Q4 2019 Earnings Call
Greetings welcome to kill fourth quarter 2019 earnings Conference call. At this time all participants are in the listen only mode. I question answer session will follow the formal.
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Your car operator assistance during the conference. Please press Star Zero and your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Jeff saw that I see. Thank you you may begin good afternoon. Thank you for joining us on pet accuse fourth quarter and full year 2019.
Earnings Conference call on todays call, our court Christiansen, Chairman and Chief Executive Officer in John Nolan Chief Financial Officer.
Susan Sholtis is also president and will be available for Q and.
Before we begin please remember that during the course of this call management may make forward looking statements within the.
Meaning of the federal Securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events and those described in these forward looking statements.
Please refer to the company's annual report on form 10-K, and other reports filed from time to time.
With the Securities Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Finally, please note on todays call management will refer to certain non-GAAP.
Natural measures, including adjusted gross profit adjusted net income and adjusted EBITDA among others.
Nobody believes these non-GAAP financial measures will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information.
Presented in accordance with gap.
Please refer to todays release for the reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with gap. In addition, Turkey was posted a supplemental presentation on its website for reference.
Now I'd like to turn the call over to corn Christiansen.
Thank you, Jeff and good afternoon, everyone.
Your key business highlights since our IPO in 2017.
Right a brief look at our 2019 performance in close it insights into our business segments.
John will discuss our fourth quarter financial results I'm 2020 outlook in more detail.
Finally, Susan John.
I'll be available to answer your questions.
I'd like to our business model of providing affordable and convenient access to that Charlie products and services continues to gain momentum.
<unk> by our ability to generate sustainable girls.
Since our IPO, just doing a half years ago.
I like your has gone from net sales of 200.
And six or $7 million in 2017.
Business generating at least $800 million and that sells by the end of 2020.
Adjusted EBITDA has grown from 22 million in 2017, it's an expected adjusted EBITDA annualized run rate over $100 million in 2020 upon the closing of.
Capstar acquisition.
This represents a 45% that sells keurig are.
55% adjusted EBITDA Keurig are over this time period.
In 2019, we generate another signs of growth that's sales increased 34% and adjusted EBITDA increased 40.
<unk> percent compared to 2018.
This is a clear indication that our mission of providing convenient access to affordable veterinarian products and services.
Increasingly resonating with pet parents seeking smarter pet health care.
We have accomplished this growth both organically and be a strategic acquisitions.
Our team has done a great job of funding compelling.
Complimentary opportunities for growth in the veterinarian products and services industry to further strengthen in diversified business.
And the last couple of years, we're gonna get agree strategic acquisitions.
We recently announced the signing of a definitive agreements to acquire Capstone 2020.
This will be our fourth.
In addition.
Enabling us to yet again enhance our competitive position on consolidating industry, while improving our mix of higher margin cells.
In 2020, approximately 80% of our adjusted EBITDA comes from our own brands such as in our plants and our services business.
Providing us admits.
I can control and strong visibility into our outlook for 2020 and beyond.
The acquisition Parago animal health, which closed in July 2019, there's a significant component of our margin expansion strategy within the products.
With more than 700 highly accretive manufactured health and wellness items.
The state of the art manufacturing and Archie I said provides I'd like you significantly greater Mems absolute scale and provides a very important addition to our offering with its national pet health and wellness brands, such as that armor sentry incidence.
Today.
Integration, apparently animal health is exceeding our.
Occasions.
As we mentioned during the third quarter call. We believe there is a good opportunity for us to outperform that 15% sales growth goal that we had initially stuck with this business.
I'm pleased to report that we now expect sales growth for the Parago animal health business will be up approximately 25% year over year in 22.
Morning.
After closing the Paragon animal health acquisition, we identified the business was under investing and what's most important brands.
This lack of support attributed to a deceleration in cells prior to our ownership.
I'd like you guys made the decision to re implement these marketing investments to ensure.
That we deliver the annual 15% sales growth goal then we have placed on this asset.
Said differently with fixed this is super 2020, m. beyond and <unk> and have acquired more complete marketing and advertising budget for this business, which matches the historical spend that was in place parts of Perkins acquisition of the asset.
Actively.
