Q3 2022 PetIQ Inc Earnings Call
Good day and welcome to the Pet IQ incorporated third quarter 2022 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Katie Turner of Investor Relations. Please go ahead.
Good afternoon. Thank you for joining us on pet Iqs third quarter 2022 earnings conference call and webcast.
On today's call are cord, Christensen, Chairman and Chief Executive Officer, and V Hoffman Chief Financial Officer 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.
Do you use that could differ materially from actual events or 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.
Any forward looking statements made today. Please note on today's call management, where our furniture and non-GAAP financial measures. While the company 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 GAAP. Please.
Refer to todays press release for reconciliation of non-GAAP financial measures and the most comparable measures prepared in accordance with GAAP. In addition, Pat Keyes posted a supplemental presentation on its website for reference and with that I'd like to turn the call over to cord question set.
Thank you Katie and good afternoon, everyone. We appreciate you joining us today to discuss our third quarter financial results.
I'll begin with an overview of our strategic business and financial highlights then we will review our financial results and outlook Finally, Zvi, Michael Smith, John Pearson and I will be available to answer your questions.
We are very pleased to deliver and exceed on our stated objectives for the third quarter net sales were approximately 210 million worth of high end of our guidance of $200 million to $210 million.
Gross margin increased 420 basis points, and we achieved adjusted EBITDA of $19 2 million ahead of our expectations of 16, five to $17 5 million.
Accordingly, we had a record cash generation quarter was $64 5 million in cash from operations generated in Q3.
Consumption of our higher margin manufactured brands fueled our results and we benefited from our strategic investments behind new products.
Parents returns to our core flea and tick and health and wellness product categories, and we benefited from consumers trading down from more expensive treatments.
Our paddock you manufactured brands.
And while the total flea and tick category was down year to date <unk> has captured a disproportionate amount of market share and we are positive far better than the total category.
Multiple consumer trends continue to support the long term growth of the pet industry and paddock use unique position in the market offering convenient and affordable veterinarian products and services has never been more valuable than needed.
Turning to our product segment in more detail.
Petacchi manufactured products outperformed the broader category in Q3.
We generated sales growth across five of our top seven manufactured product categories during the quarter.
When looking at our growth in all sales channels a few of the highlights from the quarter include.
Double digit growth from our four categories outside of flea and tick.
Pet supplements grew 41% compared to the third quarter last year, driven by the club channel dental treats were up 25% versus the prior year catch rates increased 19% year over year and do you Armours increased 11% from Q3 last year.
We continue to participate and be a leader in several of the largest growing categories within the pet industries, such as flea and tick solutions and health and wellness.
Our manufactured over the counter flea and tick results continue to outperform soft category conditions in Q3 for the 12 week period ended October eight 2022 consumption for our brands was up four 1% compared to the total category that was down four 3% when compared to the same period last year.
Shipments were down two 2% due to the inventory drawdown, we discussed would take place during the first six weeks of the quarter as retailers balanced their inventory levels from the slow start to the season.
It's above category growth led to 77 basis points of share gain driven by our outperformance within ecommerce, where we posted growth of 18, 8% and picked up a 122 basis points of share within the channel.
Our nuclear pick brand Nexstar continues to be a driver of our share growth.
Nexstar represented one 2% of the category for the same 12 week period.
The successful growth of Nexstar represents the largest brand launch into the over the counter flea and tick category over the past five years.
We are pleased with our ability to grow our flea and tick operating across all sales channels for the quarter E. Commerce continues to play an important role for us as consumers choose where and when they want to shop for their pet products.
Both our retail partner offerings online and our E Commerce partners and.
In Q3 over 42% of the over the counter flea and tick category sales were generated online and pet IQ, we have grown to generate a similar amount of our product segment sales. The E. Commerce. We expect this to represent an even larger percentage at year end. This means Nielsen data is often not a good representation of how our products business is performing.
Especially when you consider we also have a strong presence in the club channel, which like ecommerce is not measured by Nielsen.
Our manufactured over the counter health and wellness products also delivered great results Q3 are manufactured to health and wellness brands increased 12, 9% compared to Q3 last year.
We experienced strong consumption trends up 17, 3%, which fueled our results and we also outperformed the health and wellness category growth of nine 5% as compared to the prior year period.
This led to a 113 basis points of share growth for this portion of our portfolio.
For the third quarter, our manufactured brands outperformed the brands that we distribute.
