PETQ - Earnings call transcript Q3 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings. Welcome to PetIQ Inc.

Third 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. this being note Please Instructions] conference recorded. is [Operator conference your host, will now Turner. to the turn I Katie over

You may begin.

Katie Turner

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

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

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

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

Cord Christensen

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

Finally, positive and and the by adjusted to of a led and health of our our and answer sales experienced results percentage March flea in expanded category to quarter started tick fulfill pets ongoing it labor quarter are and significant in double-digit parents was a we great did and This to your pet, needs. quarter, gains third for returned the and margin be strength the and of executing we with product Susan, wellness their The ensure products pet strategic the where growth XXXX we I normal they product to based to and will segment, on EBITDA segment a headwinds. John, products. need per the believe return their services growth services In Michael offerings. COVID operating available segment consecutive clinic clinics third demonstrate and and in the wellness for Overall, cadence not when a diversified more a first The year. questions. dollars third and financial share this our pets we had and since health despite with pet initiatives had quarter operational due pet’s our segment product broad we in job quarter solid serving per to every that team the

an reported sales increased increase report gross XX% $XXX.X points we million across $X XX of XX.X%. look third million, record a product generate includes Focusing of counter growth which a quarter, net our we category on a consolidated pet to at Taking margin accrual basis R&D $XX.X year-over-year. closer segment, are And over the we for every quarter. to medication results, product milestone approximately the for the of during lunch. pleased future quarter adjusted Adjusted million third the EBITDA

of a and distributed manufactured Our million products year. sales both to net product the stronger sales quarter, in normal quarter of of than from last benefited $XXX.X XX% compared increased segment third seasonality the

no net in sales exclude if Animal the sales manufacturer For third you that comparative in purposes, quarter third Health base. year, quarter the a XXXX were is major XX%, longer from included last sales up

the health in XX% and have Our was year. and wellness oral brands and XX% and by We growth in ecommerce in by which experienced led category. the in delivering our increase the channel, manufactured XX%. and for tick, quarter The celebrated to up the quarter Capstar of led XX% which tick as in third prior XX% growth increased products in flea growth compared flea growth strong an tick category manufacturer the was flea the

third sales in XX% Health of last the XXXX. of no XX% the sales quarter longer quarter the If versus the growth ecommerce third year-over-year we Animal is have quarter major would that you growth increased from manufacturer our in XXXX exclude third year than achieved

of we in materials and inflation, headwinds, cost packaging. terms freight, have In particularly experienced labor, inflation raw

beginning a finalize now clubs of excited increase result, an first R&D greater orders and benefit all to the finalize quarter year super and in premium wellness of ship a to fourth inflationary this full planned benefits for line in and As the X we operators. From and this year provide a segment these of a across November ship offset product health pressures. to large we're perspective, XXXX. We price our for

payment a a I counter million launch. for accrued over the medication milestone as addition, mentioned, R&D future $X we In

favorably working forward our in model, shifting points expect they our We our XX.X% reached being and accrual This completed a XX% towards on have sales. XXX This our this and believe has visibility a basis is the points quarter mix the this that XX% third go portfolio QX and driven maintain indicative margin significant adjusted sales. the consisted expanded and development and a product the quarter great margin mix in The has mix From business segment with join second XX% EBIT our we company, quarter sales compares XXXX. milestone to triggered to our product Product and profitability. segment us basis QX We sales mix XXXX. distributed year, from increase our in manufactured in gives third-party own that of XX% EBITDA exciting been adjusted product increased trend manufacturer portfolio of quarter. which year-to-date standpoint in item XXX more to in to of XX.X%. last distributed

to and as pet categories along several clean largest the in wellness. participate within continue of and solutions, We the tech fastest health industry, with such

both and share in retail fuel growth. compared led mortar our same tick continues Our Year-to-date, brick This last team's up share and by our the and within period the PetIQ category. PetArmor, portfolio the emphasis of year. to for points winning ecommerce gain basis flea XX% gained on brand XX was was which

the the our and believe start XX% our the nine to This in as XX%, for XX assets accelerate for in As adjusted segment services leveraging segment wellness, ship months gained loss in Services also we XX of our the of the compared X.X increased the to basis we quarter across continues. quarter million quarter fourth market revenues adjusted EBITDA million third share an in health EBITDA year. of to positive Shifting our while million first million. increased XX points segment, Services also net to XXXX increase category delivered $X.X new of returned We growth XX the as or net the gains of space. the million. portfolio a the robot share of versus over programs will of

fewer but caused would improvements clinics. have significant, were less if they of headwinds been, still were to they related not these us that for were All it labor than run

we For community the nearly XX,XXX of community clinics quarter example, third third in this XXXX, approximately XX,XXX quarter in versus year. the clinics ran

and will in time, situation we've areas This the detail and services four services Wellness the the improvements optimize of make While risk At in sales taken the includes opportunity our term, capital same our prior performance and segment operating operate to place near more up and deploying by all improvements team provide believe the COVID has XXXX. new the the retention to starting we current similar on. labor expect to operating generated QX last we a and improving impacted Susan ramped key which we've will continue labor expenses efforts, in reduce sequential having quarters in Center clinic. the recruiting opening plans to to

construction been on result, begin the a new As in to started staffing. has build hired. out begin then our and and required began we quarter, Wellness team in-center would has fourth construction Centers our recruiting Previously, once all beginning labor