We've reallocated approximately $6 million of EBITDA that was originally forecast over 2020 towards this marketing budget.
As much as we'd love to let this fall through to the bottom line. This is not the correct business decision for an asset that we have increasingly high expectations for.
Shifting to our business segments, our product business demonstrated.
Continued momentum with fourth quarter growth of 42% supporting full year 2019 growth of 37%.
We continue to benefit from the strength of our relationships with our animal health manufacturing partners and acceleration on fracture brands and an increasing number of pet parents transition or pet health.
Our needs to be like use affordable and convenient offerings.
To greater access and consumer visibility, we're attracting new customers into the category, which is helping grow the total market.
Our partners are all going with us and all parties are motivated to continue to support the growth and went together.
We continue to experience strong.
Broad based growth across all retail sales channel with ecommerce leading from a sales channel perspective, and prescription drugs, leading upon their product category perspective.
Rather large customers that increased our commitment to pair prescription drug programs. This is a strong tailwind for US an area of our business that is still in its infancy with a long runway.
We have opportunity ahead.
Our aim is to provide guide to the entire pet medications ecosystems and the Best example, at Pirquitas value to the industry is the prescriptions that are veterinarians right.
2019.
More than 2500 veterinarians treated over 1.3 billion pets, which generated over 1.5 million.
Prescriptions.
45% of these pets treated had not seen a veterinarian and over three years.
When you combine this with our 1000 unit Wellness Center growth initiative. It sounds like you. We worked out that we'll grow the number of pets treated to over 6 million pets.
They run rate to millions more in the future, which is a set of that.
I'd like you will be one of the largest drivers of incremental category growth in the entire industry.
Providing a direct link to the growth that our vendor and retail partners will enjoy.
In the services segment fourth quarter net sales grew 22% or grew 20% on an adjusted basis for the year.
We reestablished.
Did the girls on both reported and adjusted basis during the fourth quarter. Following a temporary deceleration or third quarter that was brought about by a strategic decision to close some clinics with underperforming host partners.
Segment gross margin for the fourth quarter was negatively impacted by strategic marketing on labor investments to support new community clinical.
Opening does we backed car wellness center conversion.
These investments are clearly generally the desired results.
As evidenced by the 20% growth we generated in the fourth quarter on our base business.
We are proud of the service organizations execution of our you know wellness Center girls coal in 2019, particularly late in the year with the additional pressure.
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We enter 2020, our service business is well positioned for the most important spring season.
In summary.
Thank you assemble medicine.
I'm 3500, well trained employees has created the smartest pet health care company in the country.
Our mission of delivering smarter options for pet.
Wants to help or pets lived their best lives through convenience and affordable access to veterinarian products and services is working.
The model is resonating with retailers animal health manufacturers and most importantly pet parents.
Our results speak for themselves.
And just the past two and a half years, we have grown revenues from 200.
And 67 million.
So at least 800 million in 2020.
That's a girl adjusted EBIT, all from 22 million to more than 100 million dollar run rate in 20 Twond.
This is something we're extremely proud of.
Thank you is unlike any other companies in the animal health industry.
Vertically integrated product manufacturer and just.
<unk> platform and an unmatched national footprint with convenient access to veteran services prescriptions I know, what you see medications out about.
I'd now like to turn the call over to John.
Thank you cord.
To reiterate cords remarks regarding our accomplishments since our IPO, having generated a 54 <unk>.
<unk> net sales and 65% adjusted EBITDA Cagar, our mission of providing convenient access to affordable pet care is clearly demonstrated in our topline performance.
A couple this with the strategic acquisitions, we've completed and we are significantly more diversified business within expanding competitive mode.
Has multiple high margin growth drivers.
Aim to leverage in the coming years.
This will grow our adjusted EBITDA margin to our long term stated goal of greater than 15%.
We had a great fourth quarter, which capped off a phenomenal 2019 for the business.
Fourth quarter 2019.
Validated net sales were 154 point Threemillion, an increase of 43.3 million or 39% when compared to the fourth quarter of 2018.
Excluding contribution from Parago animal health net sales increased 27.9% for the quarter at 28.7% for the full year.
Your 2019.
Our strong sales reflects growth in existing retail partners and sales contribution from the recent Parago animal health acquisition.