In fact, Patrick you manufactured products represented 32, 3% of product sales in Q3. This is a record percentage contribution and compares to 31% in the year ago period. We also had nice sequential growth from the 28, 9% that we reported in the second quarter of this year.
We continue to have the largest over the counter animal health brand portfolio with over 1000 Skus.
<unk> market share in pet prescriptions and over the counter products sold to retail and online.
Now focusing on our services segment.
Our servicing segment reported seventh consecutive quarter of positive adjusted EBITDA since the onset of Covid on net revenues of $33 5 million an increase of 15, 6%.
This was in line with what we expected for the quarter and relatively consistent with our revenue contribution in Q2.
We opened six new wellness centers in the quarter and 16, new wellness centers year to date.
Our team remains prudent with our services growth near term given the continued challenging labor market, we expect our services growth rate year over year to be the lowest in Q4 as we expect to open four wellness centers and we are lapping certain price increases we took in the servicing segment during Q4 of last year, but a strong finish for the total year in both sales and EBITDA contribution.
We remain committed to the growth of our surgical business and John Pearson Senior Vice President head of services is making tremendous strides as we access the best way to generate value within the four walls of both new and existing wellness centers.
We look forward to providing you with more detail on our fourth quarter earnings call that said as we discussed on our earnings call. This year, we evaluate our use of capital and made adjustments to our wellness center openings as a result of the vet labor market and it would be more prudent and efficient with our capital.
I would now like to discuss a change we'll be making on how we report adjusted EBITDA. That's that beginning in the fourth quarter of 2022, we will no longer add back non same store adjustments in our calculation of adjusted EBITDA.
This is a straightforward change we think investors will appreciate and going forward, we expect EBITDA and adjusted EBITDA to be more closely aligned to one another.
We will report Q4, adjusted EBITDA without the non same store adjustments and when we provide our 2023 guidance it will reflect the new definition.
However, we will provide investors all the necessary information in Q4 to understand the delta between our new definition and how we would've reported under our current adjusted EBITDA definition.
We believe this calculation change will help better demonstrates the company's total performance. However, we do believe it's important to still track our new openings for the first 18 months to see how the base business is performing to understand how we could perform if we chose not to invest in new stores, which requires significant capital and operating losses for the first 18 months.
As a result, we will continue to report same store sales for our servicing segment on a go forward basis.
It is important to note that our leverage ratios and covenants as calculated under our credit agreements adjusts for the impact of new openings occur.
Accordingly, we will continue to provide the leverage calculations under the lender definition EBITDA as we report going forward given that it is an important measure of our ability to service our debt.
Finally, I would like to spend a moment on our 2022 outlook. We are reiterating our net sales outlook for the year and raising our adjusted EBITDA guidance, we will discuss the numbers in detail.
We only have about a month and a half left in the year, we are maintaining our net sales range to reflect the potential of retail or year end inventory variability as you know from time to time and especially at year end manufacturers can experienced shifts in timing of sales based on retail inventory levels and it's no different for us at pet IQ. So we want to maintain some flexibility should we experience at this.
Year in light of how fluid the operating environment has been.
From an adjusted EBITDA perspective, we are raising our outlook to reflect the strength of pedicures manufactured brands and the resulting flow through in the P&L from higher gross profit and margin expansion. It provides us.
In closing we are pleased with our third quarter results.
Our product and service teams continued to execute well on our mission and we believe <unk> remains well positioned for growth long term.
We expect <unk> to continue to benefit from favorable pet industry tail wins, including increasing household penetration for pets, the humanization of pets, and increasing pet population and more pet parents looking for convenient and affordable pet health and wellness.
I'd like to thank all of our dedicated employees for their hard work and contributions we couldnt provide the access to affordable pet health care without you and pet parents everywhere are grateful to with that overview I would like to now turn the call over to Zvi.
Thank you cord, we're pleased with our team's execution during the quarter and our ability to deliver strong results and our highest ever free cash flow generation quarter. We also remain pleased with improvements in key areas of our business as well as the share gains achieved across our product categories, which cord noted we.
We are continually evolving our business to provide pet parents with convenient and affordable pet care and wellness, where and when they want to shop now I'll go through certain key financials in more detail for the quarter and year to date period.
And of course focused on our top line results for the quarter in detail I will start my financial review with gross profit.
Third quarter 2022, gross profit increased 27% to $58 million, resulting in a gross margin of 24, 2% an increase of 420 basis points from the third quarter of last year.
