Q3 2023 PetIQ Inc Earnings Call
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The call will begin temporarily.
Speaker 1: The that.
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Speaker 1: Re.
Speaker 2: Good day and welcome to the PET-IQ, Inc. 3rd Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two.
Good day and welcome to the Pet IQ, Inc. Third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will.
Be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.
Speaker 2: Please note, this event is being recorded. I would now like to turn the conference over to Katie Turner, Investor Relations. Please go ahead.
Please note. This event is being recorded I would now like to turn the conference over to Katie Turner Investor Relations. Please go ahead.
Speaker 3: Good afternoon. Thank you for joining us on PetIQ's third quarter 2023 earnings conference call and webcast.
Good afternoon. Thank you for joining us on <unk> third quarter 2023 earnings conference call and webcast.
Speaker 3: For today's prepared remarks, we will hear from Cord Christensen, Chairman and Chief Executive Officer, and Steve Glasson, 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 Law. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements.
They prepared remarks, you'll hear from cord question thing.
Kevin and Chief Executive Officer, and Chief Financial Officer.
Before we begin please remember that during the course of this call management may make forward looking statements.
Federal Securities Law.
And then are based on management's current estimates.
Emily and involve risks and uncertainties that could differ materially from actual events or it does describe any forward looking statements.
Speaker 3: please refer to the company's annual report on Form 10-K and other reports filed from time to time with the Securities and 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.
Please refer to the company's annual report I Form 10-K, and I don't know if I file from time to time with the Securities Exchange Commission I would tell him. He's personally I see today for a detailed discussion of the risks that could cause actual results could differ materially from those expressed or implied in any forward looking statements made today.
Speaker 3: Please note on today's call, management will refer to certain non-GAAP financial measures. While the company believes these non-GAAP financial measures will provide useful information for an investor, 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 note on today's call management will refer to certain non-GAAP financial measure 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.
Speaker 3: Please refer to today's release for reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. In addition, PEDICUBE posted a supplemental presentation on its website for reference. And with that, I'd like to turn the call over to
Please refer to today's release.
Reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.
Have I seen such a supplemental presentation I forgot to thank for that.
And with that I'd like to turn the call over corn, Washington.
Speaker 4: Thank you, Katie, and good afternoon, everyone. We appreciate you joining us today to discuss our record third quarter financial results.
Thank you Katie and good afternoon, everyone. We appreciate you joining yesterday, there was perhaps a record third quarter financial results.
Speaker 4: I'll begin with an overview of key highlights, then Zee will review our financial results for the quarter and outlook. Finally, Zee, Michael, John , and I will be available to answer your questions.
I'll begin with an overview of key highlights Lindsay I'll review, our financial results for the quarter and outlook.
The Michael John and I will be available to answer your questions.
Speaker 4: For the third quarter, our financial results exceeded our expectations yet again. Our products and services team have been diligent and strategic in their execution of our initiatives to fuel top-line growth, invest in areas of our business where we are seeing favorable returns, and make decisions to improve our operations.
For the third quarter financial results exceeded our expectations yet again.
Our products and services team had been diligent and strategic execution of our initiatives to fuel top line growth.
That's in areas of our business, where we are seeing favorable returns and make decisions to improve our operations.
Speaker 4: I'd like to thank everyone for their hard work and dedication in helping us to achieve record net sales and adjusted even off.
I'd like to thank everyone for their hard work and dedication in helping us to achieve record net sales and adjusted EBITDA.
Speaker 4: And as a result of our better-than-expected Q3 and year-to-date results, we are pleased to be able to raise our full year 2023 outlook.
As a result of our better than expected Q3 and year to date.
Results, we are pleased to be able to raise our full year 2023 outlook.
Speaker 4: A few key highlights from the third quarter include, we reported net sales of $277 million, an increase of approximately 32%.
A few key highlights from the third quarter include we reported net sales of $277 million, an increase of approximately 32%.
Speaker 4: The net sales result was above our third quarter outlook of $220 million to $240 million. We had strong, broad-based growth across our business with a 200 basis points of gross margin expansion and improved leverage of our SG&A expenses, even with the significant increase in investments in advertising and promotional spend to support the growth of our manufactured product portfolio.
Net sales result was above our third quarter outlook of 220 million to 240 million, we had strong broad based growth across our business with a 200 basis points of gross margin expansion and improved leverage of our SG&A expenses.
Even with the significant increase in investment in advertising and promotional spend to support the growth of our manufactured product portfolio.
Speaker 4: This helps us achieve a record Q3 adjusted EVADOB $29.3 million, an 80% increase from Q3 last year, and ahead of our guidance for Q3 of adjusted EVADOB $18 to $20 million.
This helped us achieve a record Q3, adjusted EBITDA was $29 3 million, an 80% increase from Q3 last year and ahead of our guidance for Q3 of adjusted EBITDA of $18 million to $20 million.
Speaker 4: Our higher earnings and improved working capital helped us achieve third quarter record cash from operations and we reduced the company's net leverage to 2.8 times as of September 30, 2023.
Our higher earnings and improved working capital helped us achieve third quarter record cash from operations and we reduced the company's net leverage to two eight times.
At September 30th 2023.
Speaker 4: Moving to our product segment in more detail, the product segment contributed net sales of $239.7 million, an increase of 36% compared to the prior year period.
Turning to our product segment in more detail.
<unk> segment contributed net sales of $239 7 million, an increase of 36% compared to the prior year period.
Speaker 4: The growth in Q3 of this year was broad-based across product categories. Net sales for products, brands outperformed our growth expectations for the third quarter of 2023 as compared to the prior year period with an increase of 41.7%, including the acquisition of Rocco and Roxy, or an increase of 27% on an organic basis.
Growth in Q3 of this year was broad based across product categories net.
Net sales for products brands outperformed our growth expectations.
Third quarter of 23 as compared to the prior year period with an increase of 41, 7%, including the acquisition of Rockland ROTC or an increase of 27% on an.
Organic basis.
Much of this growth was fueled by continued exceptional season in the over the counter flea and tick category.
Speaker 4: When you look at all sales channels combined, we had one of the strongest seasons in the last 10 years for the over-the-counter fleet intake category.
When you look at all sales channels combined.
One of the strongest season in the last 10 years for the over the counter flea and tick category.
Speaker 4: Pet parents are increasingly providing protection for their pets, and stable weather also helps shield the category this year.
Pet parents are increasingly providing protection for their pets.
Favorable weather also helped fuel the category this year.
Speaker 4: In the third quarter of 2023, the flea and tick category grew 7.1% and PediQ's brand increased 15.2%. In Q3 of this year, nearly 50% of the over-the-counter flea and tick category sales were generated online.
In the third quarter of FY2023 to.
Category grew seven 1% in Paris These brands increased 15.2%.
Q3 of this year nearly 50% of the over the counter flea and tick category sales are generated online.
