PETQ - Earnings call transcript Q4 2021

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Operator

Greetings. Welcome to the PetIQ Inc Fourth Quarter and Full Year 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] And please note that this conference is being recorded. to Relations. conference like Turner to now Investor with would turn over the Katie I you. Thank

may You begin.

Katie Turner

Q&A. conference be On Good Executive Michael on Chairman Chief and Products earnings Financial PetIQ's the Thank and Vice fourth and available afternoon. you and will Sholtis, division quarter President full for Chief Executive Officer; year of Zvi Cord Susan call Smith, are today's joining for Officer; us call also Christensen, webcast. Glasman, XXXX and President;

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

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

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

Cord Christensen

you Thank outlook. joining I'll you, Katie, our and appreciate our discuss to will begin We results quarter then strategic results. overview business highlights, today fourth us financial our an review of with and good afternoon, and financial Zvi everyone. financial

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

very compared the We increase XXXX. of We net fourth XX.X% sales to million, of compared XX.X% fueled product finish to are to increase of segment our sales to increase with results annual quarter In XX% $XXX.X compared XX.X% the XXXX Services net our million, year. segment, reported last of pleased million, $XXX.X strong $XXX.X XXXX. QX net net increase an prior $XXX.X record record of This compared an of XXXX. million, an to year. were an sales were revenues with

basis year increased gross basis to also XXX improvement, solid margin at We EBITDA margin end adjusted and to at generated year the our XX.X%, increased annual points XX%. the XXX adjusted end points margin

from benefited our which we Products Our operational and than strength record financial results the The products results offering. services stronger its and of quarter expected and fourth since adjusted flea segment Services health onset strong positive the sales. and EBITDA. COVID its consecutive XXXX, reported best a we of diversified segment were and tick our posting And pet demonstrate posted in wellness as of quarter

business we're We've specialty, pet the and addressing e-commerce pet to get a care. health pharmacy their or created products, its the At back PetIQ, a to to a we company partners. affordable for animal club, purpose-built large unique in choose model clinics and portfolio health purchase including PetIQ mass, grocery, multibillion-dollar has product health animal across through pre-pandemic convenient channels, wellness our online. improvement committed profitability. parents have Services future sales room Although and pet Wherever for quarters retail still of market lot and to

We prescription of items pet consistent retail X,XXX as through share sold and continue largest growth, Two particularly dominant and in through a to our health the operated annual last market over a has animal products driver been with years the over-the-counter portfolio the online. we've brand have pandemic. Products segment

of those in the and vet made headwinds. we you work trajectory the we've having a quarters. highlight and growth then Services several by with robust as for segment and As our close result Services our PetIQ segment when experienced recovery our he profitability familiar XXXX our over mobile of towards clinics in will of we product Zvi discusses Today, the followed modest next now, labor-related segment's reopen the centers to and variability continued business growth outlook as assumptions wellness the

Product segment Focusing categories during of the segment the sales across our million. strong more generated We growth of double-digit in sales product our year-over-year top quarter results to growth In XX.X% generated detail. X X $XXX.X fourth on quarter.

a In our the stronger-than-normal end quarter. the addition, to and from and in saw season tick flea segments both growth distributed and benefited fourth double-digit manufactured also

PetArmor the and Our better the that XX%. increased segment, expected XX% category Capstar, the oral than led tick segment, which OTC flea increased topical and we that includes both emerging our quarter by in was brand within

and health wellness versus prior growth quarter Our as the also contributed year. portfolio it exceptional an had XX%

XX.X% by growth was XX.X% and in grew manufactured strong year. fiscal led channel We quarter for also our e-commerce continued full the which brands, the XX.X% increased to for in the XXXX. growth This experience which

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

have for a shipped segment super and premium we on of wellness Products inflationary during finalized the perspective, most health large line X As R&D November a manufactured a first increase implemented fourth quarter. our pressures. and our excited From the of an operator club store result, across these to orders offset price we're to

have business From months a of in few distributed sales. benefit sell-through XX% greater manufactured and of expect XXXX. item a consisted this The standpoint, strong, the and first been full quarter our in mix XX% year we from

product of can XX% segment As PetIQ's reach sales we XXXX. manufactured believe for we look ahead, items