Wellness partners our we in previously open open open also full Centers year, we our the across new XXXX pet XXX. to opening Greenfield expect and to to XXX XXX we partners both using conversions this best retail the our to have on to and While the pets, shareholders. opening enhanced plan retail parents, help of locations, this plan remainder Based Center stated Wellness for for approximately services compared ensure plans experience commitment their will our with believe

have to how it country. We the confidence is model across and parents pet our in valuable

mid-April growth. we be the hand, the From the test sheet a continue on cash in entered per availability dollars cash cash our existing to perspective, and ample our we and balance history. facility financial and into continue generation future new to credit liquidity have flexibility example, For and pet the support clinic strongest company's KPIs with to under

earnings due or related and impacts our from we business. variants release As today's the outlook suspended COVID-XX in Delta uncertainty noted to remain to

However, and fourth be over with operations net in of to improvements very will that continue to ability the optimistic to year services sales report, results its we the EBITDA record segment pleased year our adjusted generate and we XXXX. significant quarter are

mind, in seasonality segment that expect and our the the predictable, business. smallest guidance. becomes impacts Also years QX EBITDA then prior will lessens services based or net on represents to be we in more position a of the sales quarter provide better keep to adjusted as similar and We

and growth. than pet pets and help officially that will delivering animal we through XXXX the year, August products Susan. industry our overview, long convenient I’d to term to expect ever continue mission believe for to lives of continue Capstar We veterinary in turn of position and greater their lap this addition we access We also services to call enrich year important our million. $XX options to differentiated which of now in is that to expect over parents EBITDA fuel smarter incremental contribution more the our With of affordable health the than full like

Susan Sholtis

Cord. you Thank

results solid quarter quarter demonstrate third another of organization. Our services our across improvement

per dollars and foundation and pleased that and pets. for are offering for very demonstrating clinic per clinic, our are dollars pet future the We differentiation pets of their we comparisons, the parents and pet strong year outperforming our have pre-COVID per services prior growth

quarter As recall, year, of you at team XXXX the during reopening our the third XX% in may approximately stated last business executed of quarter. end our the with plan operation our on

our financial segment Focusing increase to $XX. generated on $XX more million detail, of of net revenues million, an results compared in $XX we

initiated to Importantly, to million. is increases an reopening EBITDA XX.X% they of year the from X.X actions. We to and in generated but period caused centers were revenue help pre-COVID related clinics. net segment Both if In compared EBITDA would order still of an our as it the fewer adjusted and compared quarter million, of run less, wellness were not the offset third were of delivered labor than for and the mobile $X.X this result environment. prior this were the us operating significant, adjusted also clinics, we the that EBITDA headwinds been, to XXXX, adjusted it following to headwind increase, loss have compared when

order our hours. to we in First, optimize schedules clinic labor reduce

where clinics consistent staffing issue. closed a temporarily is we Second,

our detail the our we to September wage enhanced I Xst related which retention in took finally, price in beginning pressure. the recruiting we services Third, later. of offset cost help will approximately business, a X% greater And and programs, address increase

the initiatives XX centers QX, will were a we new XX benefit XX that centers. wellness locations reopened is opened expectation year-to-date. opened wellness beginning from centers new in Greenfield Our a total XXXX. these of We see Seven of for in

we've wellness as One marketing these specifically of and of in result the our that a the targeting has efforts. highlights geo success our strong Greenfield been centers, of XXXX seen

centers as Greenfield I our excited on As of QX during with fourth new our we're mentioned one open call, the retail the in Texas, of Texas of veterinary is markets. one to strongest this quarter service partners, year,

mind in to exceeding levels. or well continue coming locations also all Our locations conversion with perform pre-COVID back pet count

retail openings run the continue later see due as our of year, clinics to a our for COVID-XX. chain expected supply than of locations issues plans to We the starting and due construction to result new partners conversion behind

shift these approximately half these due expect of first build XX We to XXXX, conversion delays. of out into locations to the

For continue Greenfield conversion. XX% expect represent scheduled to and we out XXXX, XX% to our wellness build centers

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

new construction our in-center is As the prior market, Cord discuss, as strategy required XXX. XXXX, labor my now centers Wellness labor XXX based to on all once of XXX hired, open approximately to range wellness to compared to targeting on dynamic are we begin centers given in

to in XXXX volumes with build these would XX% QX continue new risk, labor with year, of to will when to see to to line our subside. also expect traditionally connect QX, to results QX, continued in to We QX over until out seasonality. headwinds store parents In in pet due up maximize reduce use And virtually. and are volumes this approach were XXXX. compared them decline we call of this Call team

addition, QX, of pets their, nurture about telehealth up clients. with PetIQ health versus calls conversion Consistent and good telehealth grew are our seeking prior these from become quarter campaign we in over pet again with parents to are parents In we quarters, pet prior current receive advice to encourage And XX% clients. XX% not our wellness. seeing calls

new XX% pet couple focused IQ. number pet the one, new in You'll to this recall pet Again, that parents. quarter were parents were of over year, attracting initiatives on including a of

prospective Our is quantitative the us care veterinary effective. that barrier of interestingly, of and cost. to parents research revealed barriers most come because financial And primary we our XX% are pet recent drivers cost pet the amongst owners to XX%

So positioned we prospective are well with clients.