Our services segment delivered a 20% to same store sales growth within our community clinic base business growing contribution from our non same store.
Listeners.
Product segment net sales for the fourth quarter were 134.9 billion, an increase of 41.8% year over year.
Excluding contribution from Parago animal health products segment, net sales increased 28.8% for the quarter.
Segment adjusted EBITDA was.
17.1 million, an increase of 63% compared to the fourth quarter last year.
Services segment net revenues increased 22.4% for the fourth quarter to 19.4 million.
Excluding the contributions from our Wellness Center initiative.
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For 2019 adjusted services segment net revenue was 17.6 million, representing a growth of 20% versus the prior year.
I'd also like to bring your attention that we discontinued operations and two of our retail partners that were in the 2018 base and went backing.
These clinics out of the base in the prior year period adjusted services.
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Non same store revenue increased 53.9% at 103.9% to 1.8 million, an 8.1 million for the fourth.
Quarter and full year ended December 31st 2019.
Non same store growth as a result of opening additional other centers as well as wellness centers opened in the prior year maturing before moving into the same store sales base.
Services segment, adjusted EBITDA was 1.9 billion a.
So of 11.3% compared to the fourth quarter last year.
Segment margin for the fourth quarter was negatively impacted by strategic marketing and labor investments to support new convey clinic openings as we backfill or wellness center conversions.
Fortunately I want to call out the seasonality of the service business here.
Fourth quarter.
Order is there a seasonally lowest volume quarter of the year and our margin profile is thereby negatively influenced by the lower volumes against the fixed labor costs that we incur.
That said, we continue to feel great about the direction of our service organization.
And the work that we've done to enhance the offering and.
The refinery clinic model.
These initiatives are driving to lift in total pet counts across our platform.
Which will drive long term segment sales growth as well as leverage of fixed infrastructure that is already in place.
Fourth quarter 2019, gross profit grew 21% to 20.5.
Million.
However, looking at our base business through the lens of adjusted gross profit we grew 37.2% the 26.8 million.
As we look out into 2020, we expect to demonstrate significant gross margin improvement as a result of improved mix between our distributed and menu.
Fashion products.
Similar to the optics in third quarter general and administrative expenses increase in the fourth quarter due to the integration of Paraguay animal health and to our consolidated financials.
This is a trend that will continue through the first half of 2020 until we anniversary the.
It's actually in July of this year.
However.
Yes, It goes higher gene a run rate of greater than 30% is more than offset by the creative gross margin profile associated with it Parago animal health business, which is a key variable in our expectations and deliver a nice lift and adjusted EBITDA margin expansion into.
Hasn't 20.
Excluding parago animal health, we would have achieved greater DNA leverage for the quarter than the 20 basis points that were generated on an adjusted basis.
Fourth quarter 2019, adjusted EBITDA increased 49.9% to 9.7 million an adjusted.
But on margin was 6.3%, which represents a 50 basis point increase from the prior year period.
Fourth quarter net loss was 13 point Sixmillion, that's compared to net loss of 5.3 million in the prior year period.
However.
We reported 11.5 million of incremental expense.
Which includes adjustments of 8.8 million of nonrecurring acquisition expenses and 2.7 million of incremental interest expense, primarily associated with the purchase of <unk> Parago animal health.
Net loss also includes 5 million of net non same store contribution.
Adjusted net income.
Which includes the additional interest expense, but excludes these nonrecurring items was 3.5 million for the quarter IVD for the fourth quarter 2019.
Prior to 2.7 million in the prior year period.
Turning now to the balance sheet.
The company had cash and cash equivalents of approximately.
27.3 million as of December 30, Onest 2019. In addition to our revolving credit facility, which had 100 million available at year end. Our total liquidity was approximately 127.3 million.
The company has net debt of 224.2 million.
As of December 31st 2019, which translates to a net leverage ratio of approximately 3.2 times.
When compared to our full year 2019, adjusted EBITDA of 60.7 billion.
And including on a pro forma basis, the first half year 2019, EBITDA contribution of our.
Our parago animal health asset.
Current leverage does not reflect any balance sheet assumption or contribution from our pending Capstar acquisition.
