Q1 2024 PetIQ Inc Earnings Call
Operator: Good afternoon, ladies and gentlemen. Thank you for standing by.
Good afternoon, ladies and gentlemen, thank you for standing by welcome to the Pet IQ first quarter 2024 earnings conference call. At this time all participants are in a listen only mode should you need assistance during todays call. Please signal for a conference specialist by pressing to Starkey followed by zero after today's presentation.
Operator: Welcome to the PetIQ First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key, followed by zero. After today's presentation, there will be an opportunity to ask your questions. To ask a question, please press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note that today's event is being recorded. I would now like to turn the conference over to Katie Turner, Investor Relations. Please go ahead.
Operator: There will be an opportunity to ask your questions to ask a question. Please press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note that today's event is being recorded I would now like to turn the conference over to Katie Turner Investor Relations. Please go ahead.
Katie M. Turner: Good afternoon. Thank you for joining us on PetIQ's first quarter 2024 earnings conference call and webcast. Corey Christensen, Chief Executive Officer, and Zvi Glasman, Chief Financial Officer, will review today's prepared remarks. Before I begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements.
Katie M. Turner: Good afternoon. Thank you for joining us on <unk> first quarter 'twenty 'twenty four earnings conference call and webcast.
Katie M. Turner: Question.
Katie M. Turner: Executive Officer and.
Katie M. Turner: Chief Financial Officer will review todays prepared remarks before I begin. Please remember that during the course of this call management may make forward looking statements within the meaning of.
Katie M. Turner: Of the federal Securities laws.
Katie M. Turner: Once they're based on management's current expectations beliefs and.
Katie M. Turner: They involve risks and uncertainties that could differ materially from actual events described in these forward looking statements. Please.
Katie M. Turner: Please refer to the company's annual report on Form 10-K, and other reports filed from time to time with security. Thanks, Tom.
Katie M. Turner: 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 note that 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 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.
Katie M. Turner: And the company's press release issued today for a detailed.
Katie M. Turner: A discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward looking statements made today.
Katie M. Turner: Please note on today's call management will refer to certain non-GAAP financial measures. 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.
Katie M. Turner: Please refer to today's press release for definitions and a reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. In addition, Card IT has posted a supplemental presentation on its website for reference. And with that, I'd like to turn the call over to Corey Christensen.
Corey Christensen: Please refer to today's press release for definitions and reconciliations of non-GAAP financial measures most comparable measures prepared in accordance with GAAP and it does sound panicky posted a supplemental presentation I think for us anyway.
Corey Christensen: With that I'd like to turn the call over to corn question Sir.
Corey Christensen: Thank you, Katie, and good afternoon, everyone. We appreciate you joining us today to discuss our Q1 financial results. I'll begin with an overview of key highlights, then Zvi will review our quarterly financials and 2024 outlook. Finally, Zvi, Michael, John, and I will be available to answer your questions.
Corey Christensen: Thank you Katie and good afternoon, everyone.
Corey Christensen: We appreciate you joining us today to discuss our Q1 financial results.
Corey Christensen: Beginning with an overview of key highlights Zvi will review, our quarterly financials and 2024 outlook. Finally, we Michael John and I will be available to answer your questions.
Corey Christensen: We are pleased that at the start of 2024, we had a record Q1 with consolidated net sales of $308.4 million, at the high end of our guidance. The consistent growth of our product segment fueled our financial results. The strength of PetIQ's brand in Q1 led to favorable leverage of our costs, with gross margin expanding 280 basis points to 24.2%. This helped offset higher SG&A expense when compared to Q1 last year, resulting in record profitability.
Corey Christensen: We're pleased our start to 2024, we had a record Q1 with consolidated net sales of $308 4 million at the high end of our guidance.
Corey Christensen: Consistent growth of our products segment fueled our financial results.
Corey Christensen: The strength of better excuse brands in Q1 led to favorable leverage of our cost with gross margin expanding 280 basis points to 24, 2%.
Corey Christensen: This helped offset higher SG&A expense when compared to Q1 last year, resulting in record profitability.
Corey Christensen: Our net income of $14.9 million, or EPS of $0.48, increased 47.8% from Q1 last year. In Q1 2024, adjusted EBITDA increased 15% year-over-year to $35.3 million, exceeding our guidance of $31 million to $33 million. This resulted in the highest adjusted EBITDA margin in the company's history of 11.4%, an increase of 80 basis points from Q1 last year.
Corey Christensen: Our net income of $14 9 million or EPS of <unk> 48 cents increased 47, 8% from Q1 last year.
Corey Christensen: Q1, 'twenty 'twenty four adjusted EBITDA increased 15% year over year to $35 3 million.
Corey Christensen: Exceeding our guidance of 31 million to $33 million. This resulted in the highest adjusted EBITDA margin.
Corey Christensen: The company's history of 11, 4%.
Corey Christensen: An increase of 80 basis points from Q1 of last year.
Corey Christensen: Based on these strong year-to-date results, we are pleased to raise our guidance for 2024 net sales, adjusted EBITDA, and free cash flow. Focusing on our product segment in more detail, for Q1 of 2024, the product segment contributed net sales of $276.9 million, an increase of approximately 7% compared to the prior year period. The growth in Q1 of this year was broad-based across all product categories.
Corey Christensen: Based on these strong year to date results. We are pleased to raise our guidance for 2024 net sales adjusted EBITDA and free cash flow.
Corey Christensen: Focusing on our product segment in more detail for Q1 of 2020 for the product segment contributed net sales of $276 9 million, an increase of approximately 7% compared to the prior year period.
Corey Christensen: The growth in Q1 of this year was broad based across all product categories.
Corey Christensen: As we discussed with you in the last few quarters, when you look at all the sales channels combined for 2023, it was one of the strongest seasons in the last 10 years for the OTC flea and tick category. We are lapping that record season in 2024, and yet we continue to generate impressive growth from PetIQ's brands, which were up 14.3 percent compared to the first quarter last year. This growth rate exceeded our expectations for the quarter.
Corey Christensen: As we've discussed with you the last few quarters. When you look at all the sales channels combined for 2023 it was one of the strongest seasons in the last 10 years for the OTC flea and tick category.
Corey Christensen: We are lapping that record season in 2024, and yet we continue to generate impressive drove from pattern excuse brands, which were up 14, 3% compared to the first quarter last year this growth rate exceeded our expectations for the quarter.
Corey Christensen: Our in-house sales and marketing teams are building significant brands in the pet categories that are growing both online and at brick-and-mortar retail while capturing a disproportionate amount of market share. In Q1, we spent an incremental $4.7 million on enhanced advertising and promotional efforts in line with our planned step-up in marketing for 2024. This step-up is included in our Q1 2024 adjusted EBITDA. For Q2, we expect to spend $6 million more on brand building and marketing initiatives than we did in Q2 last year.
Corey Christensen: Our in house sales and marketing teams are building significant brands in the pet categories that are growing both online and brick and mortar retail while capturing a disproportionate amount of market share.
Corey Christensen: In Q1, we spent an incremental $4 7 million on enhanced advertising and promotional efforts in line with our plan to step up in marketing for 2024.
