioned shift the

better, want that to conversion? think is any understand then what's the of I And economic actually meaning economics differences I the how So versus driving we the Greenfield should about shift that? as guess, occurring,

Susan Sholtis

hear Brian, Yes. Hi, you me okay? can

Brian Nagel

Yes. I can you hear fine.

Susan Sholtis

good. Okay,

difficulties. I think some we've had

So I just wanted make to sure.

data of out start coming compelling quarter different and things. by first into talking very to we So, quarter. a couple of started second about, I'll see

partners So, says two first that, number one, to shoppers data the XX% we've of some with pieces, retail retailer. PetIQ new all that of compiled sharing parents that are we've our different been

insight it's to great stores. So, their to help into them, traffic drive a for

seasons been selections I these these making They and of in an really average The out one, I two clinics is collaboration where call, this so the great reasons. these Greenfield another they partners. as to $X.X season per spend because of the second Number on we with on out the clinics. more that clinics, seen, just started on and first ramped. Anyway, piece but counts have are our COVID our ramped, interestingly, season, explained they in bring that the into clinics pet we've different for visit. Again, because in started us and Greenfield us this retail is with collaborate we came to, we and remember, as reason ramped

search, services metrics we chose people So, able geo location also we locations on along digital we through locations target drive drive one. these We or with to side. geo that through put through but location the them really we've targeted to - through our number the in not be those centers. diligence the dialed And partners, have paid marketing. only our retail number those But two, then

So, I which what we're minute. to conversions. count. driving short, would driving We're in with I in realize seeing a similar for count pet say count there driving wasn't and I we're very rates pet We're pet that

Now, to want now. counts a we're minute, the conversions to we're very But, ramp again, in see that months in. pet don't you stopping seeing because and I caution that I are six similar the for

McCord Christensen

a important economic So, previously for – we're we excited the I there first We where But had them. getting faster. the we think about projection to it’s Brian of conversions believe the have months not much get Greenfields same more get them there guarded eighteen think benefits. the

retail our our locations. have and partners leading bringing We

control and we remember the Greenfield the entire you If end-to-end. locations, from the process construction

partner to So, the we're not dependent on locations. deliver our

X,XXX had at track plans So now COVID. believe a more conversion this still a out keep still end locations of the year. overall, do will the be year, to for forty opening out it coming heavier are going the stores, XX:XX that are they've Greenfield we'll to to locations a we When the be X,XXX slower start to on our little a get store we just years split, in with stores. We little

I think. So, that's the way I explained,

Brian Nagel

Yes.

is is going which So, that I and into initially clearly a now positive locations than think the quicker forward that, you those. why thought I what right you're that's further dynamic a hear say stepping the little are ramping Greenfield you

McCord Christensen

are keep control to working do and to - to that our construction teams we ready stores over And that's open progression process, because open. that the work start in Yes. get the stores and get believe we can

have get XX them to so. that to that runrate, Let months

Susan Sholtis

one add an veterinary Texas. I was would incredibly for Texas scale I more bullish services. added pebble Really for added am the the us is fantastic thing. the on state Brian, on And, Texas.

we're about So, Texas. State of excited the

Brian Nagel

Look congratulations. forward to working congratulations bit your John but thing, in last longer, little a One retirement.

John Newland

Yes. Thanks, Brian.

You're not done with me yet, you. but, thank

Brian Nagel

Thanks.

Operator

you. Thank

Elliot Our of Raymond next question with your line the proceed Please comes Wilbur from question. with James.

Elliot Wilbur

Thanks. terms with a reached have the in How your in easy the we've to thinking that position? do Good you offer wellness, may commentary in And that gauge and then, afternoon. that health full of in the concentrated down been what just parasiticides categories? that for if you categories this there is key impacted, of drawdown sense extent more others, specifically is inventory any ecommerce if commentary could one drawdown respect was anymore of to than color or around from your of channel, Cord, have period? you those

McCord Christensen

him but product Elliot, very, Yes. meet chance had you division. to answer I'll the your haven’t He the let question. in data, very is he Michael Smith, runs our deep.

response more give to he'll you thoughtful think your I a question.