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

Our both continues growth. e-commerce winning brick-and-mortar, in emphasis team's retail to on our and fuel

the gained basis share of greater of points tick flea led portfolio both basis within share This XXXX, the PetArmor than share by gained in the category. both XX year. XXX product which gain was points For Capstar, and and

wellness, XX%. and continued we and the increase driven health segment XX% VetIQ, the our in of year. points for our XX% while of the by increased This for market, momentum up As for basis year portfolio an increase of PetArmor, also picked across XX this we an segment XX% increased high-growth share as

product that help we are of product products segment. momentum fuel in first XXXX expect half into and our the We our excited continued two new visibility to have innovation pipeline good to in branded launch

services. continue we provide are pet smarter help access direct-to-consumer to also us introducing for enrich half in product and an execution brands increasing pets operational positions team's lives their options our a We XXXX. health for from veterinarian and contribution believe parents in products our attractive wellness of XXXX growth, the to strong continued second and affordable well through initiative an margin to at We as own convenient pet

despite a pets focusing ongoing This due of operating positive solid revenue the with of growth a labor headwinds. clinic per net another in and clinic fueled EBITDA. was significant per quarter Now we to and generated wellness percentage not quarter dollars Services by adjusted mobile growth double-digit and on segment, clinics

continue and Services will current term, While near XXXX. we believe sequential through make the improvement progress as labor to our segment we situation year-over-year expect we

During quarter, the the maximize to continued to the minimize optimize fourth results segment pet we impacts. and Services the parents

of Second, price and our continue and with the and clinic cancellations; we hours approximately enhanced increase we that staff to our hires First, labor recruiting schedules a increased new to cost and X% of recruiting wages to programs; September. retention. we took This increase by beginning at reduce offset and of we our retention adjust was help finally,

deploying As and and we've the new opportunity to wellness we reduce risk the discussed operate to in centers prior plans starting quarter, having last clinic. the of to our expenses place optimize operating taken the labor capital opening

new hired. centers a would new wellness labor and Previously, construction our centers for the QX, begin quarter, opened then we In XX a build-out once XXXX. we staffing. in to total wellness all opened in centers begin team fourth recruiting result, begin started in-center and beginning been has our of As required on construction wellness XX

believe full opening plan center with and our conversions be open prudent market. our locations, pets, wellness their both growth retail are partners near enhanced our best While but ensure also this to greenfield in we the we term across help wellness with retail parents, believe labor challenges will and the will partners commitments given we for centers we have shareholders. Longer continue term, the pet experience to achievable, our still X,XXX services

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

including the with pet position believe our of pets, will clinic robust continued per company's household and the humanization and pet per example, for health strongest along the in clinic for affordable in industry animal We long-term pets, wellness. increasing health parents be For more pets population differentiated pet growth, looking and an the fuel to tailwinds, history. KPIs industry and penetration convenient dollars to increasing the our continue

I'd drive and and to He of January shareholders perspectives. joined community as a for and their access turn services. to forward, pet an has already our to us smarter Zvi. help continue on positive to our has I'd weeks expand Going and week options to fresh and net has PetIQ. to welcome Zvi entire and increase he flow investment XX will to of through delivering Zvi months. the in team call processes affordable business joined know increase operational enrich time generation. and ideal With impact parents quite to profitability. years energy our to believe team high-growth that for his and our of financial with sales, reporting for veterinarian our excited like get to accelerate pet's finally, on margins supporting continue overview, We Glasman companies our execute Zvi mission the coming over first the at as to like lives And CFO improvements experience of made CFO We're convenient members the our products PetIQ and cash we the

Zvi Glasman

what asked you, know share first brands, of I you'd manufacturing often been was The CFO you team. of and attracted incredibly with enjoyed of drawn Thank talented PetIQ's busy have complete me last all months the as getting to great I'm portfolio its to company. today speaking to I've Cord. of two assets PetIQ. and my the to be call our pet expect, members earnings It's on the as wellness of capturing believe are an market growing while And has company demonstrated we sales execute and of the to positioned in ahead forward ever-increasing health more a the community and with industry. about platform time opportunity. investment uniquely that of our track I look weeks record spending as objectives. on excited in the growth and coming our from many growth months the you I'm

million for end of of SG&A Products portfolio million to focusing 'XX, quarter fourth the growth increased net quarter Capstar last a gross year XXX XXX product and driven year. points solid resulting XX.X% with year-over-year. our basis year quarter. quarter million, reflects of well both increase prior of of from of QX XXXX in sales quarter XX.X% on of the of optimization mix Services generate quarter segments favorable an margin mentioned. the quarter consolidated for results. gross increase was This $XX.X million by profit last gross year. a helping XXXX fourth Adjusted sales Fourth of product $XX.X million an to and that financial was fourth such center had were us fourth margin Adjusted to record basis XX.X%, as as $XXX.X compared million million the as expansion $XX.X $XX.X wellness an and margin the SG&A to items growth adjusted the the $XX.X was Now the in company's with fourth the points profit gross expenses Cord to branded of representing from in in of strong XX.X%. for the compared improvement $XX.X We