Speaker 4: At retail, Pedicure's flea and tick brands outperformed across seven of the top eight retailers driven by PetArmor and Capstar brands. Pedicure's portfolio of brands continue to capture a disproportionate amount of this online growth and dramatically outperform the broader category.
At retail correctly, flea and tick brands outperformed across seven of the top elite sellers, driven by pet armor and cap sovereign.
Portfolio of brands continue to capture a disproportionate amount of this online growth and dramatically outperformed the broader category.
Speaker 4: as evidenced by our market share results. For the 12 weeks ended September 30th, 2023, PetIQ manufactured brands captured 17.7% of the category dollars, which is an increase of 124 basis points versus the prior year period.
As evidenced by our market share results for the 12 weeks ended September 30th 2023, and ICU manufactured brands captured 17, 7% of the category dollars, which is an increase of 124 basis points versus the prior year period.
Speaker 4: On a unit basis, we gained an even greater amount of the share, up 192 basis points for the quarter.
On a unit basis, we gained an even greater amount of a share up 192 basis points for the quarter.
Speaker 4: The pet supplement category also maintained its growth trajectory in the quarter, gaining 16.5% over the prior year period. This fast-growing category has now more than doubled over the last four years and has surpassed the OTC flea and tick business as the largest category we compete in within our manufacturing portfolio.
Pet supplement category also maintained its growth trajectory in the quarter, gaining 65% over the prior year period. This fast growing category have now more than doubled over the last four years and it surpassed the OTC flea and tick.
The largest category we compete in the general manufacturing portfolio.
Speaker 4: Our pet supplement products continue to see accelerated consumption growth in the third quarter of 2023. Our product portfolio grew 22.1% compared to the prior year period.
Our pet supplement products contingency accelerated consumption growth in the third quarter of 2023, our product portfolio grew 22, 1% compared to the prior year period.
Speaker 4: Strong household penetration trends, along with expanded need states in the pet supplement category, give us confidence that these double-digit growth rates should continue for many years to come, and Pet IQ is positioned very well to continue to gain share in this important category. In addition, our pet dental and treat offerings outperformed in Q3, and Mincey's and Pure LaBran's both grew at two times the category, leading to meaningful share gains.
Strong household penetration trends, along with expanded need states in the pet supplement categories give us confidence that the double digit growth rate should continue for many years the problem.
Q is positioned very well to continue to gain share in this important category.
In addition, our <unk>.
That dental and treat offerings outperformed in Q3.
<unk> Imperial brands, both through at two times, the category leading to meaningful share gains.
Speaker 4: The Nymphies brand grew 36% and gained 54 basis points of share. The Pure Love Treat brand posted strong category growth of 136%.
We maintain brand grew 36% against 54 basis points of share the pure luxury brand posted strong category growth of 136%.
Speaker 4: The newest brand in our product portfolio, Rocca & Roxy, grew 10.1% for the third quarter of 2023, ahead of our projections.
And these brands and our product portfolio rock on rock. So you grew 10, 1% for the third quarter of 2023 ahead of our projections.
Speaker 4: Remember, we exited several non-core Rothwell and Roxy options in the first half of 2023 that we determined were not a strategic fit for us. And yet our team has executed well, and we are very pleased to have grown the base business better than expected for 2, 3, and year to date.
Remember, we exited several noncore Rockland Roxy offerings in the first half of 2023. So we determined were not a strategic fit for us.
Our team is executing well.
And we are very pleased to have grown the base business better than expected.
Q3 and year to date.
Speaker 4: Our core Rockland Roxie products are focused on the premium pet stain and odor category and pet parents continue to look to Rockland Roxie for their stain and odor needs in Q3.
Our core Rockland ROTC products are focused on the premium pet stain and odor category.
Pet parents continue to want to walk on Rockies farther stain and odor need in Q3.
Speaker 4: We believe the Rocco and Roxy brand can extend its growth in other premium tech categories like supplements and treats.
We believe the Rocco Rocky brand can extend it growth in other premium tech categories like supplements entries.
Speaker 4: We are very encouraged with the brand's initial success in these product categories and are excited about the potential for Rocco & Roxy to increase distribution of both its core and new premium pet offerings as we increase advertising and promotional investments to build brand awareness and consumption over the next several years.
We are very encouraged with the brands initial success of these product categories.
Cited about the potential for Rockwell ROTC to increase distribution of both its core and new premium pet offerings as.
As we increased advertising and promotional investments to build brand awareness and consumption over the next several years.
Speaker 4: Across our pedicure brands, we continue to see a great return on our enhanced advertising and promotional efforts in the third quarter of 2023, as evidenced by our growth.
Across our parakeet brands, we continue to see a great return on our enhanced advertising and promotional efforts in the third quarter of 2023.
By our growth.
Speaker 4: Z, we'll get more detail around our incremental span in Q3 and expectations for Q4 as we continue to lean into prioritizing investments and initiatives that we expect to support the long-term success of our brands. We look forward to driving outpaced growth from these efforts into 2024 and beyond.
We will give more detail around our internal staring in Q3 and expectations for Q4, as we continue to lean into prioritizing investments and initiatives that we expect to support the long term success of our brands.
We look forward to driving outpaced growth from these efforts in the 'twenty 'twenty four and beyond.
Speaker 4: Now focusing on the services segment, our services segment reported third quarter 2023 net revenue of $37.4 million, an increase of approximately 12% as compared to the prior year period, the segment gross profit dollars and margin showing solid improvement from our operational initiatives.
Now focusing on the servicing segment, our servicing segment reported third quarter 2023, net revenue of $37 4 million.
An increase of approximately 12% as compared to the prior year period with segment gross profit dollars and margin showing solid improvement from our operational initiatives.
Speaker 4: We are continuing to test and learn from the six wellness centers that we converted to focus on hygiene. Our initial take remains positive. We are generating incremental traffic and enabling improved cost controls by matching veteran labor with demand.
We are continuing to test and learn from the fixed wellness centers that we converted to your focus on hygiene.
Our initial take her name is causing your Jerry Inconel pet traffic and enabling food cost controls by matching bedroom later with demand.
Speaker 4: We are also excited to have collaborated with Walmart, an existing partner on a new pilot wellness center that offers a variety of pet services, including veterinary care, grooming and hygiene care.
We are also excited to have collaborated Walmart and existing partner on a new pilot Wellness center that offers a variety of pest services, including veterinary care.
Rooney and hygiene care.
Speaker 4: Both Pet IQ and Walmart are committed to offering affordable and accessible pet products and services. With the opening of this location in late September , we are pleased to offer pet parents more ways to save money on their evolving pet health and wellness needs.
Both products in Walmart are committed to offering affordable and accessible pet products and services with the hope at this location in late September.
He's off of pet parents more ways to save money on their evolving pet health and wellness needs.
Speaker 4: We will continue to test and learn together and are pleased with the initial response thus far from TEP parents. We are optimistic about the opportunity and the additional locations.
<unk> past and learn together and are pleased with the initial response, thus far from pet parents, we are optimistic about the opportunity and the additional locations.