is pets low plan smart The monthly their wellness health. initiative more care subscription affordably This for our is helps plans. pet parents second leveraging care that our

head pleased over And prescribers pet new plan. offseason, even continue with as becoming We pet into parents plan. of to number our X% the of be are we the this in enrolling the to parents

is choose industry, veterinary all The services our and on IQ, last helps out differentiated are financial market that for and working their to recruiting footprint addressing Research environment reasons the third the we've industry why honed At full Finally, a our hours. the national leave often XX attention. Every initiative are has retention while cites offer flexible agile challenges. work We any a believe our to services address industry. dynamic the worth from stressed key and business across day emphasising on the more skill organization's may the exposure labour veterinarians reducing low a pet to wellness model with we stress ability in set veterinarians service out burned adaptable, be we months. focused specifically, focused and work.

that, is wages, life qX, perspective a believe term. per growing In to is in to for and prior winning this a pass offer barrier was unique the affordability services tell the strong. For revenue business in Pet the I marketplace countless a were clinic, demand. future. both digit We veterinarians veterinary will opportunities, flat our double call qX of we're the competitive X% all operating like now clinics over for versus environment long primary are position of that to and allows consolidated compared the up we John. XXXX. metrics work closing, is staff, veterinary care benefits the fundamentals to and educational year. continuing cost up a when want approximately a And that highlight balance. package and compelling that friendly These IQ industry that It us and be On from with for pet basis. I'd to pets With meet in pet, to dollars a our dollars combination very and

John Newland

XXX an net you, of point that Thank sales results. from With We're both record products us increase of segment third solid million, our XX.X%. services generate pleased helped growth and X Susan. The quarter

of and The XXXX, million driven third both X Services year. point being the increase in for growth marketing XX from XX margin profit X.X Capstar. point XX An of for $XX.X was and XX.X% selling $X and XX.X% of the and of legal adjusted gross Products last of of increase million due increase points to million prior quarter an at an X an X year an accruals of expenses R&D in representing segment An quarter were XX X Gross asset resulting two occurred was the and million a compared by improvement quarter administrative quarter, Administrative largest and over was for basis profit million in fees to Adjusted represents margin XX%. XXXX costs $X.X XXXX. point XX our year. one-time points XX in that the basis point sales of gross increase of expenses General $XX.X higher acquisitions for Third prior milestone increase gross third third in the items year compared general year quarter increase were million million to and in including an amortisation payment million. $X.X Adjusted million. of the million period,

XX.X%, of decrease period. net to adjusted As points XX year a the a prior G&A basis compared of percent was sales,

return of gross higher and manufactured QX increase million, XX.X% an mix $XX.X margin of last with profit adjusted our contribution products EBITDA fields the are sales of of from year. Our to the Services for strong compared positive combined segment,

the net to adjusted adjusted million, XXX period. Product the basis increased XX.X% to prior and period. year points EBITDA R&D adjusted prior Adjusted products benefited better basis that EBITDA growth came year-over-year increased $X compared margin than as earlier. consolidated Product of an mix and XX increased to margin quarter, from manufactured significantly to in compared the $XX.X better sales to one-time sales segment expense X.X% For overall the offset of million quarter EBITDA by points the an of XXXX. EBITDA higher adjusted in an mentioned considering compared segment EBITDA I improved $X.X prescription third our our adjusted third to of to partially plan, the representing EBITDA compared million year prior of loss EBITDA drug sales. product increase year adjusted X.X% $X.X to Services million XX% in

Turning to our balance and sheet liquidity.

had XX, September of million. equivalents cash of the XXXX, company and As $XX.X cash

of of XXXX. its is revolving million $XXX.X as debt $XXX.X million of September long-term capital on liquidity facility, September comprised from of million $XXX $XXX.X company XX, earnings has The as providing operations debt largely inventory. a XX, as receivable of convertible increased and capital availability Working decreases Our of balance, September term loan cash XX, and normal working XXXX. facilities of accounts million total which representing and result credit was in its XXXX, as primarily

segment We our consistent segment Operator? Michael overview, available continue to believe contribution and free the that positions to debt. Cord, With quarters our well I opportunistically down available as for questions, and the from in and company are your improvement services build cash in product as Susan, drive the cash the flow pay liquidity, ahead,

Operator

at with And question. time, Westenberg David a this session. first Please is And your proceed Instructions] we Securities. will Guggenheim from [Operator be question conducting question-and-answer our with

David Westenberg

color And all for wages mean, mean can Hopefully, that not what on those by those get can thank kind is stores and on for Thanks a take of get increase looking I increase you equilibrium increase it's an that the the you're is, services know, at? wages. hit of one other? open you you wage taking such out valuable And kind hand, here. have to the you you in and the Do the side. that maybe I you growth I that, clearly Hi. this question. for

as kind here, willingness is? the us trying that's of dynamic how I'm kind a growth throwing walk out about to about you and how much you you're out, that really how kind money forward. just we growth thinking can think you're that ambiguous what your can much of of margins just of I or the get you but services throw between in So through go kind operating want question