in margin basis advertising Adjusted decreasing year, SG&A adjusted and owned due was primarily an $XX.X lower, XX.X% period, support XXX was compared costs X.X% of compared million of EBITDA an support prior Adjusted by basis a EBITDA the service last company's timing to segments. increase year. growth an expenses $XX XXX was EBITDA year year basis product increase increased points including XX percentage of prior to the growth, period. a increased which center to the in full adjusted As of support of XX% the reflects the openings million, as versus points margin clinic in expense XX.X%, segment, prior year versus sales, slightly the net and brands in of points selling wellness PetIQ to increase to

Turning to and our balance liquidity. sheet

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

During operating the fourth quarter, cash we generated $XX million flow. of

XXXX cash in year strongest expect We of be the the the company. generation to history

convertible Our of long-term loan is and debt, was December XX, debt which XXXX. as our facilities term $XXX.X comprised million of

our the facility, million addition hand availability total million In defined to on representing be credit of of liquidity, as on million, cash revolving company December of its $XXX has of which hand plus availability $XX.X XX, XXXX. $XXX.X on as cash can

opportunistically build pay available positions consistent and the debt. the the to company from contribution in liquidity, improvement as flow our our free and believe Service to cash segment product growth ahead continue the down segment quarters cash drive as and We well in

outlook. Now I'll to turn our

today's guidance. in noted we are we and release, reintroducing annual quarterly press As

year net of For to loss the which communicated or animal increase to of representing XXXX compared we an in of in rights excluding sales $XX million, distribution XXXX, quarters. related increase an manufacturing we sales products, X.X% full for $XXX expect previous health certain of million approximately XX%

XXXX $XXX of mentioned. that to compared expect representing health manufacturing increase X.X% $X.X excluding million increase just to of approximately in adjusted distribution XX% products an an million, related animal or We EBITDA EBITDA adjusted lost I the of

our marketing EBITDA to direct-to-consumer, expense product XXX XXX assumes result launch as in help portfolio. of million approximately outlook branch XXXX growth of significant Our to an SG&A annual of to adjusted into accelerate in to to manufactured or XX.X% XXXX continued investments and support new launches basis manufactured points adjusted two $XX increase a incremental basis points our XX.X% compared brand

incurred million first SG&A We $XX half expect to in expense two-thirds be of incremental XXXX. the of the

Going do related in to historical activity forward, we not we have significant years or anticipate expense product launches SG&A when to levels to return initiatives.

levels from a contributed incremental assumes million business to to adjusted not very $XX in approximately Our EBITDA adjusted little when Service has also additional returned The outlook pre-pandemic segment contribution segments. EBITDA. the Services million $XX the

to to in expect occur it return markets, XXXX. return not levels, While eventually the what is pre-pandemic are do we assume we labor in we the believe to based will seeing veterinary on prudent

be We believe will of a continue to the EBITDA driver key services growth. sales business and long-term

until a targets center in However, guide Cord that Accordingly, until disciplined markets the to we approach dislocation execute clinics wellness a markets we slower and ramp mentioned. labor pandemic-related annual predictable, as we normalizes, take the allocation. not our the on in plan optimization opening are labor more wellness on and capital initiatives continue center will more we will on

confident in As company achieve to products in the 'XX business. demonstrated due we modeling XXXX are labor in our our headwinds guidance XXXX for the services our growth to and strength the continue strong business, and the despite will in

$XX.X the related compared to XX.X%, the we excluding previously For $XXX XXXX, X% loss sales of XXXX in million net approximately or first of an distribution of quarter increase of mentioned. representing to expect first quarter of an the increase million, sales

support $XX assumes of adjusted of increase adjusted first an SG&A of XXX adjusted basis an quarter million despite $X of compared first consistent related million incremental new of also adjusted QX distribution. expense of to million QX to to a in percentage increase X.X% be the with to or expect points lost sales XX.X% quarter representing of two EBITDA of the as our EBITDA XXXX an or relatively at the the EBITDA XXXX brands. excluding launch X.X%, approximately We $X

business I QX will Cord, questions. In Michael tick and second the be visibility sales growth of believe expect our late with net for we year. XXXX the and of in quarters. be closing, very season, that two flea growth in With your Susan, most business believe Recall sales for for we QX and XXXX we favorable our Operator? from overview, 'XX, seasonality entered similar of in net QX up nominally. good of to we available a into with in XXXX and XXXX half We strong the benefited are the the sales cadence to momentum first net

Operator

Jon comes from Our question Blair. the line Instructions] with first William [Operator of Andersen

You may with your proceed question.