Speaker 4: As we announced in today's earnings release, late in the third quarter, we initiated a service segment optimization to close 149 wellness centers in an effort to improve future profitability.
As we announced in today's earnings release late in the third quarter, we initiated a services pregnant optimization to close 149 wellness centers in an effort to improve future profitability.
Speaker 4: We expect to generate a cost of 6.3 of net cost savings over the next 12 months, all of which we anticipate reinvesting into our future growth, focusing primarily on the growth of our mobile community clinics and sales and marketing initiatives for our manufacturer brands.
We expect to generate approximately $6 three of net cost savings over the next 12 months all of which we anticipate reinvesting into our future growth focusing primarily on the growth of our mobile community clinics and sales and marketing initiatives for our manufactured brands.
Speaker 4: Our team came to a strategic decision after the financial and operational assessment of Wellness Centers since reopening after the pandemic, as well as the assessment of the veterinarian labor market in each geographic market.
Our team came to a strategic decision after the financial and operational assessment of wellness centers since reopening after the pandemic as well as the assessment for the veterinarian labor market in each geographic market.
Speaker 4: We also evaluated our ability to potentially convert these locations to a more hygiene-focused offering and determined that we would not be able to convert these locations in the future based on available square footage.
We also evaluated our ability that potentially can break these locations from more hygiene focused offering and determined that we would not be able to convert these locations in the future.
Don't have annual square footage.
Speaker 4: In Q3, we closed 45 centers and expect to close the remaining Q4 to end the year with 133 wellness centers.
In Q3, we closed 45 centers.
To close our main in Q4 to end the year with a 133 wellness centers you.
Do you believe this is the right decision for our total business I look forward to better align our future expenditures.
The areas of our business, where we experienced the highest returns.
Speaker 4: In closing, we appreciate the hard work and dedication of our employees in our manufacturing and distribution facilities as well as our corporate office for the commitment to our mission and core values in helping us to achieve record results to date in 2023.
In closing, we appreciate the hard work and dedication of our employees in our manufacturing and distribution facilities as well as our corporate office for their commitment to our mission and core values and helping us to achieve record results to date in 2023.
Speaker 4: We believe we have an incredible team that continues to execute a high level to help us end the year strong and position us well for continuous success in 2024 and well into the future.
We have an incredible team that continues to execute a high level to help us to end the year strong and position us well for continued success in 'twenty, 'twenty, four and well into the future.
Speaker 4: With that overview, I'd like to turn the call over to Zeke.
With that overview I'd like to turn the call over because we.
Speaker 5: Thank you Cord. Our teams across all areas of our business has executed extremely well to fuel our growth and net sales, expand gross margins, and leverage both our fixed and variable expenses to achieve better than expected profit results for the third quarter.
Thank you Cort our teams across all areas of our business has executed extremely well.
Gross and net sales expand gross margins and leverage both our fixed and variable expenses.
Better than expected profit results for the third quarter.
Speaker 5: These results have driven our ability to raise our 23 out.
These results have driven our ability to raise our 'twenty three outlook.
Speaker 5: At the same time, we've made important strategic decisions to help us to increase operating efficiencies and focus our spending on the areas of our business where we are seeing favorable returns.
At the same time, we've made important strategic decisions to help us to increase operating efficiency and focus our spending on the areas of our business, where we are seeing favorable returns.
Speaker 5: We believe these efforts will position us well for continued success, increased profitability and cash generation for 2024 and beyond.
We believe these efforts will position us well for continued success increased profitability and cash generation for 2024 and beyond.
Speaker 5: Now shifting to our quarterly financials in more detail and our outlet for the year ending December 31st, 2023.
Now shifting to our quarterly financials in more detail and our outlook for the year ended December 31 2023.
Speaker 5: We reported record Q3 net sales of $277 million, an increase of approximately 32% compared to Q3 last year, driven by an increase in sales from both the products and services segment, as well as the addition of Rocko and Roxy.
We reported record Q3, net sales of $277 million, an increase of approximately 32% compared to Q3 last year driven by an increase in sales from both the products and services segment as well as the addition of Rocco and Roxy.
Speaker 5: As Cord mentioned, we had strong broad-based growth across sales channels and product categories.
As cord mentioned, we had strong broad based growth across sales channels and product categories.
Speaker 5: Third quarter 2023 gross profit dollars increased 43% to $72.6 million, while our gross margin expanded 200 basis points to 26.2% from Q3 of last year.
Third quarter 2023, gross profit dollars increased 43% to $72.6 million, while our gross margin expanded 200 basis points to 26.2% from Q3 of last year.
Speaker 5: We benefited from operating leverage on the higher net sales, increased manufacturing efficiencies, as well as a favorable shift in product mix as compared to the prior year period.
Benefited from operating leverage on the higher net sales increased manufacturing efficiencies.
As well as a favorable shift in product mix as compared to the prior year period.
Speaker 5: Our services segment also had a solid gross profit improvement from higher sales and increased operating efficiencies as compared to the third quarter of 2022.
Our services segment also had a solid gross profit improvement from higher sales and increased operating efficiencies.
As compared to the third quarter of 2022.
Speaker 5: SG&A expenses for the third quarter of 23 were $55 million compared to $46 million in the prior year period.
SG&A expenses for the third quarter of 23 or $55 million compared to $46 million in the prior year period.
Speaker 5: SG&A, as a percentage of net sales, decreased 210 basis points to 19.9%.
G&A as a percentage of net sales decreased 210 basis points to 19, 9%.
Speaker 5: Q3 adjusted SG&A was $51.9 million compared to $42.5 million in Q3 last year.
Q3, adjusted SG&A was $51.9 million compared to $42 $5 million in Q3 last year.
Speaker 5: As a percentage of net sales, adjusted SG&A was 18.7%, a decrease of 150 basis points compared to the prior year period.
As a percentage of net sales adjusted SG&A was 18, 7% a decrease of 150 basis points compared to the prior year period.
Speaker 5: The leverage in SG&A and adjusted SG&A was primarily due to continued leverage of costs and increased business expense efficiencies relative to growth in net sales.
The leverage in SG&A adjusted SG&A was primarily due to continued leverage of costs and increased business expense efficiencies relative to the gross and net sales.
Speaker 5: It's worth noting that we continue to leverage SG&A in the quarter while also growing our A&P investments to support the long-term health of our manufactured brand portfolio.
It's worth noting that we continued to leverage SG&A in the quarter, while also growing our A&P investments to support the long term health of our manufactured brand portfolio.
Speaker 5: We recorded a restructuring and related expenses of $8.5 million through the third quarter of 2023 related to the services segment optimization.
We recorded restructuring and related expenses of $8 $5 million from the third quarter of 2023 related to the services segment optimization.
Speaker 5: We expect additional restructuring and related expenses of $6.1 million in the fourth quarter of 2023, resulting in a total of $14.6 million for the full year of 2023.
We expect additional restructuring and related expenses of $6 $1 million in the fourth quarter of 2023, resulting in a total of $14.6 million for the full year of 2023.