Corey Christensen: <unk> is included in our Q1 2024 adjusted EBITDA.
Corey Christensen: Q2, we expect to spend 6 million more in brand building and marketing initiatives than we did in Q2 last year.
Corey Christensen: We are continuing to lean into investments and initiatives that we expect to support the long-term success of our brands. I'd now like to focus on a few of our key category consumption highlights for the first quarter. In the first quarter of 2024, the OTC flea and tick category grew 6.2%, and PetIQ's brands increased 10.6%. PetIQ's flea and tick brands gained share across all channels and at each of our top 10 customers while continuing to capture a disproportionate amount of the growth online and dramatically outperforming the broader category, as evidenced by our market share results.
Corey Christensen: We are continuing to lean into investments and initiatives that we expect to support the long term success of our brands.
Corey Christensen: I'd now like to focus on a few of our key category consumption highlights for the first quarter.
Corey Christensen: In the first quarter of 2020 for the OTC flea and tick category grew six 2% and Pat I excused brands increased 10, 6%.
Corey Christensen: I think she was planning to take brands gained share across all channels and in each of our top 10 customers, while continuing to capture a disproportionate amount of the growth online and dramatically outperforming the broader category as evidenced by our market share results.
Corey Christensen: For the 12 weeks ended March 23rd, 2024, PetIQ's OTC flea and tick brands captured 15.8% of the category dollars, which is an increase of 63 basis points versus the prior year period. The pet supplement category in total maintained its growth trajectory in the quarter, gaining 14.8% over the prior year period. This fast-growing category has nearly tripled in market size over the last five years and is now the largest category within the OTC animal health market.
Corey Christensen: For the 12 weeks ended March 'twenty, three 'twenty 'twenty, four and actually was the OTC flea and tick brands captured 15, 8% of the category dollars, which is an increase of 63 basis points versus the prior year period.
Corey Christensen: The personal loan category in total maintained its growth trajectory in the quarter, gaining 14, 8% over the prior year period.
Corey Christensen: This fast growing category with nearly tripled in market size over the last five years and is now the largest category within the OTC animal health market.
Corey Christensen: Our pet sublime brands continue to see accelerated consumption and growth in the first quarter of 2024, where offerings in the space grew 51.2% compared to the prior year period. This growth was driven by our VetIQ brand, along with the successful launch of Roco and Roxy into the premium segment of the category. Strong household penetration trends, along with expanded need states in the pet sub-category, give us confidence that these double-digit growth rates should continue for many years to come, and PetIQ is positioned very well to continue to gain share in this market.
Corey Christensen: Our pets up on brands continue to see accelerated consumption and growth.
Corey Christensen: In the first quarter of trying to wait for our offerings in this space grew 51, 2% compared to the prior year period.
Corey Christensen: This growth was driven by our direct to brand along with the successful launch of Rocco and Roxy into the premium segment of the category.
Corey Christensen: Strong household penetration trends along with expanded need states in the past some of those categories give us confidence that these double digit growth rates should continue for many years to come and parents, who is positioned very well to continue to gain share in this market.
Corey Christensen: In addition, our pet dental and treat offerings also outperformed the category in Q1. The Minties and Pure Love brands both grew at three times the total category, leading to significant share gains. The Minky's brand grew 48% and gained 89 basis points of share in the Dentistry category. The Pure Love Tree brand also continues to gain momentum as it posted outstanding growth of 65% in Q1 versus a year ago. The newest brand in our product portfolio, Rocco & Roxy, grew 23.4% from the first quarter of 2024.
Corey Christensen: In addition, our pet dental and treat offerings also outperformed the category in Q1, the main themes and pure love brands. Both grew at three times, the total category leading to significant share gains.
Corey Christensen: The main thing is brand grew 48% to 89 basis points of share in the dentistry category. The pure luxury brand also continues to gain momentum as opposed to the outstanding growth of 65% in Q1 versus a year ago.
Corey Christensen: Our newest brand and our product portfolio, Rocco and Roxy with 23, 4% for the first quarter of 2020 for this growth was driven by our launch into the southern category and the core stain and odor offerings also saw healthy growth and grew share within the market.
Corey Christensen: This growth was driven by our launch into the supplement category, and the core stain and odor offerings also saw healthy growth and gained share within the market. Shifting to the services segment, we had a slight net sales increase of 0.2% to $31.6 million compared to Q1 last year. We ran more mobile community clinics across the country than a year ago and increased our pet counts to grow our services segment, MedSales, and essentially offset the lost sales from the 149 wellness centers we closed in the second half of 2023.
Corey Christensen: Shifting to the services segment, we had a slight net sales increase of 2% to $31 6 million compared to Q1 last year.
Corey Christensen: We ran more mobile 20 clinics across the country than a year ago and increased our pet counts cigar services segment net sales.
Corey Christensen: And essentially offset the lost sales from the 149 wellness centers, we closed in the second half of 2023.
Corey Christensen: Our services team continues to do an excellent job managing our contract vet labor to offer pet parents convenient and affordable pet health and wellness options. We are also pleased with the significant operational improvements we achieved in Q1 of this year, which led to a gross margin expansion of 810 basis points for the services segment. That completes my Q1 highlights. Before I turn it over to Zvi, I would like to thank our team across the country for their commitment to our mission of providing smarter pet health care and their continued support of PetIQ's core values. I'd like to now turn the call over to Zvi.
Corey Christensen: Our services team continues to do an excellent job managing our contract labor to offer pet parents convenient and affordable pet health and wellness options.
Zvi: We are also pleased with the significant operational improvements we achieved in Q1 of this year, which led to gross margin expansion of 810 basis points for the services segment.
Zvi: That completes my Q1 highlights before I turn it over to Lee I would like to thank our team across the country for their commitment to our mission of providing smarter pet health care and their continued support of Parex used car values I'd.
Zvi: I'd like to now turn the call over to Zee.
Zvi Glasman: Thank you, Cord. Today I will discuss our Q1 financial results in more detail and our outlook for 2024. We're pleased with our start to the year. Our seasoned team generated strong growth across PetIQ's brands to increase both sales and profitability year over year. And the services segment optimization we completed in the second half of 2024 is already generating significant operational improvements for our business. For Q1 of 2024, the company reported net sales of $308.4 million, an increase of 6.2% compared to Q1 of last year, driven by growth in the product segment.
Zvi: Thank you cord today, I will discuss our Q1 financial results in more detail and our outlook for 2024, we're pleased with our start to the year.
Zvi Glasman: Our seasoned team generated strong growth across Pac keys brands to increase both sales and profitability year over year.
Zvi Glasman: And the services segment optimization, we completed in the second half of 2024 is already generating significant operational improvements for our business.
Zvi Glasman: For Q1 of 2024, the company reported net sales of $308 $4 million, an increase of six 2% compared with Q1 of last year driven by growth in the products segment.