Adjusted gross profit was $53 million and adjusted gross margin was 25, 8% for the third quarter of 2022, representing an improvement of 290 basis points year over year.
This margin expansion reflects favorable product mix, including the success of the Companys manufactured product portfolio such as the recently launched product Nexstar we.
We also continue to benefit from pricing and our service segment optimization.
SG&A expenses for the third quarter of 2022 were $46 million compared to $45 $3 million in the third quarter of the prior year.
Adjusted SG&A was $41 $3 million for the third quarter of 2022 compared to 39 million in the third quarter of last year.
As a percentage of net sales adjusted SG&A was 21, 9% an increase of 40 basis points compared to the prior year period, a significant driver of the higher SG&A was up $2 $1 million of marketing investments to support the growth of our manufactured brand product portfolio.
In the third quarter, we recorded a $47 $3 million non cash goodwill impairment charge, resulting in Q3 net loss of $49 6 million compared to a net loss of $8 $3 million last year.
The driver of the noncash goodwill impairment charge was a significant decline in the company's market capitalization, driven primarily by rising interest rates macroeconomic conditions and a decline in the financial markets.
While we have not seen a fundamental change in the economics of our service business and continue to be excited about its potential for growth. The accounting rules. Nevertheless require us to reflect and consider the decline in market capitalization and valuation of goodwill for our services business.
Accordingly, we performed a goodwill impairment test, resulting in the charge to be recognized for the quarter, we do not expect record any future noncash impairments.
Q3, EBITDA was $12 $8 million, an increase of 115, 8% compared to $5 $9 million in Q3 of last year adjusted.
Adjusted EBITDA of $19 $2 million exceeded our Q3 guidance for adjusted EBITDA of $16 five to $17 $5 million. We continue to believe this demonstrates the strength of our pet IQ manufactured brands.
Our team's focus on finding efficiencies across the business.
This resulted in third quarter 2022, adjusted EBIDTA margins of nine 2%.
<unk> of 140 basis points from seven 8% in Q3 of last year.
This was ahead of our expectations for the quarter.
Turning to our balance sheet and liquidity as of September 32022, the company generated $64 $5 million of.
Cash flows and ended the quarter with total cash and cash equivalents of $56 7 million.
We continue to expect 2022 to be the strongest cash generation here in the history of the company with $30 million to $40 million in free cash flow.
Our working capital as of September 32022 was $223 million, an increase of $22 $6 million from the same period last year.
Our working capital needs, primarily to fund inventory and accounts receivable, both of which can fluctuate based on the seasonality of our business retailer demand and the timing of new product launches.
The increase in working capital was primarily due to artificially low inventory levels last year as a result of industry supply chain challenges, we remain comfortable with our level of inventories.
Our long term debt, which is comprised of our term loan ABL convertible debt and capital leases was 4% to $54 6 million.
As of September 32022.
In addition to our cash on hand, the Companys revolving credit limit is undrawn and has $125 million of availability.
Other representing total liquidity, which we define as cash on hand, plus availability of $181 7 million as of September 32022.
Keep in mind that due to the flexible nature of our debt facilities. The company can expand availability by an additional $150 million if needed.
Our net leverage as of September 32022 was four two times, we expect to continue to reduce our leverage over the next few years, we expect net leverage to be under three times by the end of 2023 closer to our stated goal of two five times Levered.
The company repurchased 373000, and 408 shares of its class a common stock for a total of $3 $9 million under its new $30 million share purchase repurchase program announced on September six 2022, we will continue to evaluate the market conditions and potential for future share repurchases.
Under the existing authorization.
We continue to believe our available liquidity.
<unk> growth contribution from the product segment and improvement in the service segment positions the company to drive free cash flow and build cash in the quarters ahead, as well as opportunistically pay down our debt.
Now turning to our guidance cord already covered the reasons for the reiteration of our 2022 net sales outlook. So I will focus on the specific guidance ranges for the year.
2022, we expect net sales of 920 to $9 $40 million based on this guidance and solely for comparative purposes. We expect net sales to increase approximately 4% compared with 2021 based on the midpoint of the guidance and excluding the $36 $1 million of sales in the prior year relay.
Due to the loss distributions.
We increased our adjusted EBITDA guidance by $1 million from the guidance. We previously provided on August eight 2022.
We now expect adjusted EBITDA of $93 million to $95 million.
On this guidance and solely for comparative purposes, we expect adjusted EBITDA to increase approximately three 2% compared to 2021 based on the midpoint of the guidance and excluding $1 8 million of adjusted EBITDA in the prior year period related to the loss distribution.