Pro forma for the caps or acquisition, including the annualized EBITDA contribution of Capstar.
We expect an immaterial change to our net debt to adjusted EBITDA leverage ratio.
We're confident that we have a balanced capital structure in place that can support a rapidly growing product and service business to achieve our stated long term growth objectives, while simultaneously reducing leverage by one half turn on an annualized basis through a combination of organic growth and free cash flow.
Now.
Turning to guidance.
We are updating the 2020 outlook that we provided in connection with the announcement of the Parago animal Health acquisition last may.
For 2020, we expect consolidated net sales of at least 800 million adjusted EBITDA of 80 million and new Wellness Center openings.
Of the.
I used to 130 clinics. This represents more than a 62% increase at our pace of openings compared to the 80 units we opened in 2019.
As we stated previously our community clinic conversion strategy is the primary feeder for the new wellness center openings, representing approximately 60%.
Of our future openings.
These conversions have significant operational advantages such as existing labor and engage cuts customer base.
Long retailer host relationships and lower capital investment as a result, our ramp to positive cash flow and significantly accelerated which we believe mitigates risk.
Risk and dramatically improves our visibility for success.
Our 2020 outlook reflects the full year impact of our Parago animal health acquisition, but does not yet include contribution from our pending acquisition of Capstar, which on an annualized basis should contribute approximately 15 million of incremental.
Revenues and 20 million of EBITDA as a result, we already act as a distributor for the vast majority of Capstar. So our revenue capture is more limited to the margin accretion we will gain upon closing.
Including the cap start contribution our 2020 guidance implies it on a run rate basis.
Todays will exceed 815 million and adjusted EBITDA will be greater than 100 million representing growth of 15% of 65% respectively versus our 2019 result.
We remain confident in our long term 2023 growth objectives, including net sales.
Growth of 15% and adjusted EBITDA growth of 20%, resulting in adjusted EBITDA margin of greater than 15% in a thousand wellness center locations.
In closing, we're very pleased with our 2019 performance remain excited about our future growth prospects with that.
Review, Susan coordinate guy.
Elbow for your questions operator.
Thank you if he would like to ask your question. Please press star one I knew telephone keypad.
<unk> for me she doesn't indicate your line is in the question can you.
You May press Star too if you were they to remove your price just friendly Q.
And for.
Participants using speaker equipment, maybe necessary to pick up your handset before pressing the star he's.
Our first question is from Joe Altobello with Raymond James. Please proceed.
Hi, guys good afternoon.
First question wanted to get a little more color around the 1.29 <unk> marketing a.
Labor investments.
Got you made the fourth quarter, what specifically was that and once that contemplated in your prior EBITDA.
Thanks, a question Joe.
I'll, let Susan take the question on the 1.2, and then I'll take the guidance question. After she finishes and three not so once you add Susan.
I think you cord Hi, Joe I'm I first of all just want to pass for a minute and really recognize the services team for delivering the best quarter that Weve never had they did the team completely rocks it.
Never one question as you know that I always get is whether or not you're actually going to open up 80 wellness centers.
The answer is definitely.
Did that.
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I want to walk you through the unique opportunities that we had in Q4 that we took advantage. That's number one we launched another 82 locations for community Quanex and held over 2600 additional clinics in Q4 second and probably more importantly, this opportunity.
To be happened with nine partners six of those nine partners were branded partners for pet I Q, So our clinic events and our total pet counts were up significantly in Q4.
We are moving forward will continue to look for smart eyewear seem to be used to fill that you need just clinics I know as we've talked about previously.
I continue to smartly invest in the incremental advertising that's needed to support that.
Hey, Joe on your second part of your question is when we updated guidance I reiterated guidance here recently at that stage and Prime we did expect to be about guidance and we're waiting on final.
The agents to come through and we had contemplated that strategic investment had been made so when those reconciliations came through and were finalized or we were disappointed that we were you know about little over a million dollars short of the guidance that was there but also still extremely proud of the fact that we grew the quarter by 49% on EBIT Dawn, we grew the year.
By 46%, which is you know more than double of our long term guide and obviously, it's been a trend we have been delivering now going on 810 12 quarters. So we're.
So we never liked to Miss on something like that we're also very very excited about how well we did perform for the total year with all the things that were going on between acquisition integration and you name.