Jon Andersen

the My is Welcome, on first And business. Products Zvi. question

products contribute in more launched already shelf a those on a to a the additional and a what you and items about contribution You introduce new perspective then are can bit your wondering that's standpoint mentioned from if that product I'm performing on -- maybe club? product you the plan if little bit could of a handful about And as launch more wellness XXXX. maybe and and from in talk timing detail that's well. describe health you expectations will perhaps how the on, early and little

Just get we this of which flavor a little particularly it's innovation to can for get kind -- the strong. like better so sounds bit year,

Cord Christensen

the John. appreciate question. I Thanks, Yes.

gate, and of spoke we've of set great that last of saw was of First, shipped the place. goal, thought slightly club with We per launched wellness the comment club about ahead last the We retailer. in all year. sales we'll and November in a goal item in the had three into performing. product that already clubs we that We at a this shipped health out which about great on the point. fourth call was we months item unit quarter that now we We're

from the item with the so get And strong with we it. under XX because did clubs They're the the We shipped and And it. quarter, fourth we're contribution excited obviously, extremely performance. pleased very do full pleased in we're months brand.

market, read, initial and the think I item demand also soft but and to and to company's accretive on premium items profile tail and a And a great it's value, quality that super item isn't wellness well currently the performance, in highest consumer chew health there's health extremely it that's wellness expect it item. the we believe have responding to sees but and the is for margin just and is so the based dilutive, long the the the

about. The extremely other we're two excited items

The similar launched the that first the is to retailer. with item club we

about XXXX a in upside other integrated the too finally full this and during and year. have vertically super positioned be is and and as year, line not plans the the items. and see we production launch item great expected investment and one getting We're area super for have talked the facilities, premium great throughout of that in amount growth late have That seen last the we've were of We as brand to We've health of had had the health a we that significant priorities have outyears we for QX significant wellness best there. formulation of that delayed to against launch we of premium where wellness same pandemic. opportunity participation a we teams where

And companies those we're position position be to excited abilities as vertically so one sets only to perform. of that's to a in and take integrated the unique a with skill

incredibly are now the flea that to And translate online a more That adjacent great success, I'll brand. are brand we've premium we last see retail item flea tick innovation so placement launch Capstar opportunity couldn't oral growth, shipping And brick-and-mortar a reference partners, in retail to has about and based space item. the that be to execution the brand. item had very we'll and presented QX, with team and support developed all online we and from that our our amount it that significant Capstar in through in will excited of and retailers to a have been if high formulations flea is on fall brand great The of tick last tick partners XXXX. predominantly initially. of receive in we awareness our topical excited of we've brick-and-mortar with We've and found a successful with the complement recognition. and And

first always by real company in the outyears. Capstar, we year. name launches, expect be opportunity the we So the is the This will advertised invest it do significantly and in called of a for brand brand's NEXSTAR. be year, more It with we to first as new makers

advertising, mature close launches, of XX% it's typically, see of net you'll in in where net Our brand with XX% advertising. new sales these brands, sales invested to

and line $XXX but business business differently, launches invest the in accretive last contribution success able not the those the profile will I in the million, through our margin sales So lower the up will reinvesting to the right the would of the the have in outyears future said brands in SG&A space. for be $XXX slight the the wasn't in would able performance to of of dropped mentioned growth confident But and million brands. that differently, business. company's and the say, for businesses brands and we're do growth EBITDA those there, would current are as brand ever the it category If those support would set have so earnings to if the than come advertising trajectory and earnings and from and direct-to-consumer of bottom for businesses to into to those to future. we're sales million We're success support brands. our grow the have a million said top guidance, in where company at to similar builds, be and line It's launch new $XX Or we've the $XX invest -- decision us to are those spending see thing core the the the through The tied these earnings awareness margin we in the launches. to more sales half come levels spent but contribution. second an we company it those a and awareness ultimate their two versus those