Michael Smith

Yes.

of normalized into our deploying things. than to of strong still assumption season that we you that And look the byproduct then the they started again. off expected. are I season rebound make pretty short back clearly a dollars some signal behind some a of position couple five, a in June you captured and tactics July, again is order flea who levels to partners been we at to us, a that's up in saw clear to and for do share which if to are category has the some in in need in been more versus month aggressive One answer the much in better we think, and some of a they of on-hand their to they've if normalized of the burning consumption data draw the that's that's replenish weeks as month as six we we is, how no to have in of ago, retail is, July, at be especially there specifically picture today had in what And were that supply tick. and look left guide also much the softness and for longer and with in of and can of inventory that and as addition the getting the off the clearer there But, category. come is, coverage year inventory the much customers consumption, inventory helped month those

concern up other and inventory and of been of and look very our tick has you at a from not some categories flea If wellness healthy ecommerce.

have and position. a look in July, we and been the we much at that's where were consumption through challenges Specifically healthier levels as inventory

Elliot Wilbur

that Thanks Michael. Okay. for response,

has think action market me OTC Sort of ecommerce? tick flea into the had next and a terms that the very or my leads question. to channel the been triple strong in vet vet versus back in you business category There within of drawing impact product. launch Do with any

McCord Christensen

Yes. really it’s I a draw think from standpoint. don't that big

almost in on pet But has we a a had any how that been even share between consumption. consumer just think the the overall look general to perspective. on fairly reopened. has We saw year-over-year that it. There be available at reopened of to you expensive. general product flat category, had waiting there, from stores well. unit bigger unit channel veterinarian shifting well But demand done because the has launch were animal done And that companies It's item quarter a also basis when us. extremely channel use available in and some I vet somebody very have health that see the product an vet seen. to hour in That

balancing they and not closed direct now think that buys talking So, back This about it's I out. a and But, because the would it. base is correlation are that’d category, a literally year narrow we normalized last to were what be customer overpurchasing just here. Rx

Elliot Wilbur

as to EBITDA terms follow-up, impact any guess, prior based from that would expectation Cord, this And a the quarter, have your Okay. in realize of trends on ability your I contribution Capstar? on the

McCord Christensen

No.

Capstar be sales able the back will I EBITDA miss now share. in think, we expect division It's to Again, full what is despite and contribution close trends we're numbers we gaining the its in our well. deliver our of for very full performing half and year. Product to margin right have contribution year, the - the

have said bit a year. flea been the statement through off little we tick there that season think I in even our this and

item which compared the brands. other PetArmor Our is is XX%, to up overall, strong

year about margin again, contribution contribution feel the sales these full we are coming virtually no through. company. the Rx So, good And to

it's but doesn't affect a thing it have, good our So, to profitability.

Elliot Wilbur

the going bit for of labor the services? into excess what Okay. you of about reluctance - the think the just the And dynamics behind that? Could trying a to what just get Is just mean, indications demand one's just changed about it little last to to then what workforce? Services are you out just Or term? be driver is shortages respect sort in talk it question, is I side. back on to that think the near that primary

McCord Christensen

Yes.

think say up would first to the been our thing schedules back I level is, I we have clinics. ramping pre-COVID

labor we that think having was And a and levels, time those difficult time a crossover and to bunch year, event we clinics have saw this community we were is clinics. there XX,XXX those for If we us it. judge a the that of each staffing based shortage we on things When kind are that you back get and different typically, have clinics mark clinic causing came XX,XXX would remember an it our quarter. day plus a we we scheduled of

people Some in work this to that of it environment. don't is, want just

is labor this to think predominantly contract We our chosen in they pull in community have that engaged. labor. less I made XXXX clinics environment, a up of have be And

and back get we're yet. they out not aggressively recruiting just They're We all of feedback work. reaching comfortable them. them to that want definitely just the against to are getting to We're

But to very point. save going is to we're Susan, then right levels get anything the that? more difficult. you'd to at some it's So back that some else now, add comfortable to we're like

Susan Sholtis

Elliot. would, I Yes.

have that thousand our community remember we you today. couple veterinary of pool a clinic we have model, if So, a still pool veterinarians and of

So sent a they recommend that a the are all, of And resoundingly, vet COVID those veterinarians difference We said pool environment. our out of all in all currently The has would to us survey friend. is pool. not gone X,XXX away. that and they first that

veterinarians of the to that we've operate, nice clinics want working recommend to of we've So, stressful that us practices. simply they hours because friend. number they're a come still still work thought their are in They on back have full-service incredibly there, solid a that and long would us with pulled got pool

they cases, So, there hour if the really are clinics with veterinarians you're and eight And days they're you mean long about days, that there just think are out news there with working hearing about XX it, vet just our not - I complicated hour angry out clients, are working cetera. days. et

the while they they've to reduce do And the what now, hours to end chosen their so, those with get right day, is us, of at through days.

and be to those money some us. And full-service for so, back extra practices to start I need pressure think see people with on some relieved coming that we making

Elliot Wilbur

you. Thank Okay.