Cord Christensen

a David, question for piece think it. understand you of thank we fill Susan And in. take I'll let question. the I'll I well. the

rates The availability a to the matter have is, first wage you the bigger than veterinarians thing is still of what the wage just issue around. and moving more realize and is people sometimes no

at a to the to rate increases trading believe that operating have in a we've we allowed capacity. found we balance think at that same price still not general, streets, margins wage forth I just can in taken is model way when industry So full we across us back the balanced, and has running be and stabilized that we're our the generate the operating

we driven today run we So that dilution having by that could pre-COVID had any margins we less leverage all clinics, and flow running not is would to overall our the the through clinics. if

feel quickly we some a model balance the our the even could a permanent temp build to so today, going veterinarian obviously, longer, fact that like talked always taking very longer And finding right to is we that was about old [ph] we've that. process And WX that than we are with got use be that. and our to and codes labor get zip and we're work store

catch days, being But sure training more And more a conservative codes our make pool. going we a put XX out and one day the there open. when for so schedule more have to them build opportunities in we'll to we're to veterinarians approach program to recruited, store build for while our we zip take put

a unit going returns to that's business operating company start against that you’d and have a it. better invested I’ve like the approach capital Susan, to just missed that risk open and anything to have generating we've a add? We for

Susan Sholtis

that. to Yeah, A items I would no, you the thank for David. couple of that question, add

the does WX to of offer. the in of just package course competitive we for has centers those, not veterinarians of also that offer But we a that that with are are clinic – do are First salary. veterinary benefits lot traditional the wellness all, in with a

in quarter, think But more things especially this importantly For this same also, we veterinarians probably meaningful. into they're they're I coming go work becoming When plan. that Really every the so balance, And hearing you night. that example, for last employees, you're or are talk great door XXXk at I environment. to are, can o'clock X having think, when balance really that that basically health is that life the home even coming benefits. work us life with they and our close WX, a

So I about incredibly isn't offering WX think that our is our it about just it And just veterinarians. competitive – isn't salary. for

second add community that piece would The that is in our model. to clinic I

you they those our community bring routes, So in bid if on us they basically remember clinic model, that routes. bid or actually whilst actually helps veterinarians that come be so down, competitive, our and to on more come in, and to and costs

different So a bit of clinic of model veterinary traditional than that a bidding it's little because model a process.

months; need on what and pulling, pool recruiting in is three we've XX that the new now, focus month. pool, think getting to that into we that every continue I that to last veterinarians been we're are average, pulling So, veterinarians bidding single focusing into on pool. on we into that Right

So to I think labor that cover more be appropriately. the that going be able more the pool, more and that bring clinics move into that able to to we're we

David Westenberg

those is maybe in should there of exist? in a goals very adjust answer this future to this these which the I way if know, don't maybe Got this periods? either we about you're period, still And year you openings a we the think future for numbers these How future And -- period if future. or number you've of number but think it, had prepared all or for clinic today, helpful.

Cord Christensen

a right do a making We are building to the get sure recruiting, know believe, then been new from norm a didn't responsible. at deploying now, to to We a we it's to step build help to to the perspective as more get and job that recruiting think I and communicating back schedule. the through businesses starts I Yeah, our it ready we It'll progress stores on to tech as long as we pandemic, David, we're we'll progress. retail to and X,XXX partner to is think, perspective. now, going construction and get doing the good know this start new even there's capital operating be using model going could now as we you enough up having codes there's that we get if same And and is the are what with clarity we a But have clinics. potentially running small more are model. we're is this change better. it's demand on norm the progress And at job the and to zip demand becomes we need give out. fourth be make we We're But we that that a we're figured to good rate you have quarter. that

we've As Susan done. row said, we've recruiting best had three months in a of some the of

environment, to just this us. something I learning had which relearn, because is to how it's in we think different. it's We're part recruit of

a go than stores. term, we different as this rate X,XXX we see you be build that employee there, going based right the be that to pandemic, long So, need we and stores can driven number through real not more so The location. to on the now absolutely base, the can we in communicating it's get norm of with because, the is we estate

David Westenberg

Got it. you Thank answers. much very your for

Cord Christensen

David. Thanks,

Operator

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

Bill Chappell

that going the sticking have services? past, the market I what It pace even And hard that confidence in of labor is months. your sure, on tight and not imagined just also guess, changed seems Thanks. fill labor which XXX not for labor guess just fairly in at looking before the in for some that, vets, then you're do you're just you in six And terms now ago, do to give you absenteeism that this you it's some then want XXX trying, continue we least techs this thing, about be the can time and for trying you I at Good market? these to issues to change, XXX tightening, like the in mainly or and I been I've had forward. this should guess months the what's labor year afternoon. three to and Yet make what months. understand, that confident but XXX. three talking so could

Cord Christensen

Yeah, I as it not think Bill, negative. perceived something be should

labor we've the cash a period communicated we've And a the how we're of hired what September And pandemic being person think company. short we're active a great to our were generating a preservation, make business, about point I immediately that is in point and its we've see we and around are cash, time be it use at to going we in we we now from a to normal. that continue And can cash a talking a provide clinics. make we our to return. of is labor before deploy products to very position about fixed we constantly they're sure this fast done that purely want that the return location. in because have community would that, on extended as would targeted issues, we the market as decision subside seen quarter-after-quarter, that potentially different that because and something is, hit we've And to patient responsible doing

pandemic. use responsibly is, don't XXX can't come know still know build But stores XXX can we this put want build of in a what that it's and yet year. so efficient a yes, environment. don't causally do the as people we out model if So for we We we more we to stores

year, growth are this on the ability to have we still So that out year our about set to to about. the year set cash going we're and growing year, doesn't how this next better as be it's business. segment to to to of got going this to even up work businesses have we have just an year, over fantastic we're long-term, We deploy But something change we've do something our this our up to just smart deliver we the last versus be this about we is time of going goals been talking that have be a of talked