Speaker 5: Importantly, $11.3 million of the total projected restructuring charges are non-cash-in-nature related to depreciation and amortization of $11 million and inventory reserves of $0.3 million.
Importantly, $11.3 million of the total projected restructuring charges are noncash in nature related to depreciation and amortization of $11 million and inventory reserves of point $3 million.
Speaker 5: Accordingly, total cash restructuring costs recorded in the P&L are expected to be $3.3 million, and we expect to incur cash costs of $3 million to settle lease obligations, which will not result in an additional charge to our P&L, as the liabilities are currently reflected in the company's balance sheet, bringing total projected cash expenditures related to the optimization to $6.3 million, most of which we expect to pay in the.
Accordingly, total cash restructuring cost recorded in the P&L are expected to be $3.3 million, how do we expect to incur a cash cost of $3 million to settle lease obligations, which will not result in an additional charge to our P&L as the liabilities are currently reflected in the company's balance sheet, bringing total.
Projected cash expenditures related to the optimization to $6.3 million.
Most of which we expect to pay in the fourth quarter.
Speaker 5: We expect to recoup our approximate $6.3 million of cash costs related to the optimization in approximately 12 months.
We expect to recoup our approximate $6.3 million of cash costs related to the optimization and approximately 12 months as we expected EBITDA losses from the centers. We are closing are projected to be approximately $6 million for 2024.
Speaker 5: as the expected EBITDA losses from the centers we are closing are projected to be approximately $6 million for 2020.
Speaker 5: From a process perspective, we've reported Q3 net income of $0.5 million, or EPS of $0.02, inclusive of the restructuring and related charges I mentioned.
From a profit perspective, we reported Q3 net income of point $5 million or EPS of two cents inclusive of the restructuring and related charges I mentioned.
Speaker 5: Adjusted net income for the third quarter of 23 was $12.6 million, an increase of $11.8 million from Q3 of last year, and adjusted EPS was 42 cents for the third quarter of 2023.
Adjusted net income for the third quarter of 23 was $12 $6 million, an increase of $11 $8 million from Q3 of last year and adjusted EPS was <unk> 42 cents for the third quarter of 2023.
Speaker 5: Tier 3 EBITDA was $24.7 million, an increase of 93.2% compared to $12.8 million in the prior year period.
Q3, EBITDA was $24 $7 million, an increase of 93, 2% compared to $12 $8 million in the prior year period.
Speaker 5: We reported record third quarter adjusted EBITDA of $29.3 million, an increase of 80% compared to $16.3 million in Q3 last year, representing an adjusted EBITDA margin of 10.6%, an increase of 280 basis points compared to Q3 of 2022.
We reported record third quarter, adjusted EBITDA of $29 $3 million, an increase of 80%.
Paired with $16 $3 million in Q3 last year, representing an adjusted EBITDA margin of 10, 6% an increase of 280 basis points compared to Q3 of 2022.
Speaker 5: Turning to our balance sheet and liquidity for the third quarter, and in September 30th, 2023, the company had total cash and cash equivalents of $124.6 million.
Turning to our balance sheet and liquidity for the third quarter ended September 32023, the company had total cash and cash equivalents of $124 6 million.
Speaker 5: The company generated $50.1 million of cash from operations for the third quarter of 2023.
The company generated $51 million of cash from operations for the third quarter of 2023.
Speaker 5: This was driven by increased cash earnings as well as $30.2 million from working capital benefits.
This was driven by increased cash earnings as well as $32 million from working capital benefits.
Speaker 5: And on a year-to-date basis, we generated the highest cash from operations in the company history of $64.5 million.
And on a year to date basis, we generated the highest cash from operations in the company history of $64 $5 million.
Speaker 5: We expect to generate annual free cash flow at or above the top end of our $30 to $40 million range for 2023. Despite the approximate $6.3 million of cash expenditures, we expect to incur related to our services segment optimization.
We expect to generate annual free cash flow at or above the top end of our $30 million to $40 million range for 2023.
Despite the approximate $6 $3 million of cash expenditures, we expect to incur related to our services segment optimization.
Speaker 5: The company's total debt, which is comprised of its term loan, ABL, convertible debt, and capital leases was $447.9 million as of September 30th, 2023.
The company's total debt, which is comprised of its term loan a b L convertible debt and capital leases was $447 $9 million as of September 32023.
Speaker 5: In addition to our cash on hand, the company's $125 million ABL is undrawn.
In addition to our cash on hand, the Companys $125 million ABL is undrawn.
Speaker 5: Total liquidity, which we define as cash on hand plus debt availability was $249.6 million as of September 30th, 2023.
Total liquidity, which we define as cash on hand, plus debt availability was $249 $6 million as of September 32023.
Speaker 5: While we have no intention of making additional borrowings, we would note that our liquidity is ample and our credit facilities are flexible.
While we have no intention of making additional borrowings we would note that our liquidity is ample and our credit facilities are flexible.
Speaker 5: Our net leverage is calculated under terms of our credit facilities at the end of the third quarter of 2023 was 2.8, down from 4.3 in the prior year period, driven by higher earnings and improved working capital.
Our net leverage as calculated under the terms of our credit facilities at the end of the third quarter of 2023 was 2.8 down from four three in the prior year period, driven by higher earnings and improved working capital.
Speaker 5: Keep in mind, our net leverage will kick up a bit in Q4 of 2023 due to some expected changes in working capital, primarily potential timing of the increased inventory to position us well to start 2024. Now...
Keep in mind, our net leverage will tick up a bit in Q4 of 2023 due to some expected changes in working capital primarily potential timing of the increased inventory to position us well to start 2024.
Now turning to our guidance.
Speaker 5: For the year ending December 31st, 2023, we are raising our outlook inclusive of the services segment optimization that we announced today and the core discussed earlier in our remarks.
For the year ending December 31, 2023, we are raising our outlook inclusive of the services segment optimization that we announced today and our core discussed earlier in our remarks.
Speaker 5: Note, I will reference the midpoint of the guidance ranges when discussing percentages, increases in net sales and adjusted EBITDA as compared to the prior year. This is consistent with what is presented in today's press release and earnings presentation.
No I will reference the midpoint of the guidance ranges when discussing percentages increases in net sales and adjusted EBITDA as compared to the prior year. This is consistent with what was presented in today's press release and earnings presentation. We now expect net she has a billion 62 1 billion 80, an increase of approximately 16%.
Speaker 5: We now expect net sales of $1.6 billion to $1.8 billion, an increase of approximately 16% as compared to 2022.
Compared to 2022.
Speaker 5: For adjusted EBITDA, we increased the range to $99 to $103 million, representing an increase of approximately 30% as compared to 2020.
For adjusted EBITDA, we increased the range to <unk> $99 million to $103 million, representing an increase of approximately 30% as compared to 2022.
Speaker 5: We've had an excellent year so far with record results. And we expect to end the year positioned extremely well for a great 2024.