Zvi Glasman: This was at the high end of our guidance for the quarter, driven by broad-based growth across sales channels and product categories, as McCord mentioned. First quarter 2024 gross profit was $74.5 million, an increase of 19.7% compared to $62.3 million in the prior year period. Gross margin increased 280 basis points to 24.2% from 21.4% for Q1 of last year. The growth and success of our higher-margin manufactured brands was the primary driver of our margin expansion, as well as operational efficiencies in our facilities. We also benefited from our services segment optimization with the opening of 149 wellness centers in the second half of 2023.
Zvi Glasman: This was at the high end of our guidance for the quarter driven by broad based growth across sales channels and product categories as cord mentioned.
Zvi Glasman: First quarter 2024, gross profit was $74 5 million, an increase of 19, 7% compared to $62 $3 million in the prior year period.
Zvi Glasman: Gross margin increased 280 basis points to 24, 2% from 21, 4% for Q1 of last year.
Zvi Glasman: The growth and success of our higher margin manufactured brands was the primary driver of our margin expansion as well as operational efficiencies in our facilities.
Zvi Glasman: We also benefited from our services segment optimization with the closure of 149 wellness centers in the second half of 2023.
Zvi Glasman: From an ST&A perspective, as we know from our Q4 call, we are spending more on marketing in 2024 to support our manufactured brands. As a result, first quarter adjusted SG&A increased $7.8 million to $47.1 million, and as a percentage of net sales, adjusted SG&A was 15.3%, an increase of 180 basis points compared to the prior year period. The increase in SG&A was primarily due to an increase in marketing expenses of $4.7 million, and the remainder was mostly normal increases in annual compensation expenses.
Zvi Glasman: From an SG&A perspective, as we noted on our Q4 call. We are spending more on marketing in 2024 report our manufactured brands.
Zvi Glasman: As a result first quarter adjusted SG&A increased $7 8 million to $47 $1 million and as a percentage of net sales adjusted SG&A was 15, 3% an increase of 180 basis points compared to the prior year periods.
Zvi Glasman: The increase in SG&A was primarily due to an increase in marketing expense of $4 $7 million and the remainder was mostly normal increases in annual compensation expenses.
Zvi Glasman: Adjusted net income was $18.5 million, and adjusted EPS was $0.53, an increase of 32.5% year-over-year. EBITDA increased 20.2% to $32.2 million, and Adjusted EBITDA increased 15% to $35.3 million, above our Q1 Adjusted EBITDA guidance. Our adjusted EBITDA margin increased 80 basis points year-over-year to 11.4%, the highest in the company's history, even with the step-up in marketing expense.
Zvi Glasman: Adjusted net income was $18 $5 million and adjusted EPS was <unk> 53 cents.
Zvi Glasman: <unk> of 32, 5% year over year.
Zvi Glasman: EBITDA increased 22% to $32 $2 million and adjusted EBITDA increased 15% to $35 $3 million above our Q1 adjusted EBITDA guidance.
Zvi Glasman: Our adjusted EBITDA margin increased 80 basis points year over year to 11, 4%.
Zvi Glasman: The highest in the Companys history, even with the step up in marketing expense.
Zvi Glasman: Turning to our balance sheet and liquidity, the company ended Q1 with total cash and cash equivalents of $25.4 million. For 2024, we are raising our guidance for annual free cash flow from an excess of $45 million to an excess of $50 million. From an inventory perspective, our inventory at the end of Q1 was a bit higher than normal for this time of the year. This is due to our planned seasonal build and the timing of available inventory from our distribution partners.
Zvi Glasman: Turning to our balance sheet and liquidity. The company ended Q1, with total cash and cash equivalents of $25 $4 million.
Zvi Glasman: For 2024, we are raising our guidance for annual free cash flow from in excess of $45 million to in excess of $50 million.
Zvi Glasman: From an inventory perspective, our inventory at the end of Q1 was a bit higher than normal for this time of the year.
Zvi Glasman: This is due to our planned seasonal build and the timing of available inventory from our distribution partners as.
Zvi Glasman: As we progress through the flea and tick season in Q2 and into Q3, we expect our inventory to be more in line with our historical levels. The company's total debt, which is comprised of its term loan, ABL, and convertible debt, was $443.9 million as of March 31, 2024. In addition to our cash on hand, the company's $125 million ABL is undrawn. Total liquidity, which we define as cash on hand, plus debt availability, was $150.4 million as of March 31st, 2024. While we continue to have no intention of making additional borrowings, we would note that our liquidity is ample, and our credit facilities are flexible.
Zvi Glasman: We progressed through the flea and tick season, then to Q2 and into Q3, we expect our inventory to be more in line with our historical levels.
Zvi Glasman: The company's total debt, which was comprised of its term loan ABL and convertible debt was $443 9 million as of March 31 2024.
Zvi Glasman: In addition to our cash on hand, the company has $125 million ABL is undrawn.
Zvi Glasman: Total liquidity, which we define as cash on hand, plus debt availability was $154 million as of March 31 2024.
Zvi Glasman: While we continue to have no intention of making additional borrowings we would note that our liquidity is ample and our credit facilities are flexible.
Zvi Glasman: Our net leverage, as calculated under the terms of our credit facilities at the end of Q1, was 3.6 times, an improvement from four and a half times in 2023. Keep in mind, Q1 is always our highest leveraged quarter of the year based on seasonal changes in working capital due to the annual increase in inventory to position us well for the flea and tick season. On April 30, 2024, subsequent to the end of the first quarter, we completed the sale of the company's foreign subsidiary within the product segment.
Zvi Glasman: Our net leverage as calculated under terms of our credit facilities at the end of Q1 was three six times an improvement from four five times in 2023.
Zvi Glasman: Keep in mind Q1 is always our highest leverage quarter of the year based on seasonal changes in working capital due to the annual increase in inventory to position us well for the flea and tick season.
Zvi Glasman: Mark and Chappell for approximately $4 million in net cash proceeds, and the company will receive future royalties for certain licensed trademarks and related intellectual property. As a result of the transaction, we expect to recognize an approximate $1.7 million loss, subject to normal working capital adjustments, in the second quarter of 2024. Now, turning to our guide.
Zvi Glasman: On April 32024.
Zvi Glasman: Till the end of the first quarter, we completed the sale of the company's foreign subsidiary within the products segment, Mark and chapels Brooks approximately $4 million in net cash proceeds and the company will receive future royalties for certain license trademarks and related intellectual property.
Zvi Glasman: As a result of the transaction, we expect to recognize approximately $1 7 million dollar loss.
Zvi Glasman: Doug just to normal working capital adjustments in the second quarter of 2024.
Zvi Glasman: Now turning to our guidance.
Zvi Glasman: As stated in today's earnings release, we are raising our full-year 2024 net sales and adjusted EBITDA guidance that we previously provided on February 28, 2024. Our 2024 full-year outlook remains inclusive of the services segment optimization, the sale of the company's farm subsidiary Mark and Chappell, and a return to a more normal flea and tick season as compared to the record seasonal patterns experienced in 2023. These three items total approximately $52 million in net sales and $8 million of adjusted EBITDA on an annual basis.
Zvi Glasman: As stated in today's earnings release, we are raising our full year 2024, net sales and adjusted EBITDA guidance that we previously provided on February 28 2024.