Jon Andersen

are monitor what if do investment, comments, And And do Or going and trying sticking Or be an to in permanent up about closely to point, to -- think you outyear? to million Zvi are think I'm step also, prepared how expect it on it XXXX? should spend in at if -- that on rate? and to what seeing it's about of you this kind $XX your delivering down you're that above incremental spend? not we with you is able step as expect then return an think referred the the to the that you And the really look we it? does plan as I to structural normalize you

Cord Christensen

Yes.

think that and first dollar there about of return spent question place for with our the awareness. great absolutely shopper anyone a it's good conversion it's gone every or from mean news it or foremost, those social dollar equally retail has advertising Amazon the a is question. appreciate and I I and we I see tools spend out metrics the spend it's world is we with if else advertisement to where partners other the is getting We the on monitor space as with to that measurement Chewy takes number platforms investments. and and direct-to-consumer key we're can like drive whether

well, share, share about earlier outline I our across grow our made do these as extremely brands comment that gaining we're doing portfolio for net take brands, extremely think in mature without items, those well. investing new to expanding further my of to and XX% are revenues it, I mix a

also percentage, on on how based awareness First investing see year, back builds. we'll an the the increase we'll as and start it in a be sales to in success of works, to position XX%. and pull we're that Based

to eventually of continue things on making. a fully XX% net to we that we as future, in these you see sales, vehicles contributions from it's we these of all well what place brands portfolio the us some that get see you'll the out let know significant that in we level you should investment through. those that communicate XX% as on which see into do mid-XX% But brands So we're EBITDA with contribution investment for when coming spread our in growth coming expect these have years. same and existing But margin,

of and heavy investment; back we two, year normal year we flow par still year at see believe lighter contribution. and into not So kind should again, investment one but at; three,

Jon Andersen

that, on following I Last seems very as evolves year. so. move that, does one EBITDA kind clinic, if did there's it Services you assuming positively conservative kind of for Was But what contribution, the me clinic Hopefully, contribution think and the the for situation of of labor about bit a into is be given. we're and little it pets this months services said conservative? us and attributing during little it better so from pretty decision there ties just seem XXXX, off guidance that per X seems little next just dollars per you this hey, upside, your as kind we How forward or so to tell this contribution Services thinking and a about because again, it. about guess

Cord Christensen

Yes.

organization versus in very we're the Services XXX% first, sales almost think, I the in XXXX excited are that better XXXX.

a have going Omicron were And new out, But the history that a year. However, the operate to strategy pandemic in that And to ended level and committed could repeat we to we how the of giving we than understood the to this the in other results and the that in deliver if unknown others place we versions that something saw with with end of up XXXX as environment managing coming with we the and team can't at much a we at we predict and that a that. absolutely were cancellation guidance as better can at no structure, decided guarantee believe we company. guidance see We knew levels committed risk. place to destiny our XXXX we being rates setbacks. highest in due labor of at first all lower we the the we're

do number, that the to be shows XXXX And excited of business that. going we out quarters. able at on the to million go that we earnings up find we're see not out deliver and million the business, point That you still upside that to in believe as is to and upside so $XX product that recover tell we that in made $XX and in some we're to go invest our and to sales earnings projecting

January in number see year, looks But sun we to very are finally new for and the started we saw dip first to we down in teens able February, finally some time. that As the QX. similar the

we So down in get if the we're to that. will consistently, see teens able

think I see improve see back it's numbers bring we come those organization expectations a we'd able and happening, But we're that throughout some heals. in the the to those and year and have rather conservative be that as as service us high and of quarter we start to we an as hopes is come going an what opportunity year. out expectations to raise in for each throughout increase communicate performance

Operator

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

your You question. with may proceed

Bill Chappell

couple questions. I first I products the year. A increases for sales are growth. that guess, assume own and your your this taking distributed of products price likely on

is into a is that and much that how is factored XX% kind So taking increase. much of growth even of in the organic Services outlook? kind maybe your of business factored XX% price How

Cord Christensen

of lot distributor price a didn't our take. partners surprisingly, we them So the take to expected increases that

sales rest organic is of the the the about mix. is growth price, haven't distributed the business, as of products take contribution in coming And fix own the our unit which the our is which translates brands, seen did biggest from growth of XX%. dollar division or into that so and percentage about from now The On obviously XX% the lot increases some a we that price projected of X% we increase place business.

