Wag Of Approval For PetIQ

Upcoming IPO

Pet medication distributor, PetIQ Inc. (Pending: PETQ), is expected to make its market debut on Friday (7.21.17). The company expects to raise $85M through the offering of 5.7M shares at a price range of $14-$16. Assuming PetIQ prices at the mid-point of its proposed price range, the company would command a fully diluted market cap value of $312.3M. The deal is currently oversubscribed.

We previously previewed this deal on our IPO Insights platform.

Underwriters for the IPO include: Jeffries LLC, William Blair & Co., LLC, Oppenheimer, Raymond James & Associates, and SunTrust Robinson Humphrey.

Business Overview

PetIQ is a manufacturer and distributor of low-cost pet medications and other health products for cats and dogs. Currently, PetIQ is the leading seller to the retail channel of pet products. Its product line includes more than 240 SKUs and includes Rx medications, OTC medications and supplies, health and wellness products, treats, and other supplements.

(S-1/A)

It operates facilities in Daytona Beach, Florida, and Springville, Utah as well as relies on third parties to manufacture products. Products are distributed across multiple retail channels such as mass market, clubs, food and drug, online, pharmacies, and pet specialty outlets. Majority of sales come from the following retailers: BJ’s Wholesale Club, Target, Kroger, Petco, PetSmart, Costco, Sam’s Club, and Wal-Mart, in addition to over 40,000 retail pharmacy locations.

Traditionally, customers purchased pet medications from veterinary clinics; however, more and more customers are choosing to purchase these from retail channels instead. PetIQ is well positioned to benefit from this migration from selling through veterinarians to retail channels. Additionally, the pet market has been growing quickly and the potential passage of the Fairness to Pet Owners Act of 2017, currently pending in Congress, which will make it easier to get pet prescriptions through retailers could also boost PetIQ sales.

PetIQ has a strong track record of launching new products. The company has a sophisticated product team with expertise in market analysis and product development. The company has successfully developed a number of products and brands, including: VetIQ, PetLock, PetAction Advecta and TruProfen and has a strong product portfolio for future launches.

(S-1/A)

The company competes directly and indirectly with other manufacturers of pet products as well as veterinarians. Manufacturers and retail channels include Perrigo, Unicharm Company, Central Garden and Pet Company, Nestle, Mars, and Smucker.

Financial Highlights

Since its launch, PetIQ has grown sales from 31.8M in 2011 to 214.9M for the LTM ending March 2017, representing a CAGR of 44%. Revenue dipped slightly from $205.6M in 2015 to $200.2M in 2016. This was due to the fact the company had realized $16.6 million in net sales to Wal-Mart as part of a one-time sales opportunity in 2015, which was not continued to 2016.

The company reported a net loss of $1.3M and $3.4M in 2015 and 2016, respectively. It appears on track to report a profit for FY2017. The company reported net income of $4.3M for the three months ending in March 2017.

The company's gross profit has remained stable and are in-line with the industry. Gross margins were 16.2% of revenue in 2016.

(S-1/A)

As of its IPO, PetIQ had cash and cash equivalent of $1.4M and total liabilities of $61.3M.

The company plans to use net proceeds from the offering to pay down its debt, as well as for working capital and general corporate purposes.

Executive Management Highlights

McCord Christiansen co-founded PetIQ in 2010 and currently serves as CEO and Chairman. Previously, he held senior positions at Albertson’s and other consumer product companies in the U.S. The SEC filing notes that Mr. Christensen filed for personal bankruptcy in 2010 due to personal guarantees for real estate investments made before the 2008 recession. Mr. Christiansen was discharged of all claims in 2011. He holds a B.S. in Finance from Boise State University.

John Newland joined PetIQ in 2014 and currently serves as CFO. His previous experience comes from positions at Albertson’s and SuperValu. Mr. Newland holds a B.S. in corporate finance from the University of Idaho.

Conclusion

PetIQ operates in a fast-growing market, offers innovative products and established brands, and is poised to benefit from the shift of buying medication at vets to shopping at retail channels. We look forward to watching this deal on Friday and recommend investors consider buying in.