Zvi Glasman: Our 2020 for full year outlook remains inclusive of the services segment optimization, the sale of the company's foreign subsidiary, Mark and Shuffle and a return to a more normal flea and tick season as compared to the record seasonal patterns experienced in 2023.
Zvi Glasman: These three items total approximately $52 million of net sales and $8 million, but adjusted EBITDA on an annual basis.
Zvi Glasman: If you take these into account, our growth in 2024 would be significantly higher or represent a net sales increase of approximately 11% and an adjusted EBITDA increase of approximately 19% as compared to 2023. We've broken these variables out for reference in the Outlook section of today's earnings presentation posted on the Investors section of our website. Inclusive of the variables I just mentioned, for the full year 2024, we expect net sales of $1,135,000,000 to $1,185,000,000, an increase of approximately 5% based on the midpoint, and adjusted EBITDA of $112 million to $117 million, an increase of approximately 10% based on the midpoint, including our step-up in marketing compared to last year.
Zvi Glasman: If you take these into account our growth in 2024 would be significantly higher or represent a net sales increase of approximately 11% and an adjusted EBITDA increase of approximately 19% as compared to 2023.
Zvi Glasman: We've broken these variables out for reference in the outlook section of today's earnings presentation posted on the investors section of our website.
Zvi Glasman: Inclusive of the variables I just mentioned for the full year 2024, we expect net sales of $1 billion $135 million to $1.185 billion, an increase of approximately 5% based on the midpoint.
Zvi Glasman: And adjusted EBITDA of 112 million to $117 million, an increase of approximately 10% based on the midpoint, including our step up in marketing compared to last year.
Zvi Glasman: For the second quarter of 2024, we expect net sales of $325 million to $335 million, an increase of approximately 5% based on the midpoint, and adjusted EBITDA of $34 to $36 million, an increase of approximately 6% based on the midpoint, including the approximately $6 million in incremental marketing spend compared to Q2 of last year. Additionally, I want to reiterate that for modeling purposes going forward, our share count will vary during the course of the year due to the accounting rules regarding the company's convertible notes.
Zvi Glasman: For the second quarter of 2024, we expect net sales of 325 million to $335 million, an increase of approximately 5% based on the midpoint.
Zvi Glasman: Adjusted EBITDA of $34 million to $36 million, an increase of approximately 6% based on the midpoint, including the approximately $6 million incremental marketing spend compared to Q2 of last year.
Zvi Glasman: Additionally, I want to reiterate that for modeling purposes going forward our share count will vary during the course of the year due to the accounting rules regarding the company's convertible notes.
Zvi Glasman: This will depend on a number of factors, including quarterly earnings. For certain quarters in 2024, the share count will increase by approximately 4.8 million shares, and our diluted EPS will be calculated on the same basis. Importantly, we currently have no intention of satisfying our convertible debt obligation with shares but are required to report the company's share count based on the theoretical increase. That concludes my financial review. McCord, Michael, John, and I are now available for your questions. Operator. Thank you.
Zvi Glasman: This will depend on a number of factors, including quarterly earnings.
Zvi Glasman: Certain quarters in 2020 for the share count will increase by approximately $4 8 million shares and our diluted EPS will be calculated on the same basis.
Zvi Glasman: Importantly, we currently have no intention of satisfying our convertible debt obligation with shares but are required for the company's share count based on the theoretical increase.
Speaker Change: That concludes my financial review CT micro Jon and I are now available for your questions operator.
Zvi Glasman: Yeah.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using your speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw it, please press star, then 2. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Rupesh Parikh on Oppenheimer. Please proceed.
Speaker Change: Thank you we will now begin the question and answer session.
Operator: To ask a question you May press Star then one on your telephone keypad. If you were using your 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 it. Please press Star then two.
Operator: At this time, we will pause momentarily to assemble our roster.
Rupesh Dhinoj Parikh: And today's first question comes from <unk> Parikh with Oppenheimer. Please proceed.
Rupesh Dhinoj Parikh: Good afternoon, thanks for taking my question and also congrats on a really nice quarter. So maybe I should start out with the gross margin line. So, you know, really strong performance across both the product side and the service side. So I know the product side, which is typically mixed, can impact the delivery there, but at least on the service side, just hoping to get some more color in terms of how you guys think about the sustainability of the level of gross margin delivery.
Rupesh Dhinoj Parikh: Good afternoon. Thanks for taking my question and also congrats on a really nice quarter.
Rupesh Dhinoj Parikh: Maybe just starting out with the gross margin line. So you know really strong performance across both the product side and the service side. So I know that the product side typically mix can impact the delivery there.
Rupesh Dhinoj Parikh: At least on the surface that just hoping to get some more color in terms of how you guys think about the sustainability of the level of gross margin delivery, we saw in Q1.
John Pearson: John, do you want to take that one?
Speaker Change: John I don't take that long.
John Pearson: Hi, John.
John Pearson: Yeah, there are three key factors that are driving it, as you call it, Rupesh. So we just talked about the services element. So that's a key component of it. And then when you look at the mix of what's growing in our business, the manufactured portfolio versus distributed is really benefiting in a big way. We expect that trend to continue. And then I'll let Zvi talk specifically about some of the key things we expect to continue as we move into Q2 and Q3 and Q4.
John Pearson: Yeah.
John Pearson: Three key factors that are driving it as you called out were passed so we just talked about the services element. So that's a key component of it and then when you look at the mix of what's growing in our business. It's the manufacturing portfolio versus distributed is really benefiting in a big way, we expect that trend to continue and then I'll, let Steve talk specifically to some of that.
Zvi Glasman: Key things, we expect to continue as we trend into Q2, and three and four well I think if youre thinking about services, specifically, yeah, we're going to see a lot of increases in services for the balance of the year, there's always some seasonality.
Zvi Glasman: Well, I think if you're thinking about the services specifically, we're going to see a lot of increases in services for the balance of the year. There's always some seasonality, but we are going to be adversaries in closing 149 wellness centers.
Zvi Glasman: But we are going to be Anniversarying closing 142009 wellness centers.
Zvi Glasman: In terms of some of the improvements in products, yeah, you're right. Some of that came from the mix, but also, we'd like to highlight that we had a fair bit of operational improvements, and some of those were in our base in the back half of last year. So in total, we feel really good about margins moving up and to the right this year. We had previously guided for 50 basis points plus a margin improvement. We think it's more like 75 plus now. And we will tell you that every quarter won't be linear. Mix will impact it, and, you know, we're not really
Zvi Glasman: In terms of some of the improvements in product, yes, youre right. Some of that came from mix, but also we'd like to highlight that we had a fair bit of operational improvements and some of those are in our base in the back half of last year. So in total we feel really good about margins moving up into the right. This year. We had previously guided 50 basis points plus of March.
Zvi Glasman: Improvement, we think it's more like 75, plus now we will tell you that every quarter won't be linear mix will impacted and we're not really prepared to give margin guidance by quarter, but we feel really good about the trajectory of our.
Zvi Glasman: We are prepared to give margin guidance by quarter, but we feel really good about the trajectory of our...