Bill Chappell

math. I and And then maybe the the missed other question,

and especially year? you be guess, a products or expecting losing I a to from new like the, sales with low said to mid-XXs how club Zoetis the of manufactured works or in looks understand your you're be be And lot kind that XX% think the this year, it last I trying higher. that I'm just XXs with the the pretty promising could also higher in channel, And products, should to number then seems that what of business. lot be came

Cord Christensen

saw through at to mid-XXs quarter. acceleration year then built finished the and We XX% in from Yes. year the the XXs

there. obviously program year of which the was Some clip a our Costco, lower reintroduction frontline mix number, X% the about the at first to was the of

range. to from XX% can We've So got through because be to great able on But being to well been conservative we about other year. and says left Zoetis both XX% year. say always in the transfer a tied to really recovered XX% we're in out the XX% dollar projection perform visibility to that dollars when see the the the full we you it of mix feel have a skew very We've be dollars up from company next going be the likely upside will just sides much about number. deliver, mix we're it. our great on growth business will feel to which this percentage can position show the where -- the confident comes We're for side, and to the today, that we prescription how channel is be vet in how that the from

Bill Chappell

understand of last just I losses I'm mean then construction are even happening guess trying facilities these is build. hiring months the for And longer? one them original to you than the to so few while Services. bit break new of model? on that model upfront the the Does the greater is new a before the little holding you kind paying Are them time

Susan Sholtis

Remember lot we doesn't whole No, staff time. them on quickly. Susan. and of a literally ahead it actually, build it's a than the fact sight we're build these we other clinics, veterinarian of change that that getting when Bill, very line

until usually X the about weeks. takes swinging we're done time from start So hammers it us we

bring when go we board, through obviously, they a training on So program. people

close have works to staff and the And timing so actually, pretty the same new and nicely bringing the out up clinic time. running actually to the

Bill Chappell

make to sure technicians shortage the I on labor Is both? vets just And on or Okay. understand. or

Susan Sholtis

is on veterinarians. It primarily

I now. pretty right their that now, veterinarians us the actual recent X Everybody I basically that most down. higher -- day, is there productivity hours everywhere out their it's pushing tells in and is working right regular and VetSuccess veterinarians to every data much they're the think to think well, that's longer X.X practices,

the numbers experiencing I us, the turnover So work come is life absolute when we end us. industry the rate fewer to that than to we've with XX% that our it's and got XX%. for retention a of for for model is also when the balance, pets. And it's of turnover of because think they're seeing veterinarians believe we're day, seeing because our come of less best veterinarians rate stress, work their But that their at work

crew the in that the into think them looking place there time have veterinarians, for force we're recruiting veterinarians our So we out I right all right and do at these and and for bringing fold.

Operator

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

You may proceed with your question.

Steph Wissink

We have unpack. two things wanted to we

related The there internally? just programs mix Is about Can first two where launches. that bit talk encouraging Just want support coming a it to you're little you is a on how of get efficiency definitely see to offsets? about cost bit you're funding on savings to or a Are where want the the little the for from? $XX from. funding SG&A. just new little I to million perspective that understand it's incremental, incremental

Zvi Glasman

Yes. percentage on go basis we new incremental about gross it is the introduced. margin going funding XXX products to said, adjusted And up sales from SG&A We're the as points. from our

basis for not adjusted SG&A points. would this we’re investment, our be So XX down

Cord Christensen

just the well, I the business base that programs, earlier were we make these think we growth we in could doing and if business the said $XXX as with in think, I that not Steph, mix the million. call shift,

so items funding out the new to plus of business of out fund investments. And our existing those we're it contribution

Steph Wissink

business. talked the you about then And DTC

a direct-to-consumer time. DTC some business your a the your And and platform with a a like direct-to-consumer? there time last tying of business how about to subscription products? think we in talked you to business the be years, Services you just it a way about of through if think your thinking could us little roll we is respect bit give context to this Products more I spoke bit about couple for Can forward we you're

Cord Christensen

need asset from conducted a investment standpoint to space. Obviously, from interact consultation device, the and that and the for a Thanks how in for about platform question. a veterans significant helps consumers a we've veterinarian have across lot team management country, thought build we us through from be that And of an a can what lot ultimately, from there's that a information, an over-the-counter today to products perspective. get a they

able those is the priority has places, Amazon with those they're half mature additional what to and view doing Chewy subscription assembled, year, that the and there the So been in people call able interact people level we're out be parents definitely more view already lot that conduct looked to and to past be significantly them be But the areas. years. contribution through some and It we other typically a last people a direct-to-consumer an out consumer work allow that the and have of for as started some to the we'll second business. in that to help show storefront. size DTC and we've in year with businesses start done, adding huge getting where direct-to-consumer, at we significant a over storefront in have believe We're the the be opportunity stickiness and is higher on space than there it we is it of DTC online what with to we space are businesses company of opportunity with us pet and that A piece this doing the believe in of relationship, are team self-care able excited based and at other does just to space. to the with and that a typical DTC