We got an excellent yourself far with record results and we expect to end the year positioned extremely well for a great 2024.
Speaker 5: Obviously, when you do the math on the implied net sales and adjusted EBITDA for Q4 of 23, it looks flat compared to Q4 of last year, and it reflects a few straightforward items.
Obviously, when you do the math on the implied net sales and adjusted EBITDA for Q4, 'twenty three it looks flat compared with Q4 of last year and it reflects a few straightforward items.
Speaker 5: First, consistent with prior year periods, the fourth quarter of 2023 will be the lowest contribution net sales in adjusted EBITDA quarter of the full year.
First consistent with prior periods the fourth quarter of 2023 will be the lowest contribution net sales and adjusted EBITDA quarter of the full year.
Speaker 5: Second, as you think about our higher outlook for 2023, relative to the outperformance we had in Q3, there was approximately $15 million of sales and $3 million of EBITDA that we expected to occur in Q4 of this year, but we actually recognized in Q3 based on the timing of ordering.
Second as you think about our higher outlook for 2023 relative to the outperformance. We had in Q3, there was approximately $15 million of sales and $3 million of EBITDA that we expected to occur in Q4 of this year, but we actually recognized in Q3 based on the timing of orders.
Speaker 5: And finally, as we mentioned last quarter, based on the success of our marketing initiatives, we are continuing to make strategic investments in A&P.
And finally, as we mentioned last quarter based on the success of our marketing initiatives, we are continuing to make strategic investments in A&P.
Speaker 5: We now expect to spend a total of $4 million in incremental A&P. This is an increase from the $2 million we stated on our Q2 call, of which $1 million was spent during the third quarter of 2023, with the remaining $3 million to be spent in the fourth quarter of 2023 to support the continued growth and development of our brands and position us well for the start of 2023.
We now expect to spend a total of $4 million in incremental A&P. This is an increase from the $2 million. We stated on our Q2 call of which $1 billion was spent during the third quarter of 2023 with the remaining $3 million to be spent in the fourth quarter of 2023 to support the <unk>.
<unk> growth and development of our brands and positioning us well for the start of 2024, our growth would be up approximately 10% for both net sales and adjusted EBITDA were it not for these items in closing we reported strong record results for the third quarter and first nine months of 2023 and our team.
Speaker 5: Our growth would be up approximately 10% for both net sales and adjusted EBITDA were it not for these items.
Speaker 5: In closing, we reported strong record results for the third quarter and first nine months of 2023, and our team remains optimistic about our opportunities for growth in 2024.
Remains optimistic about our opportunities for growth in 2024.
Speaker 5: At PetIQ, our team will continue to execute our strategic initiatives to deliver value for all stakeholders as we deliver on our mission of smarter, convenient, and affordable pet health and wellness for pet parents. That concludes my financial review. Cord, Michael, John , and I are now available for your questions. Operator.
Our pet IQ our team will continue to execute our strategic initiatives to deliver value for all stakeholders.
As we deliver on our mission of smarter convenient and affordable Pet health and wellness for Pet parents that concludes my financial review CT Michael Jon and I are now available for your questions operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Our first question comes from <unk> Parekh.
Parekh with Oppenheimer. Please go ahead.
Speaker 6: Good afternoon, thanks for taking my question, and congrats on a very strong quarter. So I guess I wanted to kick it off, just with the overall PEC category, so clearly some concerns out there of a slowdown, but that's clearly not showing up in your results, so we'd just love to hear what you're seeing overall in the PEC category, and then even any commentary into October , which was what you guys were saying.
Good afternoon, and thanks for taking my question and congrats on a very strong quarter. So I guess I wanted to kick it off just just what the overall pet category. So clearly some concerns out there of a slow down but that's clearly not showing up in your results were just love to hear what you're seeing overall in the pet category and then even any commentary into into October it towards what you guys are seeing.
Speaker 4: Yeah, look, we don't compete in a lot of the categories that have had this flow down with us and.
Yeah look we don't compete a lot of the categories that have had to slow down with us and.
Speaker 4: We've seen strong, strong, strong numbers coming through, whether it's prescription, over-the-counter medication, or otherwise. So clearly, pet health is a priority for people, and we're not seeing that in our category. Michael could probably add a little bit, because he watches the data a little closer than I do, but Michael, do you want to add anything to that?
We've seen strong strong strong numbers coming through whether it's prescription over the counter medication.
Otherwise so clearly pet health is a priority for people and we're not seeing that in our category.
Michael can probably add a little because we watch the data look closer than I do but Michael do you want add anything to that.
Speaker 7: Yeah. Hey, Rupesh, it's Michael. You know, to court's comment.
Yeah, Hey replaced its Michael.
The court's comments.
Speaker 7: Well, some categories are starting to see some slowdown in pet animal health. It's not an area we're seeing that trend in. If you look at how the category performed in the quarter, I believe we've got it in the report from a flea intake perspective up over 7%. The balance of the categories we compete in are actually healthier than that. Pet supplements up, healthy double-digit increases as are dental treats.
While some categories are starting to see some slowdown in pet animal house not an area, we're seeing that trend and if you look at how the category performed in the quarter.
I believe we've got it in the report from a clean perspective up over 7%.
Balance of the categories, we compete in and actually it's healthier than that pet supplements up healthy double digit increases as our dental treats and if we look at October which just updated.
Speaker 7: And if we look at October , which just updated, we're seeing continued momentum for those categories in our brand, even above and beyond the July , August , September window.
Seeing continued momentum for those categories and our brands, even above and beyond the.
July August September window.
Speaker 6: Great, that's helpful. And then just related to the service center optimization, is there a way to quantify the loss revenue impact for Q4 and into next year just from a modeling perspective?
Great. That's helpful. And then just related to the service center optimization is there a way to quantify the lost revenue impact for Q4 and into next year just from a modeling perspective.
Speaker 5: Yeah, look, so we expected sales of about $15 million next year and a loss of $6 million. We're approximately $10 million in sales this year, and Q4 is always a seasonally lower part of the business.
Video because I think numbers are yeah go ahead, sorry, yeah yeah.
Yeah look so we expected sales of about $15 million next year and a loss of $6 million were approximately $10 million of sales this year.
And Q4 is always a seasonally lower part of the business.
Speaker 6: Okay, great. And then maybe one one final question. I know you guys aren't ready to give your 2024 outlook. But just just curious in your comfort and lapping such strong growth this year and then any initial puts and takes you you want you can highlight for next year at this at this young
Okay, Great and then maybe one final question I know you guys aren't ready to give you a 2024 outlook, but just you know just curious in your comfort and lapping such strong growth. This year and then any initial puts and takes to your what you.
You could highlight for an extra at this at this juncture.
Speaker 4: I think we have obviously a situation where this year we had extremely strong weather. As we've seen, third quarter had as strong a weather as we had in second quarter. We never project for the weather to be that strong every year and if it happens, it happens.
