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CST: 21/10/2019 23:06:01   

PetIQ, Inc. Reports Record Second Quarter 2019 Financial Results

75 Days ago

Second Quarter 2019 Net Sales Increased 29% Year-Over-Year to $221 Million
Raises Full Year 2019 Outlook for Standalone PetIQ and Provides 2019 Expectations for Perrigo Animal Health Acquisition

EAGLE, Idaho, Aug. 07, 2019 (GLOBE NEWSWIRE) -- PetIQ, Inc. (“PetIQ” or the “Company”) (Nasdaq: PETQ), a leading pet medication and wellness company, today reported financial results for the three and six months ended June 30, 2019.

Second Quarter 2019 Highlights Compared to Prior Year Period

  • Record second quarter net sales of $220.6 million, an increase of 29%
  • Net income of $5.9 million compared to $5.4 million
  • Adjusted net income $15.8 million compared to $10.8 million
  • Adjusted EBITDA of $20.8 million compared to $16.1 million, an increase of 30%
  • Cash and cash equivalents of $36.6 million with total liquidity of $106.4 million
  • Opened 7 wellness centers for a total of 41 in operation as of quarter end
  • Closed acquisition of Perrigo Animal Health on July 8, 2019

Cord Christensen, PetIQ’s Chairman and Chief Executive Officer commented, “We had an exceptional second quarter.  Our record net sales reflect broad-based growth across sales channels in both our pet products and veterinarian services segments.  PetIQ remains uniquely positioned for continued growth as pet parents increasingly seek our direct access to our complementary veterinarian product and service offerings. We believe our recent acquisition of Perrigo Animal Health further solidifies our leadership position in the industry as we deliver on our mission to make pets’ lives better through improved access to affordable pet health care. Going forward, our combined teams will continue to execute on our Follow the Pets long-term growth strategy. Based on the strength of our year-to-date results and our outlook for the remainder of the year we are very pleased to raise our 2019 annual guidance.”

Second Quarter 2019 Financial Results

Net sales increased 29% to $220.6 million for the second quarter of 2019, compared to $171.1 million for the same period in the prior year. Product segment net sales were $194.6 million and Services segment revenues were $26.0 million in the second quarter of 2019. The increase in consolidated net sales reflects growth in existing retail partners, driven by the increase in the number of pet parents moving their pet health care needs to PetIQ’s products and services, the expansion of item counts and programs at existing customers, as well as growth within the Services segment.

Gross profit was $34.9 million, an increase of 33%, compared to $26.3 million in the same period last year. Gross margin for the quarter was 15.8%. Adjusted gross profit was $36.2 million and adjusted gross margin was 16.5% for the second quarter 2019.  The GAAP gross margin to adjusted gross margin difference of 70 basis points is a result of the exclusion of non-same-store Services segment revenue contribution and related costs of sales.

Net income was $5.9 million and adjusted net income was $15.8 million for the second quarter of 2019. Adjusted net income primarily excludes stock-based compensation expense, tax expense, fair value adjustment to contingent note, integration costs, and operating losses associated with the 32 non-comparable newly opened veterinary wellness centers, one new host partner, and seven regional offices that have been open less than six trailing quarters.

Second quarter adjusted EBITDA increased 30% to $20.8 million, representing an adjusted EBITDA margin of 9.5%, compared to $16.1 million, representing a 9.4% margin, for the same period in the prior year.  The increase in adjusted EBITDA was a result of higher net sales resulting in increased adjusted gross profit and increased leverage of general and administrative expenses.

Adjusted gross profit, adjusted net income, and adjusted EBITDA are non-GAAP financial measures.  The Company believes these non-GAAP financial measures provide investors with additional insight into and measurement of its entry into the veterinary services business following the acquisition of VIP in January 2018.  In the Services segment, the Company is providing a “same-store sales” adjustment to reflect revenue and costs for veterinary clinics and regions open for at least six trailing quarters.  The Company believes this will provide useful information to investors as these veterinary clinics and wellness centers mature and move into the comparable store base.  See “Non-GAAP Measures” for a definition of these measures and the financial tables that accompany this release for a reconciliation to the most comparable GAAP measure.