But again, yes, we were still wait on some reconciliation that came through in now.
Got it had a small it's why you short about 62 million dollar guidance.
That's helpful cord, if I could move along to the wellness centers that you're expecting for this year I guess first any early results from the new a Walmart walnuts.
Centers I think you guys are opening roughly 50 with Walmart or in the first quarter and of the 130 are those all with existing partners or do you anticipate.
New retail partner.
Yeah. Thanks for the question Joe So first Joe we have a total of 50 locations opening Walmart of which 30.
35, we opened up in fourth quarter 15.
In the first quarter I think the other part of your question I'll, let Susan take an answer she can handle it very well.
Yeah, I want to have to talk about a couple of different things number one I want to have not the conversion clinics are now flip over to the greenfield clinics and so that conversion.
Clinics, if you recall that we opened in November 2018, plus we had an additional five conversions that we opened this past summer noticed continued to perform well on all metrics pets preclinical dollars per pet total revenue. If you remember we love. These types of conversion is because right out of the gate their their hot and running.
Because we've already built that client base with with our retail partner weakness actually see the benefit of this conversions as we start to break through the winter months, but just happening right now in regards to the Greenfield clinics. They are also performing well the brand new Greenfield clinics that we launched in fourth quarter last year.
If you have an example, if you if you take the old Greenfield clinics the ones that we closed and you measure how they were performing in June through August of 2019, now remember those at most active mentioned veterinary medicine, and we were spending drives pet count and if you compare those to the new Greenfield Quanex.
In the month of January February of this year. The most inactive months in veterinary medicine and after the clinics have only been opened her two months, we are seeing increases in pets, and the 16% to 20% and increases in dollars per pet my 34%. So new locations are without any doubt headed into right direction.
And in terms of the new openings in 2020 that all.
Are you place you got your partner.
Right now we currently are our our targeted for the hundred 30 with our existing partners, but weve built a deeper funnel. The 930, which included new partners, but with the 130, they won't be with existing partner.
Great. Thank you.
Our next question is from Kevin Grundy with Jefferies. Please proceed.
Hey, good afternoon, everyone.
[laughter] Kevin.
Wanted to start maybe this question is for John just to come back to gross margin into.
Two parts to the question Joe I'm not sure. If you have this handy, but do you could you walk for us sort of what were the drivers of the year over year change because.
I guess, you know when our model and maybe we were missing something but I think the street was it was expecting quite a bit higher is well on the gross margin and at a minimum or I guess there's.
It should have been some favorable mix from the Parago acquisition. So.
What maybe came in a little bit worse, the investment unless I'm missing. It I would think would be enough. She in a number not something that would flow through cogs, but you know I could be wrong, but even if that were the case. It's you know that that's that's not a huge number you know like though the additional million I think it would be like 60.
Five basis points. So the questions around gross margin, maybe you can do walk force year over year to get US. This 34 basis point decline and then maybe talk about why you think that gets better next year.
Yeah, that's a couple of questions there Kevin but.
First of all I believe that you would find that when.
We when we examine margin on the product side of the business. So we were right in line with with overall expectations a when we talk about the investments that were made in Q4, a large portion of those investments where labor related which is a factor of cost of cells, which ultimately you know affected margin.
In.
Q4, this year and and additionally.
Last year, we had a product promotion in one of our animal health vendor partners. So we can certainly accrued that the program benefits of that throughout the year, but we did receive.
We did realize a pickup in Q4.
When we did the year end reconciliation.
That program over the different this year Kevin is.
It went through an off invoice, where it was recognized with our purchase volume throughout the year and so therefore.
You know just happened as as the year occurred and so you're anniversarying basically a onetime pickup associated with that.
And last year.
I will say this though despite those investments we made and the things that we're talking about our annual percentage margins were actually 20 basis points better.
In the prior year on an annualized basis.
Okay.
So it doesn't seem like there's anything concerning or they just the topline continues I mean really.
Strong, but it did seem like yeah, I guess what has been thematic is that the there hasn't been as much sort of earnings flow through I guess, probably even as much as you guys would hope relative to how strong the top line's been.
Yeah, No remember Kevin Kevin <unk>.