That concludes my financial review.
On behalf of our management team I'd like to thank our dedicated employees for their hard work this quarter and over the last several months everyone has done a great job to adjust to the changes in the operating environment.
To help us achieve these financial results. We believe we have a strong team in place to provide results for all of our stakeholders, while continuing to deliver on our mission of smarter convenient and affordable option for pet parents without overview cord, Michael John and I are available for your questions operator.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Jon Andersen from William Blair. Please go ahead.
Good afternoon, everybody thanks for the questions.
On the.
Products business I wanted to start there for a minute if you could just tell us.
A little bit more about the manufactured.
Side of the business it sounds like it's been strong.
You don't what are you seeing there that's driving that that growth is it is it innovation that you've launched this year is it that the trade down that you referred to on the part of the consumer.
Some combination of both I just wanted to get my arms around.
What you think is driving that and how sustainable that is going forward. Thanks.
Thanks for the question John This is Kurt I'll take a quick stab at all Michael are filling a few details as well.
Look we've performed extremely well as we said across five of our categories and the growth is different.
And he's category, we have a couple of the categories, where new product innovation and launches has been has really driven some of the growth and we have other spots, where our value and affordability is driving the growth having said that we are doing well in that category were up and our manufactured brands we've expanded share in almost all the import.
And categories.
We'd want to be in but we also have not.
<unk> grown as much as we thought we were going to grow. So there is still a consumer overhang that we showed and feel like we're capable of even doing more and being even better than that.
So you are having some trade down in flea and tick down some value youre, having some things around those categories, but in general I would say our brands are positioned really well for what's going on in the economy and although we're up we're not up as much as we'd like to be and I don't know Michael anything else you want to add.
Yes, I would just add in addition to those components driving our grocers are meaningful.
Increase in distribution that we've been able to gain on some of our own items across the marketplace, but we would have identified going into the year as white space opportunities for us to broaden distribution with more retailers are have more retailers embrace more of our portfolio as a share of the shelf that they put in front of their customer base.
And a real driver for US in addition to everything that cord mentioned related to some of the trade down thats going on in flea and tick is definitely been favorable for how our portfolio is positioned in the marketplace.
Okay. That's helpful.
I know youre not guiding.
Guiding 2023 today, but I'm trying to kind of think through.
Uh huh.
What could happen or some of the puts and takes in products next year.
I think a lot of the innovation that you launch this year.
In the manufacturing side.
Maybe you didn't have a full year benefit of that in 2022.
She might have next year or you should have next year I am also wondering if theres some incremental distribution for some of those those items.
That could benefit you.
The higher marketing spend is also probably a tailwind so you know.
The category weakness this year for flea and tick Thats just eight.
Seasonal phenomenon, that's there's nothing kind of secular going on there is that accurate and then am I thinking right about some of the.
Potential underpinnings for your manufactured portfolio to continue to grow we're getting share in 2023.
Thanks, John I'll take the kind of category question I'll, let Michael talk about the.
Puts and takes in the comments you made about our new items, having full year and stuff but.
It's all of the categories running negative this year and where we're seeing the negative category, but we've also seen a lot of pressure and lack of performance at the very high end of the category, where the highest market share is held so a lot of that negative pressure is clearly tied to economic pressures and kind of macroeconomic stuff that's going on.
So when you isolate that and say yeah that secondly, obviously, we saw in second quarter, we had a slow start to the season due to bad weather, that's something that should reverse reverse itself.
Going into next year. So we view the category now is where we make our money is doing well and healthy.
While the total category in this macro environment, we still see pressure from me.
From those top and more expensive brands and they're not growing like they used to in this environment. So that's putting some pressure maybe the category negative but again, we believe people wanted take care of their pets there'll be in the category more pets are going to be in the market.
We're gonna be positioned well with what we do across all things to service those cuts.
Michael if you want to take the two.
<unk> 2022 to 2023 on the new stuff.
Yeah, Hey, John I'll, just add a little more color to that.
We think of our new initiatives in a way that plays out in 'twenty two and ended 2003, we did largely get a full year.
Of flow into the marketplace, especially when you think about how the season plays out from a seasonality.
Standpoint across the different months, so even though we wouldn't have shipped into the trade until late January early February we really didn't miss much of the season in terms of the way that that cadence flows.
With how demand flows I would say that there were a couple of retail partners I think we shared when we talked about the launch of Nexstar that did not take at year one.