First Half of Fiscal 2019 Highlights Compared to Prior Year Period

  • Net sales of $369.1 million, an increase of 29%
  • Net income of $8.2 million compared to $1.4 million
  • Adjusted net income of $21.8 million compared to $12.2 million
  • Adjusted EBITDA of $31.7 million compared to $21.7 million, an increase of 46%

Net sales increased 29% to $369.1 million for the first six months of 2019, compared to $286.2 million for the same period in the prior year. Product segment sales were $320.7 million and the Services segment net revenues were $48.4 million for the first six months of 2019.

Gross profit was $59.6 million, an increase of 41%, as compared to $42.2 million in the same period last year. Gross margin for the first six months of 2019 was 16.2%. Adjusted gross profit was $62.3 million and adjusted gross margin was 16.9% for the six months ended June 30, 2019.  The GAAP gross margin to adjusted gross margin difference of 70 basis points was the result of a result of the exclusion of non-same-store Services segment revenue contribution and related costs of sales.

Net income was $8.2 million and adjusted net income was $21.8 million for the first six months of 2019. Adjusted net income excludes acquisition costs, stock-based compensation expense, tax expense, fair value adjustment to contingent note, integration costs, and operating losses associated with the 32 non-comparable newly opened veterinary wellness centers, one new host partner, and seven regional offices that have been open less than six trailing quarters.

For the first six months of 2019 adjusted EBITDA was $31.7 million, compared to $21.7 million for the same period in the prior year. 

Adjusted gross profit, adjusted net income, and adjusted EBITDA are Non-GAAP financial measures.  See “Non-GAAP Measures” for a definition of these measures and the financial tables that accompany this release for a reconciliation to the most comparable GAAP measure.

Segment Results

Products: For the second quarter of 2019, the Product segment net sales increased 31% to $194.6 million and operating income increased 25.2% to $20.2 million.  This compares to Product segment sales and operating income of $148.7 million and $16.2 million, respectively, for the second quarter of 2018.  Product segment net sales were driven by ongoing strength of the Company’s prescription drug programs within retail partner pharmacies both in-store and online, as well as greater SKU penetration within existing accounts.

Services: For the second quarter of 2019, the Services segment net revenues and operating income were $26.0 million and $4.4 million, respectively.  This compares to Service segment net revenues and operating income of $22.4 million and $2.0 million, respectively, for the second quarter of 2018. Services segment growth was achieved from increases in all substantive metrics including pets per clinic, revenue per pet and revenue per clinic, as well as contribution from new wellness centers.

In-line with PetIQ’s new veterinarian wellness centers opening plan for 2019, the Company opened 7 locations during the second quarter of 2019 and remains on track to open 80 new wellness centers in 2019.  There were a total of 41 veterinarian wellness centers as of June 30, 2019.  In preparation for its veterinarian wellness center expansion, the Company opened two new regional offices during the six months ended June 30, 2019 for a total of 36 regional offices at June 30, 2019.

Cash and Debt

As of June 30, 2019, the Company had cash and cash equivalents of $36.6 million, plus availability on its revolving credit facility of $69.9 million, equating to $106.4 million, which the Company defines as total liquidity. The Company’s long-term debt balance, which is largely comprised of its revolving credit facility and term loan, was $99.7 million as of June 30, 2019.  After giving effect to the Perrigo Animal Health acquisition, the Company would have had estimated net debt of $262 million, as of June 30, 2019.  From a working capital perspective, accounts receivable increased $40.1 million compared to December 31, 2018, in line with the Company’s strong sales growth. Inventory increased $6.3 million compared to the prior year end as a result of inventory needed to support the growth in the Company’s business.

Perrigo Animal Health Acquisition

On July 8, 2019, the Company completed the acquisition of Perrigo Animal Health for total consideration of $185 million.  The transaction was financed through a combination of $25 million of existing cash on hand, $145 million of new term loan financing from Ares Capital Management, with the remaining balance financed through PetIQ’s existing revolving credit facility with East West Bank. PetIQ continues to expect that this acquisition will be accretive to earnings in the first twelve months following the closing and thereafter. PetIQ is committed to reducing its balance sheet leverage.

