PetIQ, Inc. Reports Fourth Quarter and Full Year 2017 Financial Results

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EAGLE, Idaho, March 13, 2018 (GLOBE NEWSWIRE) -- PetIQ, Inc. (“PetIQ” or the “Company”) (NASDAQ:PETQ), a leading pet medication and wellness company, today reported financial results for its fourth quarter and year ended December 31, 2017.

Cord Christensen, PetIQ’s Chairman and Chief Executive Officer commented, “We are pleased with our record year of growth and profitability. PetIQ is uniquely positioned for future growth with a business model that is supported by attractive macro trends, and differentiated operational characteristics that are revolutionizing how pet parents obtain their pet healthcare products and services. As we kick off 2018, we are a larger and more diversified pet health and wellness company with the addition of VIP Petcare and we look forward to capitalizing on the strategic value of our combined platform. We have countless opportunities to leverage each other’s relationships and we believe this will drive shareholder value over the long-term.”

Net sales increased 15.6% to $51.9 million for the fourth quarter of 2017 compared to $44.9 million for the same period in the prior year. This increase is significant when considering the anniversary of the Company’s major expansion into Pet Specialty in the fourth quarter of 2016. PetIQ continues to see significant growth as a result of the execution of its four growth initiatives which include growing consumer awareness of its products in the retail channel, delivering innovation in pet health and wellness at a great consumer value, expanding strong partnerships with leading retailers and pharmacies and increasing the number of products with existing retailers.

Gross profit was $10.5 million, compared to $7.6 million, in the same period last year. The increase in gross profit was primarily due to the growth in net sales which created improved economies of scale as well as improved sales mix of more profitable categories and procurement improvements. Gross margin increased 330 basis points to 20.3% for the fourth quarter of 2017 from 17.0% for the fourth quarter of 2016.

Net loss was $3.4 million for the fourth quarter of 2017 compared to a net loss of $1.2 million for the prior year period. The increase in net loss largely resulted from a Company recognized one-time non-cash tax expense of $3.4 million, or $0.16 per diluted share, associated with the revaluation of its deferred tax assets, as well as a provisional tax expense of $0.2 million associated with the deemed repatriation of foreign earnings during the fourth quarter of 2017. Additionally, fourth quarter reported net loss includes $2.0 million in transaction costs associated with the Company’s acquisition of Community Veterinary Clinics (d/b/a VIP Petcare) (“VIP”), stock-based compensation expense of $0.2 million and costs related to becoming a public company of $0.4 million. Excluding these items, adjusted net income was $2.6 million in the fourth quarter of 2017 compared to adjusted net loss of $1.2 million in the prior year period.

Adjusted EBITDA increased $2.0 million, or 132% to $3.6 million for the fourth quarter of 2017 compared to $1.5 million in the fourth quarter 2016. Adjusted EBITDA margin increased 340 basis points to 6.8% compared to 3.4% for the fourth quarter of 2016.

Adjusted net income (loss), EBITDA and adjusted EBITDA are Non-GAAP financial measures defined under “Non-GAAP Measures,” and are reconciled to net income in the financial tables that accompany this release.

Net sales increased $66.5 million or 33.2%, to $266.7 million for the year ended December 31, 2017, compared to $200.2 million for the year ended December 31, 2016.

Gross profit increased $18.6 million to $51.2 million for the year ended December 31, 2017, compared to $32.5 million for the year ended December 31, 2016. Gross margin increased 290 basis points to 19.2% for 2017 from 16.3% for the prior year.

Net income was $7.8 million for 2017 compared to a net loss of $3.4 million for the prior year. Adjusted net income was $16.9 million for the year ended December 31, 2017 compared to an adjusted net loss of $1.2 million in the prior year. The primary differences between net income and adjusted net income are the aforementioned one-time tax expense associated with the revaluation of the Company’s deferred tax assets, acquisition costs associated with the VIP acquisition, and the costs of becoming a public company. The increase in net income was a result of increasing sales, growth in gross margin, and SG&A growing at a slower pace than net sales, offset by the adjusted items.

Adjusted EBITDA increased $11.7 million to $22.3 million, or 110% for 2017 compared to $10.6 million in 2016. Adjusted EBITDA margin increased 310 basis points to 8.4% in 2017 compared to 5.3% for 2016.

As of December 31, 2017, the Company had cash and cash equivalents of $37.9 million, compared to $0.8 million at December 31, 2016.  The outstanding balance on PetIQ’s revolving credit facility and term loan as of December 31, 2017 was $15.3 million, compared to $27.5 million at December 31, 2016.  The increase in cash versus the prior year period is primarily due to the receipt of $45.9 million in net proceeds associated with the Company’s IPO which closed on July 26, 2017.  The reduction of debt is due to cash generated by operations being used to pay down debt, offset by increases in working capital.

On January 17, 2018, the Company completed the acquisition of VIP for total estimated consideration of $200 million consisting of $100 million in cash, 4.2 million Class B common shares, a $10 million note payable to the sellers, and two $10 million earn outs payable upon achievement of certain 2018 and 2019 combined company Adjusted EBITDA targets.  Following the issuance of 4.2 million Class B shares to be issued to VIP as part of the acquisition consideration, the Company will have approximately 25.7 million shares outstanding, consisting of 15.4 million Class A shares, and 10.3 million Class B shares.