Zvi Glasman: https://www.patreon.com I know we highlighted in our release our comments, and I'm sure you will have more comments about that as this call goes on.
Zvi Glasman: Margins over time.
Zvi Glasman: As we continue to contribute or AD tech.
Zvi Glasman: I know we highlighted in our release in our comments and I'm sure you will have more commentary on.
Zvi Glasman: This call goes on.
McCord Christensen: Great, and then maybe just two related questions just on the environment, so you guys have tremendous momentum throughout your portfolio, but the pet category is clearly a challenge out there, and you know some concerns about the U.S. consumer as well, so just love to hear just what you guys are seeing in the pet category and then just any shifts you're seeing from a
Speaker Change: Great and then maybe just two related questions just on the environment. So you guys have tremendous momentum throughout your portfolio, but the pet category is clearly a challenge out there and you know some concerns about the U S consumer as well so I'd just love to hear just what you guys are seeing that that category and then just any shifts you're seeing from a consumer behavior perspective.
McCord Christensen: We're Rupesh and McCord, and thanks for the questions. We're watching the product categories more than we used to. There's definitely pressure on some of them that is different than what we're seeing. Our categories are still in good organic growth, and obviously, we're growing significantly faster than our competitors. So we have not seen a consumer deprioritizing their pet's health care where they are able to trade down in some of the other categories or go without.
Speaker Change: There were no passengers accord and thanks for the questions.
McCord Christensen: Well.
McCord Christensen: We're watching the.
McCord Christensen: Our categories more than we were there's definitely pressure on some of them that are is different than what we're seeing our categories are still.
McCord Christensen: And good organic growth and obviously, we're growing significantly faster.
McCord Christensen: Then the categories. So we have not seen.
McCord Christensen: And the consumer D prioritizing their pets' health care, where they are able to trade down in some of the other categories are or go without.
Michael A. Smith: Okay, great. And then just my final question. So just on the flea tick season, or I guess in terms of how you guys plan the year, any changes versus what your initial thoughts were in planning for an average year? Is that essentially how it's playing out so far?
Speaker Change: Okay, Great and then just just my final question. So just on the fleet tick season, or I guess in terms of how you guys plan to year any changes versus what your initial thoughts were in planning for an average year or is that is that essentially how it's playing out so far.
Michael A. Smith: And Michael, why don't you take that one?
Michael A. Smith: And Michael why don't you take that one.
Michael A. Smith: Yeah, Rupesh, when we modeled the year, we called it a five on a scale of one to 10, kind of an average year. But if you're looking at the first three to four months of the season, we would say that the year to date scores more like a six. And what we are projecting for the rest of the year would be consistent with that early read that we're seeing on the season, and slightly favorable compared to our original modeling, which had the category growing 3%.
Michael A. Smith: Yeah.
Michael: When we modeled the year, we call it a five on a scale of one to 10 and kind of an average year.
Michael A. Smith: Look at the first three to four months of the season, we would say that the year to date score is more like a six.
Michael A. Smith: What we are projecting for the rest of the year would be consistent with that early read that we're seeing on the season, so slightly favorable compared to our original modeling, which had the category growing 3% category is actually growing closer to 4% to 5% and as cord mentioned, we're well north of that performance for our portfolio and we would expect.
Michael A. Smith: The category's actually growing closer to 4% to 5%, and as Corde mentioned, we're well north of that performance for our portfolio. And we would expect pretty consistent trends throughout the rest of the year, looking at the weather patterns, a variety of different metrics that we get to read the tea leaves, if you will, on the quality of the season, tell us we should expect something like a 5 or 6 on that scale of 1 to 10. Okay, great.
Michael A. Smith: It's pretty consistent.
Michael A. Smith: Throughout the rest of the year looking at the weather patterns variety of different metrics that we get a.
Michael A. Smith: I read the tea leaves if you will on the quality of the season tell us we should expect something like a five or six on a scale of one to 10.
Rupesh Dhinoj Parikh: Okay, great. Thank you. I'll pass it along.
Speaker Change: Okay, great. Thank you I'll pass it along.
Rupesh Dhinoj Parikh: Okay.
Rupesh Dhinoj Parikh: Yeah.
Operator: The next question comes from John Andersen with William Blair. Please proceed.
Rupesh Dhinoj Parikh: The next question comes from Jon Andersen with William Blair. Please proceed.
Jon Robert Andersen: Good afternoon, everybody. Congratulations on the quarter. Thank you.
Jon Robert Andersen: Good afternoon, everybody congrats on the quarter.
Jon Robert Andersen: I wanted to ask about marketing spending. Are you still planning on spending, at this point, 12 million for the year? What is the cadence of that? And could you talk a little bit about how you're applying those dollars? Obviously, you don't want to talk too much for competitive reasons, but maybe the big picture where those dollars are being applied in the products and or services businesses.
Jon Robert Andersen: Wanted to ask about the marketing spending are you still planning on.
McCord Christensen: Thanks.
McCord Christensen: At this point spending I think that's an incremental $12 million for the year what.
McCord Christensen: What is the cadence.
McCord Christensen: That and if you can talk a little bit about how you're applying those dollars. Obviously you don't want to talk too much from competitive reasons, but what kind of maybe big picture where are those dollars are being applied in.
McCord Christensen: In the products or Android services businesses.
McCord Christensen: Hey, thanks, Jon. Thanks for the question. Yes, we are adding the $12 million. It's on a base of $44 million. We have significant investments already being made across the entire year, so the incremental $12 million is heavily front-year loaded. So you'll see us spend close to $10 million in the first half of the year. And then a balance will be spent in the second half, but we have an ample spread across that. We don't love talking about where and how we're spending it for competitive reasons, but I can tell you that, as we've said before, we are measuring it, and we're seeing the return while we're, you know, exceeding our projections and categories.
Speaker Change: Hey, Thanks, John Thanks for the question.
McCord Christensen: Yes, we are writing the 12 million that's on a base of 44.
McCord Christensen:
McCord Christensen: Significant investment is already being made across the entire year, he incremental $12 million is heavily front year loaded.
McCord Christensen: So you will see us spend.
McCord Christensen: Close to $10 million on the front half of the year.
McCord Christensen: And then the balance will be spent in the back half, but we have ample spread across that we we don't love talking about where and how we're spending it for competitive reasons, but I can tell you that as we've said before we are measuring that we're seeing the return why were.
McCord Christensen: You know exceeding our our projections on the categories.
McCord Christensen: And, you know, we feel good that we're still growing into the right amount of spend for how we can affect our company's brands and our sales and profits. So you definitely can see it in the numbers.
McCord Christensen: And.
McCord Christensen: We feel good that we're still growing into the right amount of spend for how we can affect our company's brand and our sales and profit. So you definitely can see it in the numbers.
Jon Robert Andersen: And are you seeing, on the products business, both healthy demand on the distributed side of your business, which maybe is more national or premium, and as well as your own? Or is there trade-down that's helping manufactured brands? I don't know if there's anything you can kind of tease out from what you've seen so far in terms of consumer behavior.