Operator

Instructions] comes line Wilbur with next Our question [Operator James. from of Raymond Elliot the

with proceed question. may You your

Elliot Wilbur

First for question Zvi.

that be for for levels the year. mentioned company record cash you generation had or operating you expect at Just to cash flow the

in capital just maybe the highlight the some level, other incrementally you be to the and business? overall of just contributing lift that maybe business working in outside can overall such So may general initiatives, increase

Cord Christensen

minute. Elliot, your there up question -- for a you broke

the So we part. missed most the middle important much of of

you question Zvi the be if great. would So reasking for mind wouldn't

Elliot Wilbur

Sure.

year. operating in to of wonder be what working that just in overall sales general beyond or generation the And outside in record capital else just other cash lift the the of may You had initiatives or I and commented cash to with respect EBITDA. are generation business, cash expectations that increase of flow contributing terms endeavors the for increasing

Zvi Glasman

that to our tell you, in would number XXXX way for $X.X about probably going I drop million in half buildup. our to one, headquarters is CapEx

some approach disciplined center also on the service CapEx. Our build-out more preserve will

XXXX here. drivers working CapEx just plus I In terms think will generate main cash on talked initiatives, I the about, operations in from up -- or saw I flat, our relatively sales more were EBITDA executed about capital performance capital I though initiatives changes I significantly of significantly. AR We great think mean which was working we talked as the is performance year-over-year. even

Elliot Wilbur

campaign, can DTC you in you a to the positive to realize commentary payback of respect expect with or there any Cord, for terms make when ROI period? then And

Cord Christensen

a or to announce growth of investing other models accelerate We're years of lot kind all time studying to performance were integrated. them ready none kind Yes. of spent breakeven point financial We spent not of the vertically to and projections. of that a

contract to going margin was there So manufacturing.

type have production. largest of that items the we portfolio control model that So we the go where into of

we if accretive. those where if we in closely are very with we So on operate line are, companies, that have at margins with par even not should

today, Elliot. we'll there to not I but with say we're So quite think soon, have more

Elliot Wilbur

then continue per upward KPIs you And record trends levels, at business, the KPIs With including to pet. Okay. or one to just last see question for dollars in Services Susan. respect

And versus if strong that. what continue per see have or could in you some -- pets just driving terms key commentary terms to specifically if any seeing you're you wonder given of category performance sites are. you're that one provide compare the anything is Just clinic, seeing less you what some sort some there's item of is of what in what productivity, maybe clinic of in fixed contrast of and the are differentiators where that

Susan Sholtis

the thank question. Yes, for you Elliot,

both and per lately, dollars improvements the centers both XXXX. clinics. When So our clinic in are the community and wellness double-digit at per a pets board, clinic, we take our over significant it's across look in

now, we happening to pets important what's adopting now, and and parents earlier, data to are with pets veterinary that, you the I we're those I industry. that full-service quarter of growth close And look point aren't And more talking or into go they're are are And very those success double-digit generated think what's if into if the industry-wide, your market, their general about keep AVMA that pet though, parents in the that a going by just is little a take right -- getting at is the bit that, have pets. fourth when not household, vets someplace. veterinary as the into was happening the that basically seeing pets, clinics. pets bringing to right pet

the attributed Those lot those pets of to that. of it And seen seen. is So truly to that for benefits basic the we need to reaping be a be wellness. their are pets fact need

but referring is it have also because their -- coming of number handle to capacity to fact we're handle pet the full-service We to direction. affordable, And us. again, the we're People are see to they're that, because, our be And and in the make primarily model that that because starting parents convenient. number us. to two cannot refer have one, we need to to able don't capacity practices that they appointments come

would see. And volume surpasses we that put what clinic normal through so appointments can far of the veterinary clinic taking the because not a

Operator

The with comes Benchmark. question John the line next from Your of Lawrence

You question. may proceed your with

John Lawrence

welcome, And Congratulations, Yes. guys. Zvi.

