PETQ is a distributor and manufacturer of veterinarian-grade pet prescription medications, over-the-counter flea and tick preventatives, and health and wellness products for cats and dogs. Some of the brands it distributes include Heartgard, Frontline, and Rimadyl. Its proprietary brands include Heart Shield, PetLock, vetGuard, and PetAction.
The company has launched its products into all major retail channels, including mass, food and drug, clubs, pet specialty, online, and pharmacies. Some of its most prominent customers include Walmart (WMT), Sam's Club, Costco (COST), PetSmart, Petco, Kroger (KR), and Target (TGT). Its products are also sold at more than 40,000 retail pharmacy locations.
A key advantage that PETQ has is that pet owners can typically buy its distributed products from retailers at a 20-30% savings compared to the prices charged by veterinarians, and can save as much as 50% on its proprietary value-branded products, which contain the same active ingredients as distributed products and are subject to the same FDA and EPA approval process.
The pet industry has been strong as people are quite willing to spend handsomely on their pets. Here are some numbers that bare that out. In 2016, approximately 63.4 million U.S. households (52%) owned a cat or a dog, compared to 50% in 2008. And, according to a report by American Pet Products Association, Americans spent $81.4 billion on pet products and services in 2016, nearly triple from 2001. As for pet medications specifically, U.S. sales are projected to grow by a CAGR of 6% between 2016 and 2019.
Another tailwind for PETQ's business is that the ongoing migration of pet medication purchases from veterinarians to retail. This migration away from the veterinary channel has already begun as the estimated mass market share of the U.S. pet medication industry increased from 12% in 2011 to 21% in 2015 while the estimated veterinarian share declined from 63% in 2011 to 59% in 2015.
Taking a look at the financials, PETQ provided some preliminary Q2 results in its IPO prospectus. Net sales are expected to be $85-$87 million, representing year/year growth of 40%. The increase in sales was due primarily to sales to new customers, growing sales to existing customers and the launch of new products.
For Q2, Adjusted EBITDA is expected to be $7.1-$7.6 million, up about 80% year/year, driven by the increase in sales as well as lower G&A costs as a percentage of sales. PETQ is projecting Net Income to soar from $600K to $5.6-$6.0 million, due to the reasons stated above, in addition to improved gross margin from product mix.
As of June 30, 2017, it had approximately $1.1 million of cash and cash equivalents and approximately $37.7 million of debt outstanding.