McCord Christensen: And are you seeing on the products business or are you seeing both healthy.
Jon Robert Andersen: Healthy demand on the distribution.
Jon Robert Andersen: <unk> side of your business, which makes us more national or a print.
Jon Robert Andersen: And I'll, let your own or is there trade down that that's helping manufactured brands I don't know if there's any any anything you can kind of tease out from what you've seen so far in terms of consumer behavior.
Michael A. Smith: Michael Smith, would you like to take that one, please?
Jon Robert Andersen: Michael's message I should take that one please.
Michael A. Smith: Yeah, I would say the overall health of the category is solid, right? So our outperformance isn't necessarily coming at the demise of other players in the category. So if you look at the health of our distributed brands' consumption, it is close to the expectation that we built for the year. But if you look at our manufactured brands, we're obviously well ahead of the expectations that we had modeled. And again, a lot of that growth isn't necessarily coming from cannibalization.
Michael A. Smith: Yeah, I would say the overall health of the category is solid right. So our outperformance isn't necessarily coming at the demise of other players in the category. So if you look at the health of our distributed brands consumption. It is close to the expectation that we built for the year. If you look at our manufactured brands were obvious.
Michael A. Smith: Well ahead of the expectations that we had modeled and again a lot of that growth isn't necessarily coming as cannibalization.
Michael A. Smith: We are seeing some new customers come into the category, or we're seeing some lapsed customers come into the category, and that's helping to generate kind of a bigger pie than we expected, and we are getting a bigger piece of that pie than we modeled at the beginning of the year. So it's not that our distributed businesses are performing poorly; it's just that our manufactured brands are really accelerating and exceeding that performance.
Michael A. Smith: We are seeing some new customers come into the category of we're seeing some lapsed customers come into the category that is helping to generate kind of an overall bigger pie than we expected and we are getting a bigger piece of that pie.
Michael A. Smith: Then we modeled at the beginning of the year. So it's not that our distributed businesses are performing poorly. It's just that our manufactured brands are really accelerated in exceeding that recruitment.
Jon Robert Andersen: Yeah, that's helpful. One quick one. I may be wrong about this, but I think it's fairly unusual for you to raise this at this point in the year. Could you talk a little bit about, you know, what gives you the conviction? Maybe there's one or two things. I don't know if it's a really seasoned consumer or if it's just incremental marketing spending. What you're seeing that gives you the kind of conviction to raise this issue at this point? Thanks. Thanks for the question, Jon.
Speaker Change: Yeah. That's helpful. One quick one.
Jon Robert Andersen: I think I may be wrong on this but I think it's fairly unusual for you to raise it disappointed.
Jon Robert Andersen: Could you talk a little bit about you know what gives you the conviction, maybe there's one or two things I don't know if it's a lease season freaked out numerous computer.
Jon Robert Andersen: Incremental marketing spending what you're seeing that gives you that kind of conviction to raise at this point. Thanks.
McCord Christensen: Thanks for the question, Jon. We, you know, obviously, we've historically not raised guidance at the end of the first quarter because we want to see second quarter consumption and get a real... Paul Reade on some of the seasonal parts of our business. I think, first and foremost, we're starting to see our other brands that aren't seasonal pick up steam, and they're continuing to gain momentum, and their top line is growing at a higher percentage than what we did last year or projected.
Speaker Change: Yeah. Thanks for the question John We know obviously, we've historically not raised guidance in the end of the.
McCord Christensen: First quarter, because we want us to use second quarter consumption and get a real.
McCord Christensen: Paul a read on some of the seasonal parts of our business I think.
McCord Christensen: First and foremost we're starting to see our other brands that aren't seasonal pick up steam and they're continuing to gain momentum in their top line is growing at a higher percentage than what we did last year old projected flea and tick out of six add some incremental to it as well.
McCord Christensen: Flea and tick at a six, and add some incremental to it as well. And so right now, with the consumption rates we're seeing, the way that we're seeing the market, we felt very good about raising all three of those lines and leaning in that way. And we hope that the continued acceleration, if we can, we, you know, maybe we do the same thing at the end of the second quarter or third quarter, but we're definitely seeing the right trends right now.
McCord Christensen: And so right now the consumption rates were seen the way that we're seeing in the market.
McCord Christensen: We felt very good about raising all three of those lines in and lean in that way and we hope to be a continued.
McCord Christensen: Continued acceleration if we can we.
McCord Christensen: How are you doing the same thing in the second quarter or third quarter, but were.
McCord Christensen: Definitely seeing the right trends right now.
Speaker Change: Great. Thanks, so much.
McCord Christensen: Right.
Operator: And as a reminder, if you do have a question, please press star then 1 on your telephone keypad. The next question comes from Bill Chappell with Truist Securities. Please proceed.
McCord Christensen: And as a reminder, if you do have a question. Please press Star then one on your telephone keypad.
William Bates Chappell: The next question comes from Bill Chapell with tourists Securities. Please proceed.
William Bates Chappell: Thanks, Good afternoon.
Operator: Okay.
William Bates Chappell: Can you hear me.
William Bates Chappell: I can hear you, Bill. Can you hear us?
William Bates Chappell: I can hear you Bill can you hear us.
William Bates Chappell: Yeah, sorry. Is there any way to kind of bridge the gross margin expansion in terms of product mix versus being manufactured versus distributed as compared to just channel mix? I'm just trying to understand how much of this was your product versus third-party product distribution business, and how much of this was just gains in efficiency over time?
William Bates Chappell: Sorry.
William Bates Chappell: Just a couple of is there any way to kind of bridge the gross margin expansion in terms of.
William Bates Chappell: Product mix versus the manufactured versus distributed.
William Bates Chappell: As compared to you know just just.
William Bates Chappell: Channel mix I'm, just trying to understand.
William Bates Chappell: How much of this was your products.
William Bates Chappell: Versus manufactured products.
William Bates Chappell: And I mean versus versus third party product.
William Bates Chappell: Our distribution business.
William Bates Chappell: How much of this was actually will just gains in efficiency and overall.
McCord Christensen: I think, Bill, we said a couple of times that our products are doing extremely well at a much higher margin. We're seeing the overall average margin in that portfolio move up a little above where we were talking about from before, so we're better than 56-plus right now. And when your growth rates are 14.3 overall, and you have categories where we're, you know, 50%, three times the category, flea and tick being up, you know, better than two times, that's going to be a contributor. We are getting extremely good at our plants, and as you get more throughput and get bigger with the efficiencies we find.
Speaker Change: Yeah, I mean, I think bill we decided a couple of times that.
McCord Christensen: Look our products are doing extremely well at much higher margin.
McCord Christensen: We're seeing the overall average margin.
McCord Christensen: That portfolio move up a little above where we were talking about from before and so were were better than the 56 plus.
McCord Christensen: Right now and when your growth rates are 14.3, overall and you have categories, where we're 50% three times the category flea and tick being up.
McCord Christensen: Better than two times that is gonna be a contributor.
McCord Christensen: We are getting extremely good in our plants and as you get more throughput.
McCord Christensen: Get bigger where the efficiencies we find are paying dividends that are at a faster rate.