Operator

Thank you.

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

Jon Andersen

everybody. afternoon, Good

the on sales for and $XXX in million million budget $XXX year EBITDA. at in question, the First

in and be the grown, you've in ongoing first I about million COVID sales How in of the have past, correct and It may in the talked do $X today. EBITDA sounds that point? half I year like context second COVID could $XX given think this there in wrong that we the range what budget the the million the am me that about full for at think and the here may if that, suggested - half impacted by language impact have headwind a to year. to of the

McCord Christensen

Jon, for the thanks Yes. question.

talked a the about $XXX in our over million an the the and that at Services you being Services business $XX sales delivering, and right delivering business of $XXX and remember, of million budget the $XXX year about one million over think, the Product EBITDA little business we if I for million plan.

realized we on sales second You we are $XXX contribution that against labor budget, that period. month on million time increase because larger, it gotten of and we in quarter has are we from Right are in number million was shortage that light the second kick the light in saw $X that again that organization. EBITDA that most $XX of year-to and accurate now, -date million

change, that seen not done during its to as it of second standpoint. not most is we but a the season bad be being also amount to it have quarter as seasonality peak We revenue from trend was going where have

we the So, future. predict can't

it We our due on we update are significantly direction. COVID-related now, internal to better. to have versus made definitely, organization. years we're half still behind doing our continue running the significantly entire get of that ahead But right this But we we EBITDA everything will versus you first more impacts we're that budget up as mean, through are in year, make of to year But two what the Service the I excited ago. XXXX? about last we year we

Jon Andersen

way it – is right at understood I wanted No, off sure to we're is. I I Yes. it. the look The I coming stood that's that to not of and just off it right. the make coming on agree budget But based the budget. budget what

We and the for have through There the reflect half. that's first to half year be is impact in the think in second full back outlook. and in the COVID us additional of kind going some to

McCord Christensen

dynamic tell changing month that us the you looking we're with is we every see all to time. seeing impact Yes. half, for environment are because try a single the such what the it's at and a in and But, improvements. impossible number to back it's guess, exact And

improvements quarters, you saw that see you we’ve thing we seeing last up is And important every told significant the quarter. moving think three we are I the sales would improvements.

seeing More getting is get doing variables confident XX%, with importantly, we get to we are to state. are are that XX.X% key that to our margin, we back objective generating now now taking back stated measure making things closer you'll to which the progress in we margin to we're improvement that activities to had. more we're gross And normal that are see the - where our again QX right in all and the which

in adjusted to that million EBITDA. a over is COVID. same and levels. will be sales of over once normal we So, this business get said running base And differently, through the get circumstances dollars we that back the We we know state $XXX know under we're $XXX million in

Jon Andersen

Okay.

one Just more.

the then, things to for that which take mind, longer that areas term Does more words, that have - thing that on is, to, just other any impact about just the business. you does in comment mean, level? runrate, channel kind you that think back of we takes Thanks. back or I there go on hoping just whether of kind As the couple migration you puts to an of update a you of outlook? QX, In before sales second lap? is there is, relative One on profit distribution anything I have can to but a am something there certain base side referred your are anniversary on you And might get I vet and to any partnerships we else in does year your and for to this of that a the on consider? have

McCord Christensen

Thanks Yes. questions. for

year that we about creating last talked to that anomalies going led steady state. we're to anomalies means, we're to have the led obviously, anomalies of both years’ at John, think some I then that So this anniversary those projections year before

that. XXXXwere The half first not normal half XXXX, of because the first of of

we partners. rates, returning back second are right pre-COVID. of what now the is we more back door at would going And a growth is, consumption we that out are call runrate? to to getting normalized Your that of part the seeing stabilized Well, consumption our

It's It's whole year. last not XX% was share. it the ecommerce still the So world just extremely down when like channel doing gaining is well. shut

back more so, to we're And normalized rates.