Bill Chappell

I top season, Six past year, look or I And how next at -- I understand profitable, quarters year, would at from make just normal on just on in consider the mean, good but exceptionally a terms And I P&L, product the terms much look pause that really the a in don't P&L. much then comp? of kick Lean centers I your faster the you don't six Okay. it you of as line and expect that the would for more wellness do this predict season, growth side, services, in the

So, you perspectives? XXXX? those as on both any us give Just looking, can I'm from thoughts

Cord Christensen

answered and ahead, more tick that I’ll think, the flea Michael I could he piece. to let Go Michael. talk

Michael Smith

year. it's been an Yeah, interesting

three, first the in we have the no of concern season, really at look months soft weather anomalies the and and season, it to as rates. occurs infestation the due would but drive four you in same a the other year-over-year that classified of tick If flea elements season

the also in category some the category pleasantly and was August, of we've related disproportionately strong form. for oral significant So the some the positive saw the late been We very high actually well trends and into that July half in we have into to with mix surprised start the in a in of season. seasons, grew to season really even and as taper September, a us forms will share share back in favorable generally back then shifts August

of So late us. weeks were in was even forms run category last the XX, got starts, September. strong we category recovery in good the Slow stronger performance, within healthier then made The to double be so lot that July of for and year. the a XX through season in the a positive tend

of on -- into follow-up there terms In was that? ahead looking a go

Bill Chappell

No, no, ahead. no. Go

Michael Smith

bit but year, I predict and same to a Yeah, in caveat much on and do only year. year-to-year, like is the definitely next impact in with the impact what category had just have category. to crystal ball Florida a a Utah seasonality a of has will I weather have across rate, you weather the region-to-region color country. It Georgia a of not is high And states that pest clearly, next going weather great doesn't wish of the stronger so state the necessarily little vary ingredients where trends

for plans difficult our -- And will our for a with with up we're nice feel on that of customers category wrapping just feel again, do So in you very with we year. that prepare customers portfolio call well key we're category. our and that terms built helps the XXXX the we've to -- year. win customers business but working We it's confident hopefully, can is now next look next the be at the our the tailwind advance. to business positioned would we help, positioned plans with control, very about in initiatives we're good in to if But within plans things how

John Newland

the best XX% I quarter our acquired look which were actually brand. past brand we outpacing last this if up think year, for year the the I'd brand, at Bill, year-over-year add is also us that category. And up versus that PetArmor was brands, was we the acquisition significantly Capstar running the only you

with and we So that those it expect company. problem continue outpace let just the let and be us our for are execution to the goes to to items against And executed market. extremely show you outperform plans

slow as expect year. in a start start. late let businesses Michael we you the this -- to early and perfect have sometimes strong early start year, finish. so very So finish. said happy into have product situation, we're is a didn't visibility a have and great And happens much. quarter. us But That we the Okay. get it's our quarter But delivering next and great : Thanks a our the

Cord Christensen

Thanks, Bill.

Operator

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

Jon Andersen

Good afternoon, everybody.

Cord Christensen

Hi, Jon.

Jon Andersen

Hi.

that about wellness sustainable that driving takes see business? initiatives were the on what's of more I at new in of up in your items on have product business, characterize of well you point On side know terms growth some very it some think kind Could start of and as that? probably versus the It puts fill but I and Was this side? time. he were side sell-through. you how you Was in there club, said the the OTC on XX% manufactured health talk it the more and strong. year-on-year,

you the growth? ahead? what's again, manufacturing So as driving look And how sustainable is that

Cord Christensen

I think, question. voice. hear appreciate Good the Jon, to

online and we make customers been we place. in success but that category were very wellness growth. active right to fee items, more And execution, you, But business, item them in payments all XX% the I that category and category, foremost, numbers was talked new about about We our number has to Obviously, for active. talked base that development we making speaks our in First up our were had the up I remind we've to it paid brands the online. and exceeding the and connecting up you tick our and total ecommerce our XXXX. XX% flea with think and it manufacturer retaining was XX% developing again, in with quarter health R&D last retaining in stay another year-over-year item. referenced were we're kind up very brand also what I now are were never XX% launch how we're positive significant XX%, an marketing will we that in We we of this our think relative sometime we quarter that's had a the speaks pipeline one to that speaks

last goods, in our that had next the expect with best floor what year, of have history we expect just accelerate our from what and our quarter. say would sales to and manufactured should the we've for XX% in the up be delivering from delivered there. I We the plan business visibility into you And margins. we doing new continue and going we're the manufacture us XX company to mix the fourth higher quarter from So to of see

carrying about So doing on hitting and right what how and and product now growth growing great recovers, on it's but the with service organization the based year-over-year water the we more earnings doesn't that we're feel delivering of delivering in is cylinders total the product the it's as get all as talked definitely business enough honestly business and growth. we're a company about numbers that

Jon Andersen

Yeah. asked credit to agree I that And because the lack for tend that's kind that, on with of why on. of I you

likely wellness kind business, and given, it the side business, think the Is to floor, item manufacturer the the onion, reflected this So, to better again, on some programs of of success some I fair? probably a get that you as sounds have in of see payment. health like from of as the that in XX% innovation here it's peel side – is of you the and that the milestone products new