The largest of those we feel really good about them taking it in year two but.
But I would highlight the fact that we have a lot of pipeline volume in our base from those initiatives that we will be anniversarying and yes, we will get and expect stronger year two of consumption than youre one of consumption on that brand, but how that flows through and shipments will.
We will not be as clean.
Based upon the way the pipeline levels work in the category.
Okay.
Yes, just one.
111.
Actually two quick ones.
So it's.
It's great that you've kind of had.
Got it.
Bumped the EBITDA guidance for the year by $1 million, but.
It looks like you beat by a couple of million dollars in Q3, so it's not kind of a flow through of the debt.
$2 million EBITDA beat in.
In Q3, you know, whether it's a partial flow through which kind of implies you know a little bit lower EBITDA in Q4 any thoughts on that.
Reason for that.
And then.
I just wanted to also talk a little bit about the cash generative aspects of the business this year.
Stronger obviously than you expected.
Elected into strong free cash flow generation in Q3, how that plays out in Q4 next year. Thank you.
Thanks, John do you want to take the cash generation first and I'll take that one off to them.
Sure and maybe I can.
Well look we had our strongest.
John I ask it again.
Sorry, asking again about the cash flow.
Planed in exactly the way you asked it.
Yes.
Just if you could just.
You had a very strong free cash flow quarter.
And how you expect that to you know could play out in Q4, and then on a full year basis.
<unk> and maybe you could add in there just kind of given that you've now you're looking to generate $30 million to $40 million of free cash. This year. What does it look like next year and what are your capital allocation priorities are debt reduction you did buy back a little bit of stock this quarter, but how are you going to allocate going forward. Thanks.
So firstly, we we don't have any change to our annual guidance of $30 million to $40 million of cash flow for the year.
But I think as investors saw our performance through the first couple of quarters. It implied a pretty big amount of cash flow generation in Q3, and Q4 and we're pleased to.
Announced that we had $65 million of that big.
Hole that we accomplished in Q3.
We ran negative $10 million cash flow through the first few quarters of the year. So in order to hit our 30% to 40 that means that we're going to have 40 to 50 in the last quarter and we feel confident with that.
Reiterating that.
As you think about the cash flow generation of the business next year, obviously, we're not going to give guidance yet.
But what youre seeing is a narrowing of the gap.
Between EBITDA and adjusted EBITDA and as cord mentioned.
We're gonna be changing the way we guide so it's too early to give you a new outlook for next year.
The tailwind for the tailwind for cash flow for next year.
Less of these non-GAAP add backs the slowing pace.
Of the <unk>.
Expansion.
<unk> has a positive impact on cash flow and we're going to continue to be judicious in opening new wellness centers and opened them when the veterinary labor market permits.
So no change there in terms of uses of cash.
First and foremost we're going to reinvest in the business.
And that means that we will reinvest new wellness centers when the labor market permits that's the first order of magnitude.
Secondly, pay down debt third.
We will consider.
We announced a share buyback and we bought some shares in Q and Q3.
We continue to monitor market conditions and.
And that's going to certainly be one of the areas of allocation of cash flow.
And then fourth we've done prior to me joining the company has done a fantastic job on acquisitions that have had strategic synergies as well as.
Great financial synergies.
We have been a very disciplined acquirer, we don't have any intention of changing that discipline, but if there are good acquisitions that we think fit in well strategically and meet our financial criteria, we will look at that.
And then maybe lastly, John you did asking that last question about advertising.
Not prepared now to.
Discuss what the level of advertising investment will be for next year.
It is possible that we will not get any step up in EBITDA, we will make those allocation decisions based on ROI for next year, but I wouldn't just assume that we're going to invest less next year.
The first couple of years, when you launch new products tend to be more important than ever.
Can you get to a steady run rate so hopefully I answered all your questions.
I think last John you asked about our guidance change in raising the adjusted EBIDTA and Youre right. We did have a stronger beat in this quarter than we anticipated and it was great to see it happen for the company as we saw kind of a reverse in some of the things that we're putting pressure in second quarter.
We do have.
A lot of visibility about whats happening in this quarter and other than you know retailer inventories at year end and feel very good about how the company's performing in the quarter.
Said that we've given a range it gives us the ability to be at the top end of the range and even go out the top end of the range. If some if we perform to our full capabilities and we think it's important to still be conservative as we guide the business, but for greater worry about delivery this quarter for great about where we are trending for full year, and we think we're positioned extremely well to be.