Do you think you're past look we have obviously a situation where this year, we had extremely strong weather as we've seen third quarter have as strong a ways. We hadn't in second quarter, we never project for the whether it be that strong every year and if it happens it happens so or.
Speaker 4: We'll definitely be conservative relative to that going into 2024. We also had, I think, some recovery of the base that we saw as inflation caused consumers to pull back and we're going to.
We're definitely be conservative relative to that going into 2024.
We're also adding some recovery of the base that we saw as inflation caused consumers to pull back and we're going to.
Speaker 4: be more conservative there as we look at next year. We'll see once we get into the next year in the quarter how we are performing at that, and we'll update that as we get into it, but.
The more conservative there as we look at next year, we'll see once we get into the next year in the quarter. How we are performing at that and we'll update that as we get into it but and.
Speaker 4: In general, I think we've had a great year. We understand what the data is. We understand what the run rates are.
In General I think we've had a great year, we understand where the data is we understand what the run rates are and will be ready to give you all the updates and what our guidance.
Speaker 8: And we'll be ready to give you the, you know, the updates and what are.
Speaker 8: guidance for 2024 when we get there, but in general, I think we've had a lot of things line up right, recovery of the base, weather.
Guidance for 'twenty 'twenty, four we get there, but in general I think we've had a lot of things lineup right recovery of the base weather and other things that have led to an extremely strong year and.
Speaker 8: and other things that have led to an extremely strong year. And, you know, we're gonna dig in and have a great year next year. It'll definitely be a gross year again, but.
Yeah, we're going to dig in and have a great year next year, it'll definitely be a growth year again, but we're.
Speaker 8: We're definitely not going to expect every year to have the kind of weather this year because it's been 10 years since we've had this kind of. Weather and performance in the OTC flea and tick category.
We're definitely not going to expect every year to have the kind of weather. This year, because it's been 10 years since we've had this kind of.
Weather and performance in the OTC flea and tick category.
Great. Thank you for all the color of possible.
Speaker 9: The next question comes from Bill Chappell with Truist Securities. Please go ahead. Thanks. Good afternoon and also congratulations.
The next question comes from Bill Chapell with Truest Securities. Please go ahead.
Thanks, Good afternoon, and also congratulations on the quarter.
Thank you though.
Speaker 9: Just trying to understand the plans to both reinvest in A&P in the fourth quarter and reinvest kind of the cost savings from the rationalization into next year. With the fourth quarter, I'm just trying to understand, I mean, with flea and tick season largely over.
First just trying to understand the are the plans to both reinvest in A&P in the fourth quarter and reinvest kind of the cost savings from the rationalization and into next year with the fourth quarter I'm just trying to understand.
With flea and tick season, largely over where does that money go and why do it now yeah, why not kind of push it towards towards next year or is there some major program or a big promotion going on in the fourth quarter that could could benefit sales or am I missing something.
Speaker 9: where does that money go and why do it now? Why not kind of push it towards next year or is there some major program or a big promotion going on in fourth quarter that could benefit sales or am I missing something?
Speaker 8: Typically, Bill, we invest heavily in AMP, which drives sales and drives conversion.
Typically bill we invest heavily in E M P, which drives sales and drives conversion.
Speaker 8: We started in Q3 to start investing in the top of the funnel to drive awareness.
We started in Q3 to start investing in the top of the funnel to drive awareness and build brand awareness, we're going to push you a little more of that into Q4 to be ready for next year, because as you know once we get into Q1, we're starting to see the benefits of that.
Speaker 8: and build brand awareness. We're going to push a little more of that into Q4 to be ready for next year. Cause as you know, once we get into Q1, we're starting to see the benefits of that.
Speaker 8: We're starting to see it working, and obviously the numbers from this year obviously shows that we're definitely investing properly, we're tracking it properly, but we have an opportunity to really start to drive top of funnel, which will lead to, we think, our ability to match that with AMP that goes into conversion next year, and we think will drive our ability to continue to build our brands in a very, very positive way.
We're starting to see it working and obviously the numbers from this year, obviously shows that we're definitely investing properly we're tracking it properly, but we have an opportunity to really start to drive top of funnel, which will lead to we think our ability then to match that with A&P that goes into conversion next year, and we think it will drop.
Our ability to continue to build our brands and I end up very very positive way so.
Speaker 8: That's something that we're, again, fortunate that we're starting to get the momentum to where we can do it. And we want to continue to really support the brands and drive that profit funnel, brand awareness, and then drive the conversion as we get into season.
That's something that we're again fortunate that we're starting to get momentum to where we can do it.
And we want to continue to really support the brands and drive that top of funnel brand awareness and then drive the conversion as we get into the season.
Got it and then on Yeah got it.
Speaker 7: Just to build on that bill, I think it's important to note that plan tick is our largest category.
Just to build on that Bill I think it's important to note that flea and tick is our largest category.
Speaker 7: But it's close to 40% of our revenue, not all of our revenue. And when you look at Q4, it's closer to 30%. So there are categories we compete in that aren't with that seasonal profile. And if you look at the dog treat category, it's actually the inverse where Q4 is actually the largest quarter of the year for that category. And it's an area where we have the most white space and brand building opportunities with our mentees portfolio that we will be leaning into as well.
But it's close to 40% of our revenue not all of our revenue and when you look at Q4, it's closer to 30%. So there are categories. We compete in that aren't with that seasonal profile and if you look at the doctorate category. Its actually the inverse where Q4 is actually the largest.
Quarter of the year for that category and a scenario, where we have the most white space and brand building opportunities with our met these portfolio that we will be leaning into as well.
Speaker 9: Got it. I'll make sure to get some minis for my dog's stocking stopper. So I understand. On the services side, on the rationalization, I guess...
Got it I'll make sure to get the minis for my dog stocking stuffer, So I understand.
On the services side on the rationalization I guess.
Speaker 9: Two questions. One, would you expect these locations, I mean, I assume some of them are in tractor supply stores or, you know, in small pet stores, to go back to mobile clinic locations and so you can actually recoup some of that revenue down the road? And then also, the implication that the 133 left are available or are suitable for the hygiene model, would you expect that to start in earnest in 24?
Two questions. One would you expect these locations I mean, I assume some of them are in tractor supply stores or or or.
Small pet stores to go back to mobile clinic locations and so you can actually recoup some of that revenue down the road and then also.
The application that the 133 left are available or are suitable for the hygiene model would you expect that to start in earnest in 'twenty four.
Yeah, but I think in general for square.
Speaker 8: positive about how things are going. Things are going well. We're not ready to declare victory and start converting tons of locations, but those 133 stores that are left definitely have the ability to add more services and do that. If you look at the stores we're closing, there's a small percentage that we think can actually recoup the pets into the community clinic business, and so we'll definitely lose some of it permanently, but
Extremely positive about how things are going and things are going well, we're not ready to declare a victory and start converting tons of locations about those.
Those 133 stores that are left definitely have the ability to add more services and do that if you look at the stores were closing there is a small percentage that we think can actually recoup the the pets into the community clinic business and so we will definitely lose some of it permanently but.