Outlook

For the full year 2019, the Company is raising its net sales and adjusted EBITDA outlook compared to previously issued guidance.

On a standalone basis, excluding contribution from its Perrigo Animal Health acquisition, the Company expects the following:

  • Consolidated net sales of at least $650 million, an increase greater than 23% from growth of 98% in 2018
  • Adjusted EBITDA* of at least $56 million, an increase greater than 35% from growth of 86% in 2018

The Company expects its Perrigo Animal Health acquisition to contribute the following for the balance of 2019:

  • Consolidated net sales of at least $30 million
  • Adjusted EBITDA* of at least $6 million

For full year 2019 based on the combination of PetIQ and Perrigo Animal Health the Company is introducing the following outlook:

  • Consolidated net sales of at least $680 million
  • Adjusted EBITDA* of at least $62 million

The Company intends to update its initial full year 2020 outlook, which was provided in connection with the announcement of the Perrigo Animal Health acquisition, at the end of 2019.  The Company remains confident in its long-term 2023 growth objectives on a stand-alone basis, including:

  • Net sales of approximately $1.0 billion
  • Adjusted EBITDA margin of greater than 15%*
  • Wellness center locations of 1,000

*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.

Conference Call and Webcast

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, August 7, 2019, at 4:30 p.m. ET. The conference call and supplemental investor presentation will be available live over the Internet through the “Investors” section of the Company’s website at www.PetIQ.com. 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 through August 28, 2019. North American listeners may dial 844-512-2921 and international listeners may dial 412-317-6671 the passcode is 13692459.

About PetIQ

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 has 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 www.PetIQ.com.

Forward Looking Statements

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 successfully grow our business through acquisitions; our dependency on a limited number of customers; our ability to implement our growth strategy effectively; disruptions in our manufacturing and distribution chains; 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; our ability to keep and retain key employees; our ability to sustain profitability; and the risks set forth under the “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018 and other reports filed time to time with the Securities and Exchange Commission.

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.

Non-GAAP Financial Measures

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

Adjusted net income consists of net income adjusted for tax expense, acquisition expenses, purchase accounting adjustments, integration costs and costs of discontinued clinics, new clinic launch expense, and stock based compensation expense.  Adjusted net Income 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. 

Adjusted gross profit consists of gross profit adjusted for purchase accounting adjustments, gross profit (loss) on veterinarian clinics and wellness centers that are not part of same store sales, and new clinic launch expense.  Adjusted gross profit is utilized by management 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 acquisition costs, stock based compensation expense, purchase accounting inventory adjustment, fair value adjustment to contingent consideration, new clinic launch expenses, integration and costs of discontinued clinics, and operations of non-same-store operations as defined below. Adjusted EBITDA margin is adjusted EBITDA stated as a percentage of adjusted 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, adjusted gross profit, adjusted EBITDA, and adjusted EBITDA margin 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, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin, 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, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin may not be comparable to other similarly titled measures computed by other companies, because all companies do not calculate adjusted net income, adjusted gross profit, adjusted EBITDA and adjusted EBITDA margin in the same manner.  Our management does not, and you should not, consider adjusted net income, adjusted gross profit or adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of adjusted net income, adjusted gross profit 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 the most comparable GAAP measure, in the financial tables that accompany this release.

The Company considers its same-store portfolio to consist of only those retail service regional offices, mobile community clinics provided within host partners, and wellness centers that have been operating for at least six trailing quarters.

Definitions

  • Mobile community clinic – A mobile community clinic is defined as an event, or a visit to a retail host partner location, by the Company’s veterinary staff utilizing the Company’s mobile service vehicles.  Clinic locations and schedules vary by location and seasonally. Due to the non-standardization of the Company’s mobile community clinics, these clinics are grouped as part of geographic regions.  New regions and host partners are excluded from the same store sale calculation until they have six full consecutive quarters of operations.
  • Veterinarian Wellness center – A veterinarian wellness center is a physical fixed service location within the existing footprint of one of our retail partners.  These veterinarian wellness centers operate under a variety of brands based on the needs of our partner locations.
  • Regional offices – Regional offices support the operations of the Company’s services segment which include its mobile veterinarian community clinics and wellness centers.  These offices are staffed with field management and other operational staff.

