petq-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38163

PetIQ, Inc.

(Exact name of registrant as specified in its charter)


Delaware			35-2554312
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
230 E. Riverside Dr.			83616
Eagle, Idaho			(Zip Code)
(Address of principal executive offices)

208-939-8900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading
Symbol

Name of Each Exchange on Which Registered

Class A Common Stock, $0.001 par value

PETQ

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes x No

As of May 10, 2023, we had 29,137,754 shares of Class A common stock and 244,540 shares of Class B common stock outstanding.

Table of Contents

PetIQ, Inc.

Table of Contents


			Page

Part I.	Financial Information		3

	Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
		PetIQ, Inc. Condensed Consolidated Balance Sheets	4
		PetIQ, Inc. Condensed Consolidated Statements of Operations	5
		PetIQ, Inc. Condensed Consolidated Statements of Comprehensive Income	6
		PetIQ, Inc. Condensed Consolidated Statements of Cash Flows	7
		PetIQ, Inc. Condensed Consolidated Statements of Equity	9
		PetIQ, Inc. Notes to Condensed Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4.	Controls and Procedures	26

Part II.	Other Information

	Item 1.	Legal Proceedings	26
	Item 1A.	Risk Factors	26
	Item 2.	Unregistered Sales of Equity Securities and Use of Proce eds	27
	Item 3.	Defaults Upon Senior Securities	27
	Item 4.	Mine Safety Disclosures	27
	Item 5.	Other Information	27
	Item 6.	Exhibits	27

Signatures			28

Table of Contents

PART I —FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continuing,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “project,” “should,” “will,” and similar expressions. Examples of forward-looking statements include, without limitation:

•statements regarding our strategies, results of operations or liquidity;

•statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance;

•statements of management’s goals and objectives; and

•assumptions underlying statements regarding us or our business.

Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances, or achievements expressed or implied by the forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made or management’s good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, factors discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q; general economic or market conditions, including the impacts of the ongoing COVID-19 pandemic, global economic slowdown, increased inflation, rising interest rates and recent and potential bank failures; our ability to successfully grow our business through acquisitions and our ability to integrate acquisitions, including Rocco & Roxie; our dependency on a limited number of customers; our ability to implement our growth strategy effectively; our ability to manage our manufacturing and supply chain effectively; disruptions in our manufacturing and distribution chains; competition from veterinarians and others in our industry; reputational damage to our brands; economic trends and spending on pets; the effectiveness of our marketing and trade promotion programs; recalls or withdrawals of our products or product liability claims; our ability to introduce new products and improve existing products; our failure to protect our intellectual property; costs associated with governmental regulation; our ability to keep and retain key employees; our ability to sustain profitability; and the risks set forth under the “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, and other reports filed from time to time with the Securities and Exchange Commission.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.

Table of Contents


PetIQ, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in 000’s except for per share amounts)


	March 31, 2023		December 31, 2022
Current assets
Cash and cash equivalents	$	25,410	$	101,265
Accounts receivable, net	203,325		118,004
Inventories	158,087		142,605
Other current assets	10,330		8,238
Total current assets	397,152		370,112
Property, plant and equipment, net	71,667		73,395
Operating lease right of use assets	16,651		18,231
Other non-current assets	2,527		1,373
Intangible assets, net	176,145		172,479
Goodwill	203,573		183,306
Total assets	$	867,715	$	818,896
Liabilities and equity
Current liabilities
Accounts payable	$	150,012	$	112,995
Accrued wages payable	9,547		11,512
Accrued interest payable	3,155		1,912
Other accrued expenses	8,388		7,725
Current portion of operating leases	6,410		6,595
Current portion of long-term debt and finance leases	8,675		8,751
Total current liabilities	186,187		149,490
Operating leases, less current installments	10,956		12,405
Long-term debt, less current installments	441,938		443,276
Finance leases, less current installments	703		907
Other non-current liabilities	4,782		1,025
Total non-current liabilities	458,379		457,613
Equity
Additional paid-in capital	380,429		378,709
Class A common stock, par value $0.001 per share, 125,000 shares authorized; 29,499 and 29,348 shares issued, respectively	29		29
Class B common stock, par value $0.001 per share, 8,402 shares authorized; 244 and 252 shares issued and outstanding, respectively	—		—
Class A treasury stock, at cost, 373 shares	(3,857)		(3,857)
Accumulated deficit	(153,034)		(162,733)
Accumulated other comprehensive loss	(2,275)		(2,224)
Total stockholders' equity	221,292		209,924
Non-controlling interest	1,857		1,869
Total equity	223,149		211,793
Total liabilities and equity	$	867,715	$	818,896

See accompanying notes to the condensed consolidated financial statements.