John Newland

you've but expansion have And and the EBITDA And extended of the that's it to more it'll through was stability driven the captured at right. fair. exactly couple we the continue provided understand margin definitely people want definitely how look line, as Very being we That's a we top the part to see that importantly, that years. develop, but next business. the that, it's in be beyond expansion,

deliver. key very outpacing outpacing just we're We're they about delivering, yeah, about projects, in. the excited our that execution the core So excited how team what categories growth, in the very items, we're base R&D and with will our market the is

very, So pleased. again, very

Jon Andersen

and I of a And the that EBITDA $XX.X the out EBITDA, about thinking million? quarter of of kind R&D million to reconciled underlying $X that so on milestone $XX.X closer we understand million just the payment be – so wasn't is should it

John Newland

adjusted we for of made payment on it look what actually million will at you that that We And show exactly EBITDA the that slide. that That's we deck, was. us in we if published visibly the $XX.X slide benefit product XXXX. and

with great delivery, was that a an dollars to quarter was we and going when million the a million able be. a still we deliver in line to was improvement you perspective, then come EBITDA, at better we'd over quarter, a with couple thought the we So payment. it even were look what obviously, from that than $XX.X that thought were for it where sales significant lens fantastic And through

Jon Andersen

last want it how Susan, know, year. confident sounds mentioned in that mean, is this like clinics, versus the the can to then material because quarter some you XXXX? that number death, think And year you the you of provided with services you – I start said just the numbers, at Beginning I business, in I headwinds run, are taking. really start of could don't but show I you're issue. the labor – affect the primary on beat Okay. improvement? you this of to the Because that the the actions it issues, did to

mean, more a actions back of we suggests through plane anything tangible XXXX? So kind of in these outlined normal kind that you are I a really on you seeing could be that early

Susan Sholtis

Yeah, questions. Jon, for thank the you

just veterinary all services, first labor I of not in related and across businesses It as the So start the talk by have. in United It as services off too. would that, things, of States, staffing just veterinarians, about the well, a you that is industry. we we saying especially see when all, couple is headwinds

really have approach. pronged to we two take a had So

already – to staffing, and of We to regards with the in our able labor to staff fruits are confident recruit our in we're see our clinic starting seeing being with our approach members.

focused and we – have that up up. we basically we problems back that issues, to level So have staffing ramped areas where on we've our get efforts where got

of In to we've – about when So I the just turn in We plans the out, when veterinarians, talked I regard really that that them rolled in in end we quarter out I we of am – the second will to at middle getting weren't basically vast we quarter. see talked QX, to the rolling to we that the am second clinic the a confident the call. at to all out, regards started maybe that the in a of headwinds, already staff. to quarter. first right all of we seen started piece, about improvement to quarter, seeing a see like rolled beginning We see or see start those them, around fourth QX, in the

on started what together we started So see for and refocus all when able our to we us to started literally veterinarians, in plans in QX. to order to those, put efforts we the be

than we more doubled QX. in what efforts recruiting Our saw

see We'll start that to to approach to in see confident that it's going corner. the QX. I'm but in we're a I that taking. time, we'll do some turn start the I think here So ourselves corner take think

Jon Andersen

Good much. so Thanks Great. luck.

Cord Christensen

Jon. Thanks,

Operator

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

Corey Grady

on Steph. This for Corey Grady is Hi.

prior your contract years, been renewed, meaningfully and contract largest with consistent with how that distribution delivered it for sealed So, officially terms first has on signed, [indiscernible]? customer, your on long was

Cord Christensen

no are we through same the XXXX, Yeah. thing. were finished pricing The the all operating the margin. dilution contract. contracts change to in still with There's no model, things our And

So with same the continue terms. just we

Corey Grady

-- for $X Got to health R&D Is it. additional that million And and products. can on on the payments the any then program? you I milestone so follow-up there color want future on wellness add

Cord Christensen

new items, only Yeah. because as we those things market view competitive and obviously, won’t. we We that disclose have have don't advantages out, with going to we

in you have structure. what tell margin the significant won't we are. So items we long are XXXX. Both are to planning we sometime But items consistent have two that with our

have our goods. manufactured in We

business. to months to diluted product to that great probably But, not believe $XX items those take a those the us expansion rates. the it's category. And for to XX the will definitely will they're think run for So price, we the items get million we $XX great size, Item create margin XX is that to million. opportunity

Corey Grady

And the program this you CLUB quarter. us remind that launching you expect program helpful. year? then, to really generate EBITDA how on Can much this That's

Cord Christensen

first -- off the probably orders to shipped We've the This be year just really stores. order going it’s up generate fifth. now filling the first of

are. this what orders the us is where partner, order And out, their our retail partners so, only one fill don't like is obviously, to to item disclose going

or But sales the what So it million we companies item to to is manufactured it give an going being numbers significant $X year that you and range. a million as view the sales contribution where the between XXXX fill contribution full opportunity somewhere come order We specific able see won't item being in. or deliver based on in the other similar margin has items. with performance just XX-plus we an $XX it's dollar again, But the million viewed for that's for out just is.