CONTACT:

Investor Relations Contact: Media Relations Contact:
ICR
Jeff Sonnek
646-277-1263
jeff.sonnek@icrinc.com
ICR
Cory Ziskind
646-277-1232
cory.ziskind@icrinc.com



PetIQ, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in 000’s except for per share amounts)
 
       
    June 30, 2019   December 31, 2018  
Current assets              
Cash and cash equivalents   $  36,564     $  66,360    
Accounts receivable, net      85,129        45,007    
Inventories      98,433        92,142    
Other current assets      2,874        4,212    
Total current assets      223,000        207,721    
Property, plant and equipment, net      26,303        27,335    
Operating lease right of use assets      11,990        —    
Deferred tax assets      48,620        43,946    
Other non-current assets      2,896        2,857    
Intangible assets, net      85,995        88,546    
Goodwill      125,040        125,029    
Total assets   $  523,844     $  495,434    
Liabilities and equity              
Current liabilities              
Accounts payable   $  61,234     $  54,768    
Accrued wages payable      6,725        5,295    
Accrued interest payable      547        728    
Other accrued expenses      877        1,154    
Current portion of operating leases      3,306        —    
Current portion of long-term debt and finance leases      2,338        2,251    
Total current liabilities      75,027        64,196    
Operating leases, less current installments      8,895        —    
Long-term debt, less current installments      99,723        107,418    
Finance leases, less current installments      1,768        2,319    
Other non-current liabilities      254        524    
Total non-current liabilities      110,640        110,261    
Commitments and contingencies              
Equity              
Additional paid-in capital      282,343        262,219    
Class A common stock, par value $0.001 per share, 125,000 shares authorized; 22,750 and 21,620 shares issued and outstanding, respectively      22        22    
Class B common stock, par value $0.001 per share, 100,000 shares authorized; 5,462 and 6,547 shares issued and outstanding, respectively      7        7    
Retained Earnings (Accumulated deficit)      976        (4,450 )  
Accumulated other comprehensive loss      (1,327 )      (1,316 )  
Total stockholders' equity      282,020        256,481    
Non-controlling interest      56,157        64,496    
Total equity      338,177        320,977    
Total liabilities and equity   $  523,844     $  495,434    



 

PetIQ, Inc.
Condensed Consolidated Statements of Income
 (Unaudited, in 000’s, except for per share amounts)
                         
    For the Three Months Ended   For the Six Months Ended
    June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018
                         
Product sales   $  194,606     $  148,713     $  320,690     $  246,564  
Services revenue      26,028        22,429        48,380        39,644  
Total net sales      220,634        171,142        369,069        286,208  
Cost of products sold      167,845        127,583        275,909        212,169  
Cost of services      17,889        17,241        33,531        31,838  
Total cost of sales      185,733        144,824        309,439        244,007  
Gross profit      34,901        26,318        59,630        42,201  
Operating expenses                        
General and administrative expenses      24,450        16,943        44,988        35,911  
Contingent note revaluations loss      1,460        459        780        600  
Operating income      8,991        8,916        13,862        5,690  
Interest expense, net      (2,242 )      (2,216 )      (4,179 )      (3,981 )
Foreign currency gain (loss), net      49        136        (73 )      58  
  Other income (expense), net      2        (418 )      15        (373 )
Total other expense, net      (2,191 )      (2,498 )      (4,237 )      (4,296 )
Pretax net income      6,800        6,418        9,625        1,394  
Income tax (expense) benefit      (881 )      (1,020 )      (1,381 )      47  
Net income      5,919        5,398        8,244        1,441  
Net income attributable to non-controlling interest      2,103        2,899        2,818        970  
Net income attributable to PetIQ, Inc.   $  3,815     $  2,499     $  5,426     $  471  
Net income per share attributable to PetIQ, Inc. Class A common stock                        
Basic   $  0.17     $  0.16     $  0.25     $  0.03  
Diluted   $  0.17     $  0.16     $  0.24     $  0.03  
Weighted Average shares of Class A common stock outstanding                        
Basic      22,365        15,980        22,087        15,285  
Diluted      22,597        16,008        22,284        15,329  