Our headquarters.
Kevin you're referring to the service organization or.
The company overall total company cord.
Yeah, I think we have made significant improvements in the earnings flow through I think.
Look we have three lines of business with three very different margin profiles and the mix is something that we're always trying to balance as we get to have the job of.
Determining how quickly people.
We're going to move over in the Rx business versus the service organization I think to John's point is we budgeted knew that we were going to have a margin. The service organization that was gonna be compressed. During this time period. It was part of our plan is still deliver a 62 million dollar EBITDA margin. We did have a slight miss and not that we can understand why.
Why that is controllable going forward or.
Our margins are expanding as it relates to the acquisitions that we made to say, we're not seeing earnings flow through when we were making $22 million in 17, and we're now at 61 and moving to 80 and to 100 with recaps. Our we've got a lot of leverage going through on that and where it.
We have a lot of expanded margin profile flowing through the business side I'd take exception to your comment.
Okay. That's right core just one more on the a if I heard this correctly. The it was 6 million in step up for Perrigo in 2020 is that correct.
Yeah. So shortly after we closed on the transaction.
We're able to get more historical data and get deeper in the weeds, what the existing employee base and.
The sergeants Belterra team that was left in place we're able to show us the investments that were being made and the productivity of the brands with those investments Parago had a philosophical approach based on their model not to make those investments.
I had cut those spend and you can see the decline in the best performing brands from those investments.
As we were able to go out and look at the gaps in the marketplace spell those gaps in our focus drive the topline increase it allowed us to go back and put those investments back in place for 2020 without affecting the $80 million of.
Learning, So said differently, if we spent money exactly the same way.
2020, as we did in 229 team the business would make $86 million on the 800 million. We feel strongly that those investments are important we feel strongly that they'll be measured and there will be able to show that that will be big part of us being confident our.
Did you say, we continue to grow the best brands out of that acquisition at the 15% that we've met we've already message to the street.
Okay. The just the a the clarification courts <unk>. The the street should think of it is that that's a permanent investment that's not something that's going to come out of the piano and a in fiscal 2001 is that is that accurate.
Yeah, we're gonna get permanent investment that 6 million in unless we see the results are different than if we decide that we're not gonna do I will make sure. We watch you know that those spans aren't producing their return in their better use elsewhere. So but right now we're assuming that those marketing dollars that were used for years that drove growth.
That were removed this started the decline we're going to find out.
Just how productive they are when they are in place and intended to be in place for the long term.
Got it makes sense congrats on the year I'll pass it on thank you all.
Thanks, Kevin.
Our next question is from Jon Andersen with William Blair. Please proceed.
Hey, good afternoon, everybody and congrats on the Europe.
Thanks.
John Dearborn.
Oh, Yeah ditto.
I'd like to ask about the cadence for 2020, so with respect to the guidance. If you could talk a little bit more about quarterly cadence with Parago animal health impact in the first half and then Capstar I guess, you know rolling into the second half.
So any color you can provide there would be helpful.
Yeah. John This is John I'll go ahead and take that.
What do we look at the kids, we need to consider the full year effect of adding a the parago animal health business right as a real time, you should expect a a 2% to.
The total higher.
Contribution in Q1 in Q2 this year.
With a corresponding effect on the back half right. So let said differently last year, we only had parago.
Animal health as part of our business in Q3 in Q4 so it.
That is the the cadence change that you should expect to see.
Over you know what occurred this year.
Yeah.
We haven't really talked on the second part of your question whatever we ever disclosed to you know what we expect no. The full impact of the cap started deal until until we know no. The closing day, but we do expect up eight the guidance at that time.
Okay and I think.
Ron just.
Just to add to his point, though I mean, if you dig out the Capstar transaction, we were already handling such a significant portion of the distribution of that deal that when we close at the top I'm only be impacted by 15 million.
And so we will give you clarity on how that changes the the you know the seasonal impact of of the.
And it just sales, but I think John set it right up 18% of our sales were in Q1 of 2019, you should see roughly 20% of ourselves in Q1 of 2020, and then flow through just as you described.
Okay. That's helpful. Thanks.
[music].
Could you talk a little bit maybe little bit more about the.