To finish the year strong and come in like we came in this quarter. So I think I'd just leave it at that.
The next question comes from <unk> Parekh from Oppenheimer. Please go ahead.
Good afternoon, and thanks for taking my question. So I guess just going back to the inventory commentary earlier. Your inventory was up I think you know more than 30% year over year as we look out for the balance of your or do you expect improvement on that growth rate or is this the right level to think about for the base.
No I think our repurchase.
Todd.
Did you want to talk.
Sure acquired with actually no I got it okay.
<unk> commented before we had a major supplier with.
With the comparable number youre using that was going through a ERP conversion and even a factory conversion and so during that time period inventory was drawn down very significantly.
And so we do believe there was a significant amount of the inventory for comparable purposes that was just arbitrarily lower than it should have been and so I think we feel very good that we're operating at inventory that is acceptable for a run rate we are pretty consistent throughout this year, where we were and there was a little bit higher than we thought because of obviously performance and flea and tick but.
We do see the inventory, you're getting better by year end, but not significantly better when compared to last year for what we just described and then did you have anything else you'd like to add go ahead.
Yeah, I think as you look at the year over year comparisons for a lot of last year. We ran lowest cord mentioned, so I think if you looked at it and you were just trying to normalize inventory for where it should have been at the end of last year inventories should've been say $40 million higher.
Running the number of weeks on hand that we typically target with our distribution partners and assembled with some of our internal inventory. So it just bridging year over year versus let's.
Let's say your ear and you add $40 million and then of course, you've got increases in the prices of the <unk>.
Distributed products that we distribute on the things that we buy that go into inventory. So that's probably worth another seven or $8 million. So I think if you were going to do an apples and apples comparison Q4 of last year versus Q3 of this year you would adjust Q4 up by say $48 million tied to do the same for Q3.
And I don't remember what it looks like for Q2, So I think that's the way to think about it.
We continue to run our inventory.
Lean so that we can meet our customer sat.
Despite customer.
Delivery expectations.
And as quarters mentioned repeatedly in previous calls we have very very little in the way of inventory obsolescence. Because these products that we have had a long expiration dates. So historically, there's been it's been extremely immaterial for us to have obsolescence and on top of that we do have a right of return.
The rate of return.
For much of our inventory as well.
Okay, great. So I guess as we think about next year I mean, if you hit the 30 to 40 million free cash flow target. This year. Then you know next year that could be a nice benefit as you wont really have this big working capital drag that's weighing on your cash generation this year.
Well I think by the end of this year.
There's a lot of timing involved in terms of whether you bring it in in November or end of December . So I don't think we're ready to give.
Cash flow targets for next year.
We would say that obviously the tail winds are.
Lower.
Some of the lower investments that we think are going to continue in terms of capex for opening new wellness centers the headwind is higher interest rate.
Other tailwind as we have this $5 $5 million of.
Legal nonrecurring expense, we're not going to have that next year. So I think there's some puts and takes them. We'll obviously provide you.
Some detailed guidance when we report Q4.
Great. Thank you I'll pass it along.
Again, if you have a question. Please press Star then one.
Our next question comes from.
Wilbur from Raymond James Please go ahead.
Okay.
Hey, guys. This is actually Michael corollary on for Elliot I'm, just a quick one from me and you guys motive already mentioned it but maybe I missed it if you would.
Could just talk about with the the move in interest rates, where you expect interest expense to be in Q4, and then we expect the trend in 2023 that'd be great. Thank you.
Yeah, well rather than give you an interest expense.
<unk> forecast, while I can give you one that's rock. It's every every point and interest expense increased cost us about $1 million I'm, sorry, $3 million a year.
That's the math.
So.
If you looked at Q3 versus Q4.
You'd annualize that or on annualized Luisa does in terms of the term loan is.
As variable, it's just $300 million and that's how I'd think about it.
It's.
It's four four and a quarter points plus 4%.
The fourth floor of the library.
Got it that's helpful. That's all I had thank you.
Again, if you have a question. Please press Star then one.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to cord Christensen for any closing remarks.
No I just would like to start by thanking all of you for joining today and obviously thanking all of our employees.
All the hard work that got done to deliver a strong quarter and set us up to finish on a strong year and put us in a great shape to go into a great 2023. So we look forward to speaking with all of you that need to see cause us and talking more and more detail about how the company is doing but we feel very good about the company is currently performing and where we're headed so thank you for your time.
Yeah.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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Yeah.
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