PetIQ, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in 000’s)
             
    For the Six Months Ended June 30, 
    2019     2018  
Cash flows from operating activities            
Net income   $  8,244     $  1,441  
Adjustments to reconcile net income to net cash used in operating activities            
Depreciation and amortization of intangible assets and loan fees      6,056        5,714  
Foreign exchange gain on liabilities      —        (41 )
Gain on disposition of property, plant, and equipment      (62 )      (49 )
Stock based compensation expense      3,146        1,454  
Deferred tax adjustment      1,638        (47 )
Contingent note revaluations      780        600  
Other non-cash activity      56        (334 )
Changes in assets and liabilities            
Accounts receivable      (40,218 )      (20,820 )
Inventories      (6,294 )      (29,384 )
Other assets      1,250        2,654  
Accounts payable      6,656        31,859  
Accrued wages payable      1,407        410  
Other accrued expenses      (717 )      (2,304 )
Net cash used in operating activities      (18,058 )      (8,847 )
Cash flows from investing activities            
Proceeds from disposition of property, plant, and equipment      69        103  
Purchase of property, plant, and equipment      (1,730 )      (4,732 )
Business acquisitions (net of cash acquired)      —        (92,083 )
Net cash used in investing activities      (1,661 )      (96,712 )
Cash flows from financing activities            
Proceeds from issuance of long-term debt      323,144        299,078  
Principal payments on long-term debt      (331,856 )      (215,964 )
Tax Distributions to LLC Owners      (1,378 )      (574 )
Principal payments on finance lease obligations      (737 )      (561 )
Payment of deferred financing fees and debt discount      (50 )      (2,613 )
Exercise of options to purchase common stock      798        —  
Net cash (used in) provided by financing activities      (10,079 )      79,366  
Net change in cash and cash equivalents      (29,798 )      (26,193 )
Effect of exchange rate changes on cash and cash equivalents      2        (31 )
Cash and cash equivalents, beginning of period      66,360        37,896  
Cash and cash equivalents, end of period   $  36,564     $  11,672  
             


PetIQ, Inc.
Summary Segment Results
(Unaudited, in 000’s)

                           
Six months ended June 30, 2019   Products   Services   Corporate   Consolidated  
Net Sales   $  320,690   $  48,380   $  —     $  369,070  
Operating income (loss)      33,316      7,411      (26,864 )      13,862  
Six months ended June 30, 2018                 -7.3 %        
Net Sales      246,564      39,644      —        286,208  
Operating income (loss)      25,105      1,595      (21,010 )      5,690  
                  -7.3 %        
Three months ended June 30, 2019                          
Net Sales   $  194,606   $  26,028   $  —     $  220,634  
Operating income (loss)      20,227      4,394      (15,631 )      8,990  
Three months ended June 30, 2018                 -7.1 %        
Net Sales      148,713      22,429      —        171,142  
Operating income (loss)      16,156      1,951      (9,191 )      8,916  


PetIQ, Inc.
Reconciliation between gross profit and adjusted gross profit
(Unaudited, in 000’s)

                         
    For the three months ended   For the six months ended
    June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018
Gross profit   $  34,900   $  26,318   $  59,630   $  42,201
Plus:                        
Purchase accounting adjustment to inventory      —      —      —      1,502
Non same-store gross loss      1,255      1,352      2,690      1,519
Adjusted gross profit   $  36,155   $  27,670   $  62,320   $  45,222



PetIQ, Inc.
Reconciliation between Net Income and Adjusted EBITDA
(Unaudited, in 000’s)