The given what you've seen out of the the more recent wellness centers or whatever I guess converted and greenfield.
What's your current thinking on kind of run rate economics for those for the centers you know how quickly do you get a cash positive and longer term, how do you think about kind of revenue and.
Contribution margin.
It takes a question John I don't think our bar.
Communications driven than what we've been telling you on the Greenfields.
Conservatively, we believe will be up profitability within a year or some of them will happen sooner than that we've seen it happened faster that in a number of cases, but to be.
Started within a year, we're still very confident that that we can be in that 400 to $600000 and volume some will be more than that but we do feel strongly that that mid point had been able to provide that you know 25% EBITDA margins.
Over those locations are the same oh, we have a lot of competence in the greenfield locations.
Based on what were initially seen out of them, but again, starting with no customer base no probably vs community clinics being run there we're going to stick with the 18 months, our communication that we maintained in the past and expect the same results coming through so we've seen some really fun things out of these initial greenfield locations at Walmart.
We've been able to use our funneled to make the selection.
And we'll get we'll update our position on that as we get more information, but right now I think what we've been provider you from an information standpoint, we should stand by and you should count them.
Great Great. That's a good to hear just one more you know she thought about kind of your 2020 guidance.
Was there anything.
That has changed in the last three or six months with respect to your thoughts on your distribution business, whether that be you have direct brick and mortar retail or or E commerce or is it kind of status quo there.
Overall, thank you.
Hi, Thanks for the question, John I think I'm really thinking about the last three and six months you know we've had record quarters driven off of how great relationships have been with our partners.
As we've said our continued investment in growing the business and growing the pack count in bringing business to our partners. We continue to believe as the motivation for everybody.
Due to continued to invest in times like you and the right ways and driving the business.
We have the contracts that we've always described to you and their terms are what we've described so we'll be having discussions towards you know this year about what happens beyond that but we see no change and obviously the numbers reflect how strongly there's still running so we're.
We're still in place we have great relations with our partners and feel like the that stuff and it gets stronger as we continue to help everybody just grow and participate in the growth. It's here just so much incremental business being brought through this channel that we feel excited about the future and the like what are those renewals. So.
Great. Thanks, so much for the card.
Thanks, John.
As a reminder to star one and your telephone keypad, if he would like to ask a question. Our next question is from David Westenberg with Guggenheim Securities. Please proceed.
[laughter].
So that new products with that and as a follow up to that they are these spending that you're doing with Parago is there opportunity do you tend to maybe like use that spending to help market cap star on and just getting some synergies there. Thank you.
Hey, Dave you were we didn't hear the first part of your question Nick Your muted.
Something so if you could just give us the first part of your question again I'd be really helpful.
Yeah, when you're talking about the reallocation to marketing spend on Parago is there any maybe additional are some spending in that that might go into product development, R&D spend and with that excess and.
Is there any opportunity use some of that marketing spend allocated towards Capstar I'm basically just trying to get some some color between maybe there's some additional synergies here between your your prior Parago acquisition and your your you cast our products that you'll get mid year.
Thanks for the question, Dave I think the first thing I think we would like to make sure.
Our clear is that.
Those investments were directly linked to the business, we bought the Parago business and making sure those brands are being properly supported to drive their growth and right now about money is allocated to those brands and that's where it sits between being placed in invested in that business growing at 15% is a very healthy.
Business, obviously, when Cafs are gets integrated into that plants and the fact that it's a brand portfolio with no employees, we will definitely look at how we advertising support that brand. The good news is that brand had.
Great investments being made against it and right now until we get the rest of them information don't believe it'll be an.
<unk> additional investments needed to support it.
You always get synergies when you have a bigger book of business with your customers and when you're doing your AD spend so they'll definitely synergies with with the total investment being made across both brands that Parago Anda capstar.
But that 6 million won't be where it where it's at the last thing you.
It's about as you know how do we leverage out with R&D.
I think the company is one has a lot of ways that we're investing in R&D and having project brought to us all of which will benefit the total company in benefit the total brands as different things our product extensions product because enhancements improvements items that are you know at some point.
Come on pad that we'll look at being part of our strategy that fits in very well with our stated objective to have items that hit the bulls eye on providing affordable access to animal health products and so we're not under investing there you would actually it's another bucket, where we're investing time and money and have some great projects on the board, we're already working to enhance both the parago brands and.