Corey Grady

Yeah, quantify scope sorry, And distribution then business. say it. just maybe Got can last of I for the one, you the XXXX. meant to

of sales the just Just be the base contribution reminder percent company. and in of the It helpful, distribution businesses profits. profit might of of of to a terms as process, percent

Cord Christensen

Yeah.

just our And little a with $XX full organization at $XXX is in store wasn't under is million $XX manufactured, we the distribution measure of for sales kind if from of and of If business, we business, the that EBITDA. at the a of From would from business absenteeism, $XX XX% some capacity, where you we done of manufacturer how service are or run perspective, we million EBITDA manufactured you're expansion. distribute. which looking million million then have are we and from growing we’ve about the over the it So today. XX% is at our EBITDA, roughly would what

Corey Grady

Got it? very Thank you much.

Operator

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

Elliot Wilbur

that on of I A to Cord in business. afternoon. labor Thanks. actually services onboarding strategy clinics, open the you Good change the in questions term near terms guess respect the couple with before the like mentioned, the profitability? XX before clinic. labor days impact your advancing may you just But or of approach curious new how having something prior ramp established that terms assumptions to opening in

Cord Christensen

deliver performance are to includes Yes. A which the new when is, as rate the that. The pace what that cancellation will on Elliot. and running good think question, are are, stores, Elliot, running with against models. obviously staffed appreciate a I this stores reduces those we're have current current as high our projections model we you actually

during in so contributing business, So revenue our and you XX are time the period. they really if days, add where trained it's labor, working community only extra they get clinic to that

on pool. are, because we we stores rates where them from we're and cancellation improvement out then of that an those it's that take building So those take

of through say it's But and just stores. lot well, a it an if clinics, we can other incremental believe of a as they'll can but improvement labor, use it's days expense working community take say capital we from XX we our now get actively store that in on standpoint, of be $XX,XXX. we you our maybe from it's $XX,XXX, general, -- cash back an customers through So returned and a that run added

have run impact the still having you is the don't a stores overall the net significant but importantly, to of labor. XXX% XX% from significant effect them, and because more it yet, isn't plans. So not improvement it is opening to not And a

Elliot Wilbur

Okay.

about you impacts a recently, talked roughly inflationary seen given some terms the of that X%. of the price the model, implementing in of pool. And think that side increase labor I you've

Just not whether seeing, slightly rate. or trends wondering whether of against kind have that running X% actually labor cover pressures may the experience inflation been that, guess, that you're what is that the of in recent the I increase, has above or terms here sufficient to actual that inflationary force

Cord Christensen

Susan, take to you that? want

Susan Sholtis

to But in the we're month, No, is order prices of and we our be But today, question. action incurring raised the interestingly implemented at to because beginning mark. expects Yeah. incremental last regards prices demand, our sheer just be a regards we're currently much to that pet an very to fully -- pricing in number we taking expenses enough, pets good of would we the in we for beginning -- to year. labor it's which hit million when XXXX. seeing, another us. the we traditionally did the September, in at Actually, that off-cycle, in cover of we able off-cycle very We we raised January,

so pet counts. of blowing these happening you if still -- really and was clinics And our quarter been with and about what first we've think year, going with in our COVID, this

at So pricing all. we that’s slowed down with what action, -- either. have seen not our hasn't counts it as pet down And our slowed

Elliot Wilbur

side ecommerce product questions Can business, manufactured rates you what of referred the the of overall for Okay, both to us the products the Cord well. revenue business maybe product base. terms strong you bucket that sense combined and on growth of as just base? couple in give the in the for a represents

Cord Christensen

general? without sales Total

Elliot Wilbur

Correct?

Cord Christensen

to number me. so follow sure that don't through in up with to of I'd not… I want be don't that close if think you get speak somebody in to offline that, have I answer. front miss need but I order

Elliot Wilbur

Well, thanks.

commentary. wellness the to Okay, got health whether there is to the expected it. was near-term? And update in or this then But in missing quarter be terms have in of launched that and with respect offering prepared new launched may on

Cord Christensen

orders out. orders very excited. order of already fill we're -- The will remainder first week. shipped next ship those We've Yeah, the

health But the orders hitting in fill topic. becomes club very, hot very it with hot out. wellness be humanization for all will Obviously, start soon. of a topic becomes humans. It'll So and a very pet,

their Year it So people health you'll themselves promotional of the activity significant the after launch see the emphasizing around pets. the and of of New with health

estimate on contribution we XX be XXXX EBITDA the it call, between to the million greater on how and and earlier, said a $XX revenue based and I million for to much be than of As million greater company. somewhere opportunity full-year should $X

Elliot Wilbur

what in market? competing product termed you the super this is and Okay, portion premium the of

Cord Christensen

that it would does, with line the be in -- a formulations are in the I It's better highest mean, the or to available Michael, market. It portion probably items. describe

you to If take it, want Michael.