                         
    For the three months ended   For the six months ended
    June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018
Net income   $  5,918     $  5,398     $  8,244     $  1,441  
Plus:                        
Tax expense (benefit)      881        1,020        1,381        (47 )
Depreciation      1,529        1,780        3,183        3,030  
Amortization      1,278        1,257        2,557        2,397  
Interest      2,242        2,216        4,179        3,981  
EBITDA   $  11,848     $  11,671     $  19,544     $  10,802  
Acquisition costs(1)      2,889        151        3,465        3,366  
Stock based compensation expense      1,602        756        3,146        1,454  
Purchase accounting adjustment to inventory      —        —        —        1,502  
Non same-store revenue(2)      (2,155 )      (1,082 )      (3,671 )      (1,303 )
Non same-store costs(2)      4,044        2,434        7,296        2,822  
Fair value adjustment of contingent note      1,460        459        780        600  
Integration costs and costs of discontinued clinics(3)      1,142        385        1,142        756  
Clinic launch expenses(4)      —        846        —        1,211  
Non-recurring royalty settlement(5)      —        440        —        440  
Adjusted EBITDA   $  20,830     $  16,060     $  31,702     $  21,650  
      9.5 %       9.4 %       8.7 %       7.6 %  

(1)                Acquisition costs relating to various acquisitions, both completed and contemplated.

(2)                Non same-store revenue and costs are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. There were 32 wellness centers, 7 regions, and one new host partner that had less than six trailing quarters of operating results for the three and six months ended June 30, 2019 23 wellness centers and 5 regions for the three and six months ended June 30, 2018.

(3)                Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses, such as personnel costs like severance and signing bonuses, consulting work, brand realignment and SKU rationalization, and IT conversion costs, in addition to costs associated with vet services clinics that were discontinued subsequent to the acquisition of VIP.

(4)                Clinic launch expenses represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business.

(5)                Non-recurring royalty settlement represents a settlement paid to a supplier related to a royalty agreement in place since 2013.


PetIQ, Inc.
Reconciliation between Net Income and Adjusted Net Income
(Unaudited, in 000’s)

                           
    Three Months Ended   Six Months Ended  
    June 30, 2019   June 30, 2018   June 30, 2019   June 30, 2018  
Net income   $  5,918     $  5,398     $  8,244     $  1,441    
Plus:                          
Acquisition costs(1)      2,889        151        3,465        3,366    
Tax expense (benefit)      881        1,020        1,381        (47 )  
Stock based compensation expense      1,602        756        3,146        1,454    
Purchase accounting adjustment to inventory      —        —        —        1,502    
Non same-store revenue(2)      (2,155 )      (1,082 )      (3,671 )      (1,303 )  
Non same-store costs(2)      4,044        2,434        7,296        2,822    
Fair value adjustment of contingent note      1,460        459        780        600    
Integration costs and costs of discontinued clinics(3)      1,142        385        1,142        756    
Clinic launch expenses(4)      —        846        —        1,211    
Non-recurring royalty settlement(5)      —        440        —        440    
Adjusted Net income   $  15,781     $  10,807     $  21,783     $  12,242    

(1)                Acquisition costs relating to various acquisitions, both completed and contemplated.

(2)                Non same-store revenue and costs are from wellness centers, host partners, and regions with less than six full trailing quarters of operating results. There were 32 wellness centers, 7 regions, and one new host partner that had less than six trailing quarters of operating results for the three and six months ended June 30, 2019 23 wellness centers and 5 regions for the three and six months ended June 30, 2018.

(3)                Integration costs and costs of discontinued clinics represent costs related to integrating the acquired businesses, such as personnel costs like severance and signing bonuses, consulting work, brand realignment and SKU rationalization, and IT conversion costs, in addition to costs associated with vet services clinics that were discontinued subsequent to the acquisition of VIP.

(4)                Clinic launch expenses represent the nonrecurring costs to open new veterinary wellness centers, primarily employee costs, training, marketing, and rent prior to opening for business.

(5)                Non-recurring royalty settlement represents a settlement paid to a supplier related to a royalty agreement in place since 2013. 

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