And the caps our brand with improvements and brand extension. So maybe we'll be excited I talked about those those are something we're ready to talk about obviously, we don't like to disclose what R&D projects are for competitive reasons, but its a different buckets games.
Okay. Thank you very much and then there's a little bit a change in language from a above.
130, I mean to from a 130 to 170 I can you just talking about the beachy the ability of maybe a 170 number is it only just bringing in new retail partners or is there any other kind of ways to achieve sort of blowing out that that oneseventy number.
Yeah I think.
First and foremost Dave if you think the ramp that we've gone from as a company where you know we opened up three clinics and fourth quarter of 18 doping up 71 clinics in 2018.
Yeah, we're prudent and get a lock down you know you're very short period of time, but we'd use all understand from this last 18 months of opening clinics is.
That we have to balance all three major areas that support openings you know the construction and real estate parties actually become the easy as part of opening the clinics I'm, having the right balance in our human resource area for hiring both the veterinarians and attacks and making sure they're ready to go which we feel like we have a great handle on it back.
Cadence and what the rights spaces, there and then lastly, just operationally when you're talking about just the pet count that comes with that and amount of operational days that come with opening 130 locations, we're balancing the cadence and increasing that cadence across all three of those those operating areas.
We will maximize it every single year, but if you think about.
You know, taking your graph and just starting to draw the hockey stick out nine locations to 100 locations to 230 locations and continue to fall that hockey sight line up I think we're on the right trajectory still to get to the thousand that we've communicated to so.
Is it possible do 170. This year, we have enough deals can be done to do.
Well, we do 170 deals this year I will be somewhere above 113 somewhere below a 170 as we've looked at the balance of all three of those areas.
Thank you that's a great color and then finally, when we look at I don't know if you gave 'em organic growth them around veterinary clinics, but just making sure remodeling correctly.
Is there any color you can give on on the revenue impact was on on the Walmart closures I know they were shut down because they weren't necessarily good stores relative to all your rather.
Businesses, but just just out to make sure that we properly allocate that guatemalans. Thank you I'll take that offline.
[noise].
Yeah, Dave I don't know if I have got number in front of US I think the reality of it is is the Walmart locations that were close we're just getting ready to anniversary to be including in the store base I only be we had one or two months of their sales actually included in the base.
So the impact was very minor at the closing of those those locations and they were such underperforming stores. The volume was so.
A little so.
When you look at our our total year last year and being a little over $8 million and sales and being about the number of locations. We open up the back half of the year.
I don't know that it'd be measurable, but I'll definitely make sure that John follows up with U.S. So your models correct and can do give the same information to be others.
Perfect.
Thank you.
Our next question is from Bill Chappell with Suntrust Robinson Humphrey. Please proceed.
Hi, This is actually going on for building should do my question just had a quick one on the wellness center side and the rollout to this year and was kind of wondering on.
Obviously this past years have you been heavily weighted a for Q was wondering if that's going be a little bit more evenly distributed throughout this year and are there any limitations at retailers are you show reset windows or anything else that would maybe effect that arnie. Thank you.
Susan even again.
But let's say then.
You betcha.
First want to emphasize that we've built a pipeline of well over 130 wellness centers, but we feel good about executing on the hundred 30 across the second third and fourth quarter.
2020, where we land in each of those corners depends on.
Number of factors, including number when you know allergies permitting and really the appropriate timing for our retail partners as well too. So we will look the cadence outposts openings across the three quarters ever meeting in this year.
Got it thank you [laughter].
We have reached the end of our question and answer session I would like to turn the conference back over to kind of question same for closing remarks.
Thanks, everybody for joining us today and obviously, thank you told our employees and people that helped us achieve such an excellent year in 2019 in the.
Helped us kick off the started 2020 in such a strong way. We appreciate all of you that joined US. We appreciate her shareholders and all the mini pet parents out there that have held today Q continue to drive its mission. So thank you for join US today, we look forward to reporting our first quarter results very soon again and meeting with all of you. Thank you.
Thank you this concludes todays.
The conference you may disconnect your lines at this time and thank you for your participation.