Table of Contents


PetIQ, Inc. Condensed Consolidated Statements of Operations (Unaudited, in 000’s except for per share amounts)


	For the Three Months Ended
	March 31, 2023		March 31, 2022

Product sales	$	258,993	$	247,750
Services revenue	31,478		27,945
Total net sales	290,471		275,695
Cost of products sold	200,902		190,851
Cost of services	27,308		27,209
Total cost of sales	228,210		218,060
Gross profit	62,261		57,635
Operating expenses
Selling, general and administrative expenses	43,326		48,236

Operating income	18,935		9,399
Interest expense, net	8,732		6,121

Other income, net	(26)		(3)
Total other expense, net	8,706		6,118
Pretax net income	10,229		3,281
Income tax expense	(448)		(121)
Net income	9,781		3,160
Net income attributable to non-controlling interest	82		29
Net income attributable to PetIQ, Inc.	$	9,699	$	3,131
Net income per share attributable to PetIQ, Inc. Class A common stock
Basic	$	0.33	$	0.11
Diluted	$	0.32	$	0.11
Weighted Average shares of Class A common stock outstanding
Basic	29,125		29,164
Diluted	35,230		29,290

See accompanying notes to the condensed consolidated financial statements.

Table of Contents


PetIQ, Inc. Condensed Consolidated Statements of Comprehensive Income (Unaudited, in 000’s)


	For the Three Months Ended
	March 31, 2023		March 31, 2022
Net income	$	9,781	$	3,160
Foreign currency translation adjustment	(51)		(456)
Comprehensive income	9,730		2,704
Comprehensive income attributable to non-controlling interest	82		25
Comprehensive income attributable to PetIQ, Inc.	$	9,648	$	2,679

See accompanying notes to the condensed consolidated financial statements.

Table of Contents


PetIQ, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited, in 000’s)


	For the Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net income	$	9,781	$	3,160
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization of intangible assets and loan fees	8,463		8,966

Loss on disposition of property, plant, and equipment	—		148
Stock based compensation expense	2,466		3,823



Other non-cash activity	(52)		316
Changes in assets and liabilities, net of business acquisition
Accounts receivable	(84,250)		(65,026)
Inventories	(13,567)		(71,417)
Other assets	(2,065)		(1,273)
Accounts payable	36,019		74,094
Accrued wages payable	(1,988)		(1,496)
Other accrued expenses	1,866		3,325
Net cash used in operating activities	(43,327)		(45,380)
Cash flows from investing activities

Business acquisition (net of cash acquired)	(27,634)		—
Purchase of property, plant, and equipment	(1,910)		(5,678)

Net cash used in investing activities	(29,544)		(5,678)
Cash flows from financing activities


Proceeds from issuance of long-term debt	15,000		40,000
Principal payments on long-term debt	(16,900)		(16,150)



Principal payments on finance lease obligations	(346)		(399)

Tax withholding payments on Restricted Stock Units	(840)		(688)
Exercise of options to purchase Class A common stock	—		100
Net cash (used in) provided by financing activities	(3,086)		22,863
Net change in cash and cash equivalents	(75,957)		(28,195)
Effect of exchange rate changes on cash and cash equivalents	102		(107)
Cash and cash equivalents, beginning of period	101,265		79,406
Cash and cash equivalents, end of period	$	25,410	$	51,104

See accompanying notes to the condensed consolidated financial statements.

Table of Contents


PetIQ, Inc. Condensed Consolidated Statements of Cash Flows, Continued (Unaudited, in 000’s)


	For the Three Months Ended March 31,
Supplemental cash flow information	2023		2022
Interest paid	$	6,808	$	4,072
Net change in property, plant, and equipment acquired through accounts payable	(34)		290
Finance lease additions	—		59

Income taxes paid, net of refunds	3		(5)

See accompanying notes to the condensed consolidated financial statements.

Table of Contents


PetIQ, Inc. Condensed Consolidated Statements of Equity (Unaudited, in 000’s)


	Three months ended March 31, 2023
	Accumulated Deficit		Accumulated Other Comprehensive Loss		Class A Common			Class A Treasury Stock			Class B Common			Additional Paid-in Capital		Non-controlling Interest		Total Equity
					Shares	Dollars		Shares	Dollars		Shares	Dollars
Balance - January 1, 2023	$	(162,733)	$	(2,224)	29,348	$	29	373	$	(3,857)	252	$	—	$	378,709	$	1,869	$	211,793
Exchange of LLC Interests held by LLC Owners	—		—		8	—		—	—		(8)	—		115		(115)		—

Other comprehensive income	—		(51)		—	—		—	—		—	—		—		—		(51)

Stock based compensation expense	—		—		—	—		—	—		—	—		2,445		21		2,466

Issuance of stock vesting of RSU's, net of tax withholdings	—		—		143	—		—	—		—	—		(840)		—		(840)
Net income	9,699		—		—	—		—	—		—	—		—		82		9,781
Balance - March 31, 2023	$	(153,034)	$	(2,275)	29,499	$	29	373	$	(3,857)	244	$	—	$	380,429	$	1,857	$	223,149

Three months ended March 31, 2022

Accumulated
Deficit

Accumulated
Other
Comprehensive
Loss

Class A Common

Class A Treasury Stock

Class B Common

Additional
Paid-in
Capital

Non-controlling
Interest

Total
Equity

Dollars

Balance - January 1, 2022

(114,525)

(684)

29,139

SEC Form 10-Q filed by PetIQ Inc.