Zvi Glasman: We're paying dividends at a faster rate, and then, you know, closing down stores that had a drag on it and picking up the 810 basis points, you know, throughout the year gives us a lot of confidence that we're doing the right things with the margin and heading in the right direction. So our mix for the quarter was really in line with what our normal mix is. And so it wasn't a significant mix change; it's the other things we just talked about. I don't know, Zvi, if I missed something or if you want me to clarify, but that was... McCord said it right.
Zvi Glasman: And then you know closing down stores that had a drag on and picking up the 810 basis points and services that we believe that we can retain.
Zvi Glasman: Throughout the year.
Zvi Glasman: It gives us a lot of confidence that we're doing the right things with the margin and then in the right direction, so or mix for the quarter was really in line with our normal mix is.
Zvi Glasman: And so it wasn't a significant mix changes the other things, we just talked about I don't know if I missed something or.
Zvi Glasman: If I was.
Zvi Glasman: We had a little bit of benefit in the mix, but it was not the biggest part of the story. It was, you know, one or two percent higher manufactured versus distributed versus last year. But by the same token, our manufactured businesses, our health and wellness brands, and our dental treats are growing faster, and they carry a slightly lower margin than our flea and tick products. So, you know, I think everything McCord said is right.
Zvi Glasman: Cord said it right, we had a little bit of benefit in the mix, but it was not the biggest part of the story. It was one or 2% higher manufactured versus distributed versus last year, but by the same token our manufactured business, our health and wellness brands in our dental treats are growing faster and they carry a.
Zvi Glasman: A slightly lower margin than our flea and tick so.
Zvi Glasman: Everything <unk> said is right.
Zvi Glasman: This is a real thing. We expect them to continue, albeit at a different rate, throughout the course of the year. That's why we signal that we'll be up 75 bps plus in margin for the year.
Zvi Glasman: This is the margin improvements are a real thing and we expect them to continue albeit at a different rate throughout the course of the year. That's why we signaled that we will be up 75 bps plus a margin for the year.
William Bates Chappell: Got it. Maybe just to follow up, I thought there was a distributed product, a new product in the market, kind of a three-in-one that was started last year that you thought was going to drive a lot of revenue growth, which would have pushed down margins. Was that not the case? I guess I was thinking there were some headwinds just from that standpoint.
Speaker Change: Got it and then maybe just to follow up on I thought there was a.
William Bates Chappell: A distributed product a new product in the market kind of a three in one that was started last year that you thought was going to drive a lot of the revenue growth, which would have pushed out margins was that not the case that I guess I was thinking there was there were some headwinds just from that standpoint.
McCord Christensen: Yeah, I mean, the product is launched, and it's doing extremely well. We're starting to see it pick up. It was a direct contributor to the excess inventory that people will refer to as you look at it, as we talk to it. But again, the timing of the season and what's going on. You had the first quarter; it's not enough volume. And it was the consumption rates we're watching. We've taken that into account. So, you know, I feel like we can still capture that 75 plus basis point improvement in margin we talked about.
Speaker Change: Yeah, I mean, the product is launched its doing.
McCord Christensen: Doing extremely well, we're starting to see a pick up it was a direct contributor to the excess inventory that people will referred to as you look at if you can talk to.
McCord Christensen: But again, the timing of the season and whats going on in the first quarter was not enough volume and was the consumption rates were watching we've taken out of the counter so you don't feel like we can still capture that 75 plus basis points improvements in margins we talked about.
Michael A. Smith: Okay, and then in terms of kind of what you're seeing for Groco-Roxy, I thought this was a quarter where you'd see pretty meaningful distribution gains. I think that's right. Did you get those gains? Are they on the shelf? And should that show up more as we move forward through this year?
McCord Christensen: Okay, and then in terms of kind of.
Michael A. Smith: What youre seeing for ROFO Roxy, Yeah, I thought this was a quarter, where you'd see pretty meaningful distribution gains.
Michael A. Smith: That's right did you get those gains.
Michael A. Smith: Are they on the shell and should that show up more as we move forward through this year.
Michael A. Smith: Michael, do you want to take that one, please?
Michael A. Smith: Michael you want to take that one please.
Michael A. Smith: Yeah, we had a few big expansions planned that have played out as expected. Last quarter, we talked a little bit about the launch of Rocco and Roxy into the supplement space. Those points of distribution have played out as expected, and they were later in Q1 and will have a bigger impact in Q2 and the rest of the year. Our large bone launch under the Menti's brand also hit our expectations and was a little ahead of that in the quarter. And a couple other expansions within our flea and tick portfolio that all have played out as expected as these Planet Gram modulars for the kickoff to 2024 have hit the stores.
Michael: Yeah, we had a few.
Michael A. Smith: Big expansions plan that have played out as expected last quarter, we talked a little bit about the launch of Rocco and Roxy into the supplement space those points of distribution have played out as expected and they were later in Q1 and will have a bigger impact in Q2 and the rest of the year, our large bone launch under the <unk>.
Michael A. Smith: These brand also hit our expectations and a little ahead of that in the quarter and then a couple of other expansions within our flea and tick portfolio that I'll have played out as expected as these planet grams modulators for the kick off the 2024 at the stores.
Michael A. Smith: Okay, great. And then one last one on services. Any changes to kind of just the overall vet population in terms of hiring and even for the mobile clinic side?
Speaker Change: Okay, Great and then Bob.
Speaker Change: One last one on services.
Michael A. Smith: Any.
Michael A. Smith: <unk> is on kind of just the overall vet population in terms of hiring and even for the mobile clinics are.
Speaker Change: So we don't know yet.
Michael A. Smith:
Michael A. Smith: [inaudible] The key for us is that we've been really focused on the key wellness centers that generate the most income for us, and we've had success in landing vets in key locations that we need. But more importantly, we have a very healthy pet population on the community clinic side. So, continuing to have, on average, around 3500 vets in that population. As a reminder, at the peak COVID time frame, we only had about 800, so we're really happy with how that's climbed back up.
Michael A. Smith: The key for US is we've been really focused on the key wellness centers that generate the most thing come up for us and we've had success in landing bets in key locations that we need but more importantly, we have a very healthy pet sorry, if that population on the community clinic side.
Michael A. Smith: Continuing to have on average about 3500, that's in that population.
Michael A. Smith: A reminder, kind of peak Covid time frame, we only had about 800. So we're really happy with how that has climbed back up and we're seeing it in a cancellation numbers, which was called out by port cancellation numbers are low as long as they've been back in 2019, So really proud of the team in Raleigh, there and getting the does that population back in.
Michael A. Smith: We're seeing it in our cancellation numbers, which were called out by CORD. Cancellation numbers are as low as they've been back in 2019, so really proud of the team for rallying there and getting the vet population back in. Great, thanks for the color.
William Bates Chappell: Great. Thanks for the color.
Speaker Change: Great. Thanks for the color.
William Bates Chappell: Yeah.
William Bates Chappell: The next question comes from John Lawrence with the Benchmark Company. Please proceed.
William Bates Chappell: Yeah, good afternoon. Thanks. Good quarter. Congratulations.