the somewhere mid-XXs. don't the XXXX that's From from expand. little and a such is been in We’re our all are XXs, in This total profitability. of have shape, is we it growth that don't the bit. The see somewhere year years over Product in our that margin those us a overall a in good the changing. But historically business delivering high any and that regressed profitability, you've rate it's see seen now driven why numbers anomaly change in profile business growth

last steady it's about XX% talked are we our the of agreements for with in as partner, state largest multi-years, very a distribution we business. quarter Our

such able did The customers revenue renew other the we that margin Again, We'll one of the headwind to profit in pilot margin half in expectations half. customers contract. are it of business. create with we a be affect on our perspective full of contract, product in no our Product That any a back a the will except not the deliver for will the doing all from back low carries the margin. the longer

about in not delivering that back a one that in by half, base it's $XX customer, the customer's change So, volume. against our million

Jon Andersen

the in million second half? million $XX annual or $XX

McCord Christensen

Back half. half. Back

Jon Andersen

Thanks. no on But profits? Okay. impact

McCord Christensen

None. And a It’s again, be X% - are well margin. sort not brands, our we're type running it's visible. how a going in so of EBITDA doing we to it's

Jon Andersen

Okay. Thanks a lot.

McCord Christensen

Yes.

Operator

David Instructions] question with [Operator you. Our line Thank Securities. from question. next Guggenheim your proceed of with Westenberg Please from comes the

Unidentified Analyst

John question. This your time. John for Thanks on is taking on the And David. for congratulations

term on and first how of all, labor the about impacts the think And longer we should operating so, inflation margins?

McCord Christensen

we've it because the it'll to rates that Well, return we're The think organization in one being pre-COVID, company of one we're the could, are improves why of going see pricing changes the normalized place as and The and we'll that Xst rates. were that that hopeful for they to talking covered it's September issue be be in will fully and that in service thinking off compensate activity be long forward. should have held of obvious is but that by we correct QX the will those about will as will something that be rates those you factors margins about obviously, inflation labor action things I would what taking as we not.

well. business the Product no organization. be come most based those will the it as other have where action, margins in back not the happening So and next on be costs of because will places and year, of seen our contracts those, work effect to affect pricing in there in, would where in we we as the other The Service our operating in division, stated, year. place likewise, the change of that we've factories but how But taking half

absorb we be those with for will in I increase that will those our we're the for believe as just we're and and company. costs incremental Product to budget next inflationary for - inflationary an place, running year strong and the we against how full able we'll However, said, factors performing be see what margin division in

Unidentified Analyst

will do And think to as that And Got a start driver? that add-on it. you a a Thank you. is still could initiative? growth in also you about excitement Like that talk what telemedicine? about talk key your

McCord Christensen

Susan, on if you could do the telehealth?

Susan Sholtis

Yes. No.

telehealth, lean of base that to to Telemedicine continue because we a story push of large in us helps because the bit different of regulations all place us, So, a in telehealth in into customer on easier. states we of telemedicine only for I have such have lot the is definitely. a come little a all kind of that back think

telehealth is of no So, charge.

But we of now. we're We So transition into get now literally the get them that completely necessary. right for then telephone our since professional telephone. a people can it's majority call telemedicine, the line physically, the and on call push and if on cases, professional into advice the open clinic

those So, because through coming very of our little telemedicine, of clinic in reopenings.

Unidentified Analyst

you. Got it. Thank

Operator

are Thank this at questions. management floor to further there turn like back to time, for closing would Ladies I the gentlemen, no you. comments.

McCord Christensen

in the We these difficult this working veterinarian We couldn't our for company, rewarding been today. that people highs records deliver across employees, the difficult for despite record of and grateful of working such We said we discussed. more operating result. margin all, various we conditions our to our all environments anomalies be that for all-time have an thank company veterinarians, talked everybody record joining and us EBITDA extremely It's the record about some and quarter. been all with sales

significant be we're we're improvements So sales we excited position, the company's and in can more the be about progressing more as how both and making profitability our proud year-over-year and a our company.

forward So, we forward joining soon interacting of another to us you in very the for quarter look today. near to in reporting you look future. and all here with again Thank

Operator

concludes this and teleconference. today's you. Thank gentlemen, Ladies

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

PetIQ (PETQ) 5 Aug 212021 Q2 Earnings call transcript