In the first quarter of 2018, the Company will be adopting the new revenue recognition standard (“ASC 606”) using the modified retrospective adoption method. The cumulative effect of adopting this guidance will result in an adjustment to opening accumulated deficit of approximately $0.3 million. This change will have no effect on 2017 results and prior periods will not be restated. Additionally, the Company expects the implementation of the standard to result in an acceleration of certain expenses trade programs, allowance accruals, and other forms of variable consideration. This change will reduce net sales and profitability in the first and second quarters of 2018, with an offsetting increase in net sales and profitability in the third and fourth quarters, relative to past practice. The Company will also classify certain costs associated with the display of product as cost of goods sold at the point in time in the transfer of control to a customer occurs.  Previously the Company had accounted for these costs as merchandising expenses in the period in which the displays were utilized.

PetIQ reiterates the following fiscal 2018 financial outlook:

The Company does not provide guidance for the most directly comparable GAAP measure, net income, and similarly cannot provide a reconciliation between its forecasted adjusted EBITDA and net income metrics without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control and may vary greatly between periods and could significantly impact future financial results.

PetIQ will be providing historical financial statements for VIP and combined pro forma financial information as required by the SEC.  The preparation process is ongoing and the Company expects to have this work completed within the allotted 75 day period following the close of the transaction.  Additionally, beginning in the first quarter of 2018, the Company will present segment information for its products and services business lines.

PetIQ also announced today that it has entered into an agreement to open 20 veterinarian clinics within Walmart stores.  The clinics will open between March and the end of the second quarter of 2018. 

The Company will host a conference call and webcast where members of the executive management team will discuss these results with additional comments and details today, March 13, 2018, at 4:30 p.m. ET. The conference call will be available live over the Internet through the “Investors” section of the Company’s website at . To participate on the live call listeners in North America may dial 877-451-6152 and international listeners may dial 201-389-0879.

A replay of the conference call will be archived on the Company’s website and telephonic playback will be available from 7:30 p.m. ET, March 13, 2018, through April 3, 2018. North American listeners may dial 844-512-2921 and international listeners may dial 412-317-6671 the passcode is 13676730.

PetIQ is a leading, rapidly growing pet health and wellness company.  Through over 60,000 points of distribution across retail and e-commerce channels, PetIQ and VIP Petcare, a wholly-owned subsidiary, have a mission to make pet lives better by educating pet parents on the importance of offering regular, convenient access and affordable choices for pet preventive and wellness veterinary products and services.  PetIQ believes that pets are an important part of the family and deserve the best products and care we can give them. For more information, visit .

This press release contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could" and similar expressions.  Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, our ability to grow our business through acquisitions; our ability to integrate, manage and expand VIP’s business; our dependency on a limited number of customers; our ability to implement our growth strategy effectively; our ability to achieve or sustain profitability; competition from veterinarians and others in our industry; reputational damage to our brands; economic trends and spending on pets; the effectiveness of our marketing and trade promotion programs; recalls or withdrawals of our products or product liability claims; our ability to manage our manufacturing and supply chain effectively; disruptions in our manufacturing and distribution chains; our ability to introduce new products and improve existing products; our failure to protect our intellectual property; costs associated with governmental regulation; risks related to our international operations; our ability to keep and retain key employees; and the risks set forth under the "Risk Factors'” section of the final prospectus for PetIQ, Inc., dated July 20, 2017, and filed with the SEC on July 21, 2017. 

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.  The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.

In addition to financial results reported in accordance with U.S. GAAP, PetIQ uses the following non-GAAP financial measures: Adjusted net income (loss), EBITDA and Adjusted EBITDA.

Adjusted net income (loss) consists of GAAP Net income adjusted for tax expense, costs to become a public company, acquisitions expenses, and stock based compensation expense.  Adjusted Net Income (loss) is utilized by management: (i) to compare operations of the Company prior to our initial public offering and (ii) to evaluate the effectiveness of our business strategies. 

EBITDA represents net income before interest, income taxes, and depreciation and amortization. Adjusted EBITDA represents EBITDA plus loss on debt extinguishment, management fees, stock based compensation expense, acquisition expenses, and litigation expenses. Adjusted EBITDA adjusts for transactions that management does not believe are representative of our core ongoing business. Adjusted EBITDA Margin is Adjusted EBITDA stated as a percentage of Net sales.  Adjusted EBITDA is utilized by management: (i) as a factor in evaluating management's performance when determining incentive compensation and (ii) to evaluate the effectiveness of our business strategies.  The Company presents EBITDA because it is a necessary component for computing Adjusted EBITDA.

We believe that the use of Adjusted Net income (loss), EBITDA and Adjusted EBITDA provide additional tools for investors to use in evaluating ongoing operating results and trends. In addition, you should be aware when evaluating Adjusted Net Income, EBITDA and Adjusted EBITDA that in the future we may incur expenses similar to those excluded when calculating these measures. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by these or other unusual or non-recurring items. Our computation of Adjusted Net Income, EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate Adjusted Net Income, EBITDA and Adjusted EBITDA in the same manner.  Our management does not, and you should not, consider Adjusted Net Income, EBITDA or Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of Adjusted Net Income, EBITDA and Adjusted EBITDA is that they exclude significant expenses and income that are required by GAAP to be recorded in our financial statements.  See a reconciliation of Non-GAAP measures to net income, the most comparable GAAP measure, in the financial tables that accompany this release.


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Globe Newswire: 20:05 GMT Tuesday 13th March 2018

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