XX% the model for quick this a situation, situation of things that to much on and this that take how a labor just in Cord, optimization. model get a that applied better take those the if question, feel running is the the this top where mean I stores are improvement optimized Just clinic just a overall better if where new from on you territory best labor XX, you to best, question business, Services just

Cord Christensen

issues a those question But it they extremely me and I and don't that our there's goals good. at taking our our going and answer different are labor tell if I'm the any answer way. and -- KPIs think performance, it have are revenue hitting looking we'll best exceeding clinics and their hitting a a answer if I differently, to properly, little bit not, to see

us The up. we're show sometimes other the trying But consumer labor when do. to where where have extreme doesn't meet what pressures, to partial up, to would labor schedules we is shows have force labor like we the

We have there, we that operating be parent. to and the up pet disappointing expenses other end are prepared

and recruiting location's that that comes and point the right with on schedules generation, to we isn't that match we're as because the And we optimize the schedule. expense you we waste is full-time turn match labor to and return about That to is optimization the when this the money. full really much environment. labor fixed, So potential revenue labor don't getting maximize the actual environment, a have turning we and on

So flavor five to in But to than profitable differently. work we need days potentially on and up may the then veterinarian technician but significantly present. has clinic pay not we a some a it the them, markets. four else running show by of cases, get may that if given month, both go days to three someone days the then twice running two A have vet community to servicing having showing only we're people to someplace they those month, disappointing two has the up, and we've clinic days be and have a run and was more because we back of the revenue not better those those go to at a try but we can't cover do or locations, half in also for days that we're

the constraints that the billion as more we'll $XX labor XX,XXX of expense. to much probably a that managing to Today, see condition we and business patterns soon. to XXXX. in across the see best company of Phase we'll size time XX,XXX. in that's to that We doing then and running consistent said us we the really better waste the clinics, differently, in we of than good environment money get performers really environment, a XX,XXX in to But we've XX,XXX clinics running of up is and of results So Phase build because labor have We had the love because in way ran XXXX. our then And that we're that we that maximize X business labor. community take ran X more make optimized, show would XX,XXX will in more think and job And we're really able it, study reduce returning business expand. locations where earnings operating be nothing

John Lawrence

when from start putting you in public launch product recent the there just product did XX% on create timing out of that the product? for standpoint, a sales marketing And to club and to that that awareness business, the

Michael Smith

John, this is Michael.

now right is mentioned, January very middle on first results support promotion. expectations programs behind wave results of especially trial slightly promote year, pleased pleased item member we've that strong some a other to in cadencing season, for that of the not gifting with and the we they multiple the and We first early shipped of business and in launched base that by introduced with against the activation saw the with in the of our of throughout with them promotion activation partner retail have as the of focus that lot all is Cord that generated came and got track set activation the ahead happy very of time and item. out item that and As and of the business then really And at again, indications the the November, with the month activation the of holiday to areas

Cord Christensen

million, investment the that the it seeing. XX%, million our half where two-thirds that John, $XX about very think done will be $XX the talking in first release clearly the it We think, of of of year. in you're call of I cadence you're I the

that for new the that million really nothing of point the at this with and programs spending $XX third really against of quarter The cadence other in in quarter happening one-thirds is us fourth all projects. those

Zvi Glasman

that referencing that, be -- to the in specific branded necessarily not in that market in last reference That's XX% the on club year. our XXXX. items item will note core items the is support that other one Just to announced

Operator

reached now the any closing will over for At And we turn question-and-answer of session. the have this the remarks. I time, call Christensen back to Cord end

Cord Christensen

us But everybody, record had performance as our results and organization. fourth the excited full extremely is today. for and pipeline happening full see we our you, outyears throughout year end us going we the despite have for Xst that pressures about about record year Thank we and March company our potential we what in We're in joining pandemic labor from today proud in excited very February, all of where we the other the sit very service programs. results the XXXX the Obviously, that company. for a XXXX, we're projects working R&D pressures and of have our for at our the of our on here quarter those

soon So the addressing I health animal working, our time. how company, and very the one convenient, everybody. access couldn't we results be you health for future. see more is that we address portfolios it look the not-too-distant pet forward affordable at QX of working for largest to as to you, in a Thank we're to excited us. long and to very We with wellness Thanks platform is talking that report joining performing

Operator

have this you. may great you disconnect and you concludes your lines Thank participation, This your Thank at today's conference, and time. for a day.

PetIQ (PETQ) 2 Mar 222021 Q4 Earnings call transcript