Michael Smith

Yes.

quality best in of the we better only this the category, terms in period. health category won't a has been designed the find offering not mean, the you but put of the In you product, in market. find to wellness want to you be the on the product I market and that

weighted the look that's price towards Clearly, Costco a that value. point. you heavily a If at member strategy has

end that be alternatives a high product, market the the to significantly priced would raw So is the them market but member under say superior their point in I with today, found price would is equally a gives of product this brands. competitive the other

Elliot Wilbur

you very know, longer payback has obviously timeline current profitability, sheet. question continue then growth services out the that maybe that the financial bit pursuing last company dynamics on little manufactured you of fair of flexibility The and you're and in opportunities, potentially services given just Cord. Okay, return you the slower anticipated to versus previously about very periods see given high quick capital, build do think segment the portfolio? on with But, wellness how a the centers balance the you guess, to larger seeing in business? still than slightly I a invested amount what strong product for

Cord Christensen

we have every the mean, to product down the way that generating growth of like deliver just in gas more invest capital have. the type answer question this and pushed aggressively way I Yes, the on time, We're business. the than side I I all we enough

that’s remember million than on you making run rate million If the now own. $XXX EBITDA, making division close that was basis, million in $XXX its less sales, $XX to $XXX is that million over of

continue push. So, we're aggressively to going to

We it. capital have the do to

do service complimentary that to the We to machine helps irrespective R&D, people, available that category organization. of organization what in have we're everything the and The the going business happens is running, that service it that's grow. in

Sometimes benefit total. people can't to brings organization visibly see the the that

to deserves, and to it some as well. credit so sometimes contribute other the of the side of it how the helps gets it not And also business

As that -- you have look promotional overall our and products at filters. the retail then we partnerships, affects placement how and of

But schedule. we've should build stores we And than about enough to on need to learned a monthly So, guarding we're well Susan right to when now have recruiting. stay the enough, we jobs let on and do be traction we right be able this we it going the of and sides better decision push pandemic, track our as on out with lot. force to our And both it's smart labor if the to start as we construction. coming be ever we're said, getting

doesn't subsides, we generation gas is push can what easily we organization. deployment this is And mean make and be for opportunity to a now But taking go or using so choice this of decision very our balancing the capital And this not domino the the this hit number. this service labor. as going cash. producing means clear back current risk that what issues We're that not the the right cash and in to we're we're the have and the first This environment. versus labor construction right smarter that's

generated invest things leftover and or up this net there like end it we So, a flow down year have additional and what pay we our basis debt nothing's what excess cash using offerings. to for about great changed product in to generation we cash on or and ready feel

So, company been never been has stronger, better. executing never

Elliot Wilbur

All right, Thank you.

Operator

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

Unidentified Analyst

Hi, Two this for on questions is Andrew for quick Brian. you. [indiscernible]

well kind or sales on to any The first over been of Have you've now business, three discussed side you began guess, months? one, pretty last demand the noticed of throughout lumpiness I product quarter. recovering the -- just has the that on the the

John Newland

just years-over-year. No, business I a compared product to think actually to the clear, on basis well done be trailing has the extremely total

of is peaks consumption being inventory consumption. was valleys the and in consumption. with We third have of rate at COVID with a quarter lumpiness in where purchased some What we the saw normalized

see not XX% So, the we XX% were business, actual able of you year-over-year it's overall piece that to kind performance if of the strong result very of we growth, saw category. exclude longer. where any but It obviously, base in saw

we or ask any execution So, can't better numbers. for

execution the based tick very to across the on and that's also of and and normal animal all channels category better. Some do it. focused what in off driven But for health extending it's the flea be continue broad we doing company longer season, than just better and being the

we business is feel about reacted more reacted importantly, it the great future. where the how felt great this in we especially, historically, how but quarter, about So, going it's

Unidentified Analyst

weight of belabor I pressures, I how taken And to next is last in you will some gear mitigate the sales, prices on hate you've to come question the you. much the namely, that but measures Thank these quarter. into need understand Quantify pressures, particularly proactive the -- shortages kind labor to think raising labor year. last

Cord Christensen

operate. that not Yes, quantify I we had mean, of expected know mean, quarter we're I last clinics are. that's specifically. easy our to roughly we if operate I don't XX% to

Now, those mature. some of were were of some those new,

our delivered what the increase and the because we'd inflation it. prepared, a well had to probably margin But expect clinic of dollars not for that line price tests that on blended again, the So has covered far something of it's and contribution performance. and within best were it's average company our delivery a XX% part basis, KPIs clinics on of ran the from the the from a operating,

go and have running we've over delivered again, business We at not the these to differently. was efforts it calculations. full XXXX, that, at our with we're to how for So that right But tilt it schedule if year. you teams, we're the think that looked recruiting XXX on in And should know, million taking a to made full going over reduce number. We staffed decisions our it's do up that. build

Thank So.. you. it. appreciate I

Cord Christensen

Yes.

Operator

the the now session. we And end I'll the closing to have over question-and-answer management reached call remarks. of turn for

Cord Christensen

company. our the members, super strongly to our loss company team, our year organizations everybody and sales today. last how come and execution New with the Year staff grateful bottom-line, the that finish was the we're more seeing see All signs call positive work to there million are seeing direction We're running very great our the and we're a you, show the for the excited you we're our is great business excited a year-over-year how the veterinarians, heading in right we brands incredibly contribution adjusted growth call attending and and next the for improving a continue top-line versus results. and to a $XX as properly. have deliver that service company they're revenue year. market, and we're position consumption again And a with normalized frontlines, members doing back finished team to out the performing, our EBITDA way year. very We're on to that to Thank how a how have growing in we're Obviously, these the the signs and positive

everyone it. we to time talking all you So for forward and Look thank today to soon. you your appreciate

Operator

time. disconnect And may participation. you this for conference at today's and Thank concludes lines your you your this

PetIQ (PETQ) 4 Nov 212021 Q3 Earnings call transcript