Speaker 8: If we can't convert them to the hygiene model, if we can't get a veterinarian, if the financials coming out of COVID aren't great, we just had to do what we had to do to get the money that we're investing and put it back into things that we know we get a better return. It's that simple.
If we can't convert them to the hygiene model, if we can't get a veterinarian if the financials coming out of Covid aren't great.
Just had to do well, we got to do to give the money that we're investing and put it back into the things that we know we can get a better return.
Simple.
Got it thanks, so much.
Thanks Bill.
Speaker 2: The next question comes from John Anderson with William Blair. Please go ahead.
The next question comes from Jon Andersen with William Blair. Please go ahead.
Hi, everybody thanks for the questions.
Speaker 2: Could you talk a little bit about, I guess, by this time of the year, you've had quite a few conversations with retailers on the spring resets or early 24 resets. Just wondering if you could comment on kind of the tone of those discussions, what you're expecting in terms of perhaps incremental distribution, and anything on the innovation front that might be notable or worth mentioning as well. Thanks. Thanks.
Could you talk a little bit about.
By this time of the year, you you've had quite a few conversations with retailers.
On the spring.
Spring resets or early 'twenty four resets.
Just wondering if you could comment on kind of the tone of those discussions what youre expecting in terms of bot, perhaps incremental distribution.
And anything on the innovation front that it might be notable lever worth mentioning as well thanks.
Speaker 8: I'll let Michael talk about the retailer line reviews and where that's at, and then I can come back to innovation for you, John , but go ahead, Michael.
Yeah, I'll, let Michael talk about the retailer.
Your line reviews, and where that that and then I can take them back to innovation for you John but go ahead Michael.
Yeah.
Speaker 7: Yeah, I would, you know, say it depends by category right now from a fleet and tick category perspective. Those line reviews are largely done. Uh, they were happy with our results. We do expect some moderate gain some further.
Yes, I would.
Say it depends by category right now from a flea and tick category perspective. Those line reviews are largely done I'd say, we're happy with our results. We do expect some moderate gains in further.
Speaker 7: Penetration and distribution for some of our kind of tertiary brands and additional pack sizes.
Penetration and distribution for some of our.
Kind of tertiary brands and additional pack sizes Hudson.
Speaker 7: Health and wellness, still a little bit in process, but very encouraged about how some of the retail partners are leaning into some of our new initiatives in that space. As, you know, that supplements, the biggest piece of that portfolio for us or that category.
Health and wellness.
I'm still a little bit in process, but very encouraged about how some of the retail partners are leaning into some of our new initiatives in that space as you know.
Pet supplements the biggest piece of that portfolio for us or that category.
Speaker 7: We primarily play in the value-oriented portion of that category today. We're very excited about a launch we have next year that will position us well in the premium portion of the category, which is, candidly, where about two-thirds of the category volume lives. And we're very encouraged about the best our retail partners are placing on that investment we're making in that innovation for 2024.
Primarily play in the value oriented portion of that category today.
We're very excited about our launch we have next year that will position us well in the premium portion of the category with just candidly. We're about two thirds of the category volume lives and we're very encouraged about the best of our retail partners are placing on that investment, we're making in that innovation for 2024.
Speaker 7: And then in treats, we're seeing a lot of momentum behind the Menti's brand in consumption. Customers continue to vote for that proposition in the market, and our retail partners are proportionally voting as they lay out their shelf allocation and space plans, promotional plans for 2024 on the Menti's brand in that category. So some of the parts, definitely a net positive for us as we think about how we'll be positioned to limit the customer and our retail partners in 2024.
And then in treats we're seeing.
A lot of momentum behind the <unk> brand and consumption customers continue to vote for that proposition in the market and our retail partners are proportionately voting.
Lay out their shelf allocation and space plans promotional plans for 2024 on the <unk> brand in that category. So some of the parts definitely a net positive for us as we think about how we'll be positioned to win with the customer and our retail partners in 2024.
Speaker 8: And John , I would just say, in general, we've been able to watch where we're winning, we're leaning in where we're winning, the innovation's been built around it, and we'll have a great year next year.
And John I would just say in general we've been able to watch where we're winning orleanian, where we're winning the innovation has been built around it and we will have a great year next year.
Okay.
With the.
Speaker 2: With the growth that you're seeing in your manufactured brand business, can you just remind us of, from a capacity perspective, any limitations or any incremental CapEx required to kind of support that demand and then?
With the growth that you're seeing in your manufactured brand business can.
Can you just remind remind us of Bob from a capacity perspective, any any limitations or any any incremental capex required to kind of support that demand.
And then finally.
Speaker 10: On services, you mentioned in the press release and in the prepared comments the collaboration with Walmart. Could you talk a little bit more about, you know, what that is all about and how that maybe differs from what you've been doing up till now with Walmart with the wellness centers and why that might be a good or better economic model for you? Thanks.
Services you you mentioned in the press release and our prepared comments the collaboration with Walmart could you talk a little bit more about you know what.
That is all about and how that maybe differs from.
What you've been doing up until now with Walmart with the the wellness centers and why that might be a good or better economic model for you. Thanks.
Speaker 8: Thanks, John . Look, I think in general, we've always stayed in front of the capacity with very minimal capital investments to keep up with what we need to do that.
Thanks, Joe.
Look I think in general we've always stayed in front of the capacity with very minimal capital investments to keep up with what we need to do that when.
Speaker 8: When we get surprised and we have a run that's really strong in an area like the Minty's brand, we've had to go out and aggressively pursue equipment and molds and things to keep up with that. But I would say we're in good shape going into next year with the amount of capacity we need to stay in front of the growth rates with plenty of access to stay in a place where we can keep up with what needs to be done. So we're in really good shape. Like, John , you're the closest to the Walmart project. If you want to talk about it and give an update, that'd be great.
When we get surprised and we have a run that's really strong and in an area like the nineties brand. We've had to go out and aggressively pursue equipment and molds and things that keep up with that but I would say we're in good shape going into next year with the amount of capacity, we need to stay in front of the growth rates with plenty of access to say in a place where we can keep up with what needs to be done.
We're we're in really good shape.
Like John you are the closest to the Walmart project, if you want to talk about it and given up too that'd be great.
[laughter] Great you got it.
Speaker 2: This is John Pearson. Sorry, I think he was referencing here. So we entered into the partnership with Walmart. We've been working on this project for about a year now.
This is John Pearson, sorry, I think he was referencing here. So we entered into the partnership with Walmart we have been working on this project for about a year now excited to have launched the initial pilot. The main difference is that the Walmart branded program. So they are the ones that are driving the pet parents to the location.
Speaker 2: excited to have launched the initial pilot. The main difference is it's a Walmart branded program, so they are the ones that are driving the pet parent to the location. On the external, they also made an investment in an external facade that really draws attention to the services.
On the external they also made an investment in an external facade that really draws attention to the services.