Speaker Change: Yeah. Good afternoon. Thanks.
Speaker Change: A good quarter.
William Bates Chappell: Grants.
McCord Christensen: Court, could you talk about following that last question, just a little bit more on that services optimization, obviously getting that sort of fill rates and everything in that business better than what it's been in the last couple of years. Can you dig in a little bit more on what you did to optimize that mobile clinic business? Is it all just stopping absenteeism? What did you do that really optimized the mobile clinic?
Speaker Change: Could you talk about following that last question, just a little bit more on that services optimization.
McCord Christensen: Obviously getting that.
Speaker Change: Sort of.
McCord Christensen: The fill rates and everything in that business better than what it's been in the last couple of years can you dig in a little bit more what you did to optimize the mobile clinic business is it is it all just.
McCord Christensen: Stopping the absenteeism.
McCord Christensen: Did you do that really optimize the mobile clinic business.
McCord Christensen: Yeah, it's across all the services businesses, not just mobile. It's also the wellness centers that contribute. Look, when you close stores like we did, there's going to be a pickup from underperforming stores. We've put a lot of controls and operational controls on all of the stores.
Court: Yeah, well, it's across all the services business not just the mobile its also the wellness centers that contributes.
McCord Christensen: But look when you close stores like we did there's gonna be a pick up from underperforming stores, we've put a lot of controls and operational.
McCord Christensen: Controls on all of the stores were running more community clinics, then they have a <unk>.
McCord Christensen: We're running more community clinics, and they have higher profitability and margin that they drive. I think just in general, we've really made sure that as we've gotten further and further away from all the closures that took place during COVID and all the cancellations, we're really solving for a lot of those problems. So you're overcoming labor issues that we had coming out of COVID. We're closing stores that were just never going to be great, like we said, and you add all those up together, and that's why you're seeing the margin improvements and the contribution going in the right direction.
McCord Christensen: Higher profitability in margin that they drive in.
McCord Christensen: Just in general we've really made sure that as we've kind of got further and further away from all the closures that took place during COVID-19 and all the cancellations were.
McCord Christensen: We're really solving for a lot of those problems. So you're you're overcoming labor issues that we had coming out of Covid. We're closing stores. We're just never going to be great. Like we've said and you add all those up together and that's why you're seeing the margin improvements on the contribution go in our direction.
McCord Christensen: Right, thanks. Secondly, Rocco and Roxy, can you go back and talk about the plan when you looked at that acquisition? Now you've had it for a period of time, it's doing extremely well. Is that the best example or a base case of how we should look at possibilities, how we extend the business and extend the categories going forward?
Speaker Change: Alright, Thanks secondly.
McCord Christensen: Rocco and Roxy can you can you go back and talk about the plan when you looked at that.
McCord Christensen: And now you've had it for a period of times doing extremely well.
Speaker Change: Is that the is that the best example, or a base case of.
McCord Christensen: How we should look at a.
McCord Christensen: Possibilities, how you extend the business and extend the categories going forward.
McCord Christensen: Thanks for the question, John. Look, we are... I feel like we're running all of our brands, all of our categories in the same way, and we're seeing great results across all of the business by doing that. Rocco & Roxy is a great example of when we make an acquisition, we have line of sight to very quick improvement in placement, product extensions, and a number of ways to improve it a number of times.
Rocco: Yeah. Thanks for the question John I look we are.
McCord Christensen: I feel like we're running all of our brands all of our categories in the same way and we're seeing great results across all of the business.
McCord Christensen: By doing that Rockwood rocks. He is a great example of when we make an acquisition that we have line of sight to very quick improvement in placement.
McCord Christensen: Product extensions and a number of ways to improve it and we've done it.
McCord Christensen: Frankly, most of our acquisitions have been very similar to that. So I'd say we're very smart to find acquisitions that are great brands that we can then put our ability to really improve everything about them, whether it's manufacturing, whether it's efficiencies across just people, its store count, its products, you name it. It's a great example.
McCord Christensen: A number of times frankly, most of our acquisitions have been very similar to that so I'd say, we're very smart to find acquisitions that are great brands that we can then put or your ability to you know really improve everything about it whether it's manufacturing whether it's efficiencies across just the people at store count its products you name. It. It's just it's a great example.
McCord Christensen: And yes, it's done extremely well. And the team has done extremely well at getting placement for the extensions. And we're seeing the brand really performing well across all channels right now. So we hope to continue to do that across our existing brands, that brand, and all the ones that come in the future.
McCord Christensen: Ample and yes, it's done extremely well and the team has done extremely well with getting placement for the extensions and we're seeing the brand.
McCord Christensen: You know really performing well across all channels right now so we hope we hope to continue to do that across our existing brands that brand and all the ones that come in the future.
Jon Robert Andersen: and not to belabor you know go too far with that cord, but would that be even when you look at that example? It's both top line and bottom line from where the original strat plan is, that right?
McCord Christensen: And not to.
Jon Robert Andersen: Go too far with that cord, but would that be even when you look at that example, it's both topline and bottomline from where the original strike plan is that right.
McCord Christensen: Yeah, we're ahead of schedule on the growth rate for the top line. And, you know, we've said many times that we paid, you know, eight, eight and a half times trailing and expected to be kind of that four to five on a run rate basis within six months. And we've been ahead of schedule on both top and bottom.
Jon Robert Andersen: Yeah.
Jon Robert Andersen: We're ahead of our plan on the growth rate for the topline.
McCord Christensen: And we've said many times that we paid you know 88, and a half times trailing and expect it to be kind of that four to five on a run rate basis within six months and we've been ahead of schedule on both top and bottom.
Jon Robert Andersen: Great, congrats, and thanks.
Speaker Change: Great Congrats.
McCord Christensen: Thanks.
Speaker Change: Thanks, John.
Operator: And once again, if you do have a question, please press star, then 1. And at this time, we are showing no further questioners in the queue. And this does conclude our question and answer session for today. I would like to turn the conference back over to McCord Christensen for any closing remarks. Just personally, I'd like to thank you all.
Speaker Change: And once again, if you do have a question. Please press Star then one.
McCord Christensen: And at this time, we're showing no further questioners in the queue and this does conclude our question and answer session for today I would like to turn the conference back over to cord Christensen for any closing remarks.
McCord Christensen: First, I'd like to thank all the great people at PetIQ that keep delivering such great work and delivering great results. I just feel really, really great about how the company continues to get better and better every day at what we do. Thank all the shareholders and analysts and everyone that shows up and challenges us and we get to interact with as we talk about those great results. So I look forward to talking to many of you over the next few days and definitely look forward to The conference has now concluded. Thank you for attending.
McCord Christensen: Just first like to thank all the great people like you that keep delivering such great work to deliver great results and.
McCord Christensen: I just feel really really great about how the company continues to get better and better every day at what we do and thank all the shareholders and analysts that when it does show up and challenge us and we could interact with as we talked about those great results. So look forward to talking to many of you over the next few days and definitely look forward to talking you again, we get to the end of second quarter. Thanks for joining us today are pretty.
McCord Christensen: The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
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