23 Aug PetIQ: Carving a Niche in the Pet Wellness Industry
PetIQ, Inc. (NASDAQ: PETQ) is a leading pet medication and wellness company delivering a more intelligent way for pet parents to help their pets live their best lives through convenient access to affordable veterinary products and services.
PetIQ, Inc. (NASDAQ: PETQ)
Market Cap: $609.33M; Current Share Price: $20.71
Data by YCharts
The Company
PetIQ engages with customers through more than 60,000 distribution points across retail and e-commerce channels with its branded and distributed medications, further supported by its world-class medications manufacturing facility in Omaha, Nebraska.
The Company’s national service platform, VIP Petcare, operates in over 2,600 retail partner locations in 41 states providing cost-effective and convenient veterinary wellness services.
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PetIQ has two reporting segments: (i) Products; and (ii) Services. The Products segment consists of manufacturing and distribution businesses. The Services segment consists of veterinary services and related product sales.
The primary rationale behind covering this Company is discussed in detail below.
- Macro consumer tailwinds
The pet industry is growing steadily – by year-end 2022, approximately 52% of U.S. households owned a dog or cat, compared to 50% of total U.S. households in 2010. Packaged Facts estimates that by 2026 about 55% of United States households will own a pet.
The growing pet industry has led to trends such as:
It is fascinating that U.S. retail sales of pet medications reached $11.6 billion in 2021, including sales through veterinarians, brick-and-mortar stores, and online retailers. Packaged Facts projects that pet medication sales will grow to $13.8 billion by 2026.
Thus, there is an excellent opportunity for companies operating in the pet industry. With its prevalent business model, existing products and services, and innovations, PetIQ is poised to benefit from the upcoming expansion fully.
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- Dependable Growth Strategy
Pet IQ follows a growth-oriented business model that can help it expand through initiatives such as
- Increasing consumer awareness of products in the retail & e-commerce channels:
The Company maintains strong relationships with the top distributors in the veterinary channel. It has intense penetration of the retail and e-commerce channels and high awareness among pet parents.
PetIQ aims to increase its share of the overall pet Rx and OTC medications and health and wellness products market through a broad network that includes leading U.S. retailers and e-commerce partners. The Company is focused on building consumer awareness, converting more pet owners to use products it manufactures or distributes, and providing excellent value.
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In addition, retail and e-commerce partners continue to see that PetIQ’s proprietary manufactured products bring significant value to pet health and wellness category sales and profit. PetIQ continues to build pet owner awareness that its proprietary manufactured products offer the same quality and active ingredients at significant savings versus national veterinary brands.
- Increase the volume of products with existing retailers & e-commerce partners:
The Company’s net sales and profitability may continue to grow as it expands the number of products available for purchase. PetIQ invests in research and development investments to support its proprietary manufactured products that could expand SKU placement within new and existing accounts.
PetIQ currently offers the most extensive portfolio of OTC pet health and wellness products, giving it a competitive advantage over other companies in the same industry.
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- Provide veterinarian services in conjunction with retail partners:
PetIQ provides a comprehensive suite of services at 2,600 community clinic locations and wellness centers hosted at retailers across 41 states. Services include diagnostic tests, vaccinations, prescription medications, microchipping, grooming, and hygiene and wellness checks.
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The Company expects to continue to open new wellness centers over the next several years, potentially having approximately 1,000 wellness centers. These wellness centers may help to address the $10.0 billion underserved veterinary market, according to an L.E.K. Consulting report from 2017, consisting of an estimated $7.4 billion of services and an estimated $2.6 billion in related product revenue generated from such services based on management estimates.
In other words, PetIQ has created an influential network of distributors and partners that can be leveraged to reach existing and potential customers and thus grow the sale of products and services.
- Financial Performance
For Q2 FY23, PetIQ reported record net sales of $314.5 million, an increase of 24.8% over Q2 FY22, and above the Company’s guidance for the quarter of $270.0 million to $280.0 million. Products segment net sales were $278.2 million compared to $219.0 million in the prior year period, an increase of 27.0%. Services segment net revenues were $36.4 million compared to $33.0 million in Q2 FY22, an increase of 10.2%.
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The Company also reported a record quarterly adjusted EBITDA of $32.9 million, compared to $24.1 million in Q2 FY22, an increase of 36.3% and above the Company’s guidance for the quarter of $24.0 million to $26.0 million. Net income was $9.6 million, or earnings per diluted share (EPS) of $0.32, an increase of 104.2%, compared to net income of $4.7 million, or EPS of $0.16 in Q2 FY22.
What makes the Company more bankable is the fact that over the last few years, PetIQ has shown consistent financial performance.
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For FY22, PetIQ reported net sales of $921.5 million, in line with the Company’s guidance of $920 million to $940 million, consisting of Product segment net sales of $800.3 million and Services segment net revenues of $121.2 million.
Adjusted EBITDA was $77.7 million, compared to $69.7 million in the prior year period, an increase of 11.4%. Adjusted net income was $17.7 million, or adjusted EPS of $0.61, an increase of 103.3% compared to adjusted net income of $8.3 million, or adjusted EPS of $0.30 in the prior year period.
For FY23, PetIQ expects net sales to increase by about 12% and adjusted EBITDA to increase by 22% compared to the prior year.
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The Company seems to continue on its upward growth trajectory for the next few years. However, potential investors should also watch out for the risks given below:
Conclusion:
PetIQ seems to have a bright future as it operates in a steadily expanding industry. It offers a comprehensive set of products and services through a trusted network of distributors and retailers, giving the Company a competitive edge over other companies in the same business. The efficacy of PetIQ’s business model is further proved by the Company’s steady sales and EBITDA growth over the past several years.
Nevertheless, there is the risk that PetIQ may lose out to competitors with more significant financial resources in the future, or its business model may fail due to resistance from veterinarians or its largest retail customers. Hence, while the Company seems highly promising, it would be best to proceed cautiously.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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Reference:
https://www.sec.gov/ix?doc=/Archives/edgar/data/1668673/000162828023005700/petq-20221231.htm
https://www.sec.gov/ix?doc=/Archives/edgar/data/1668673/000162828023028317/petq-20230630.htm
https://ir.petiq.com/static-files/2f323daa-5681-46fc-a886-156d4779330f
https://ir.petiq.com/static-files/053e5e98-55fd-447b-aad4-12a9c42bbef8
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