Speaker 10: And we're partnering with them to be the operator to bring the veterinarian and the labor and staff and the equipment necessary. That's the main difference with the model right now.
We're partnering with them to be the operator.
Bring the veterinarian and the labor and staff and equipment necessary. So that's the main difference with the model right now.
Speaker 2: John , do you, what are your expectations for, I think it's in, is it in one location now and how might this, you know, unfold if things go well over the next 12 to 24 months?
John do you what are your expectations for I think it is it in one location now.
This.
Fold, if if if if things go well over the next 12 to 24 months.
Speaker 10: Yeah, right now we're focused on the pilot of the one location and we're not privileged to share any more information outside of that, but expect that, you know, we'll keep close on it. And as we see success there, we'll work closely with Walmart on future decisions.
Yeah right now we're focused on the pilot of the one location and where we're not privileged to share any more information outside of that but expect that you know, we'll keep close on it and as we see success there will work closely with Walmart on future decisions.
Great. Thanks, Congrats on a good quarter.
Speaker 2: Again, if you have a question, please press star and then 1. Our next question comes from John Lawrence with Benchmark. Please go ahead.
Again, if you have a question. Please press star and then one our next question comes from John Lawrence with Benchmark. Please go ahead.
Speaker 11: Good afternoon, thanks guys and congrats again for what on the quarter.
Good afternoon, and thanks, guys and congrats again on the quarter.
Thanks, Joe.
Speaker 11: Could you talk a little bit about just the stores you elected to close? Can you give just some kind of a rough, what was the criteria? Was it regional, anything just across the board? Was it just either not cash flowing or what would be the sort of the criteria for the cuts?
Could you could you talk a little bit about just.
The stores you elected to close can you give just some kind of a rough a what was the criteria are was it regional anything. It's just just across the board was just either not cash flowing or what would be the.
Sort of the criteria for cuts.
Speaker 8: I think, John , as you know, we closed all the stores during COVID. We came out of COVID with a very different market.
Yes, I think John as you know we closed all the stores are in Covid, we came out of Covid with a very different market.
Speaker 8: We were patient to do what we could to run those locations to get a good data set to make good decisions.
We were patient to do we could run those locations to get a good data set to make good decisions as.
Speaker 8: As we look at what has gone on in the vegetarian market, labor and other things, we feel like we have a good handle on where that's going to be for a long time.
As we look at what has gone on in the veterinary market labor and other things.
We feel like we have a good handle on where that's going to be for a long time and if.
Speaker 8: You couldn't be in a position to add the hygiene model to it if you couldn't have good access to veterinarians because of.
You couldn't be in a position to add the hygiene model to it if you couldn't have good access to veterinarians because of the market.
Speaker 8: or financially, we just weren't seeing that it was going to progress. It was time to do something different. That was the main criteria. So, look, we have a lot of things going right, and when you're spending.
Financially, we just weren't seeing that it was going to progress. It was time to do something different that was the main criteria. So look we have a lot of things going right and when youre spending.
Speaker 8: you know, $6 million a year on something that's not providing a return, and we have other areas of business where if we put $6 million into, we can accelerate and get a great return. We had to do something different. So I think that's.
$6 million a year on something that's not providing a return or we have other areas of business, where if we put 6 billion into we can accelerate and get a great return.
We had to do something different so I think that's that.
Speaker 8: Really, that's the crux. That's what it is. We just have places we can put the money and make a lot more money.
Really that's the crux that's what it is we used to have places we can put the money to make a lot more money.
Speaker 11: Great, thanks. And secondly, when you look at
Great. Thanks, and then secondly, when you look at.
Speaker 11: I mean, just a shot in the dark here, and you look at that model on the services side. Would it be fair something like the new model is more like 70% of the revenue, but half the cost compared to the old model? Is that anywhere close?
I mean I just just a shot in the dark here and you look at that model on the services side.
Would it be fair something like the new model is more like 70% of the revenue, but have a cost compared to the old model is that anywhere close.
Speaker 4: Yeah, I wouldn't say that. I think in general, you know, what we're seeing is we have a really strong place in the market where we're able to marry up veterinary labor with demand for pets with our mobile clinics.
Yeah, I wouldn't say that I think in general what we're seeing is we have a really strong place in the market, where we're able to marry up that trained labor with demand for pets with our mobile clinics.
Speaker 4: And we're truly trying to bring that model into our wellness centers. And when you add the hygiene model, you have the ability to do that. And so we have a very unique ability to pay veterans extremely well.
And we're really trying to bring that model into our wellness centers and when you add it you haven't yet had the hygiene model you have the ability to do that and so we have a very unique ability to pay veterans are extremely well put them in the stores when the when the labor or when the pets are there and we have the ability to have the hygiene model with Nov.
Speaker 8: put them in the stores when the labor, or when the pets are there, and we have the ability to have the hygiene model with no vet there, keep the store building relationships, taking care of pets, making sure they're well taken care of, and do that. And so, at the end of the day, when you look at the overall P&L, we think the P&L is very similar.
Got there Keith to start building relationships, taking care of pets, making sure they're well taken care of and do that and so at the end of the day. When you look at the overall P&L, even appeals very similar.
Speaker 8: But it's really we can do what the pet parent needs when they need it and have the labor there for what they need for whatever the services they want to, you know, what they want for their pet. And that's really what comes down.
But it really we can do what the pet parent needs when they need it and have the labor there for what they need for whatever the services they want to.
What they want for their pet and that's really what it comes down to.
Speaker 11: Great. Last question for me. As V on the gross up 200 basis points, most of that is scale leverage or is it product mix or just what's the main driver of that gross margin?
Great last question for me as we all know gross up 200 basis points. Most of that is scale leverage or is it product mix or just what's the main driver of that Mark gross margin.
Speaker 5: It's efficiency, part of the efficiency is on increased volume, but it's also efficiency just as we continue to look at making our operations, you know, operate more efficiently, to use a word, to describe a word. And then it is some mix and some scale.
Its efficiency.
The efficiency is on increased volume, but it's also efficiencies just as we continue to look at making our operations.
Operate more efficiently to use a word to describe work.
And then it is some mix.
And some scale.
Uh huh.
Thanks, Greg.
Speaker 2: This concludes our question and answer session. I would like to turn the conference over to Cord Christensen for any closing remarks.
This concludes our question and answer session I would like to turn the conference over to cord Christensen for any closing remarks.
Speaker 8: Yes, thank you for joining us today and thank you to all the pedicure employees.
Yes, thank you for joining us today and thank you to all the petty Q employees.
Speaker 4: partners that let us have such a great quarter. We appreciate the hard work. We appreciate it. It's kind of our ability to deliver such a strong result.
Partners that let us to have such a great quarter. We appreciate the hard work, we appreciate and that has gone into our ability to deliver such a strong result.
Speaker 8: Thank you for everybody and we look forward to reporting the full year when we talk to you after the first of the year. Thank you.
Thank you everybody and we look forward to reporting the full year when we talked to you. After the first of the year. Thank you.
Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.