PetIQ (PETQ) IPO Is a Success: 5 Fast Facts You Need to Know

Getty

Reigning cats and dogs.

When it comes to physical and spiritual health for people, the stock market says “meh.”

When it comes to health for pets, the market gives two paws up.

YogaWorks decided to postpone its initial public offering Thursday. But pet medication and wellness company PetIQ (PETQ) opened trading today after a big sign of demand when it priced and even more when shares started to change hands.

Shares priced at $16 Thursday and closed at $23.32. 

Here’s what you need to know about the PetIQ IPO.

1. The Deal Raised $100.8 Million

FreeStockCharts.com

Selling 6.3 million shares, the deal raised $100.8 million. Shares trade on the Nasdaq.

The lead underwriters on the deal are Jefferies and William Blair. Oppenheimer, Raymond James and SunTrust Robinson Humphrey are acting as co-managers.

The underwriters have the option to buy up to 850,000 shares for 30 days after today’s debut.

Investors in the company include Eos Funds, Labore et Honore, Porchlight Entities, True Science Founders and NBTS Holdings, Fortune reported.

PetIQ plans to use the proceeds from the IPO to pay off about $52.5 million in preference notes. It will also buy 2.2 million LLC interests from holding company HoldCo. PetIQ is the sole managing member of HoldCo.

2. Products Are Already in 40,000 Pharmacies

Unlike its more complex corporate structure, the business of PetIQ is very straightforward.

The company sells pet medication at different outlets, looking to give pet owners more choices and better prices compared with veterinary offices, where most get their medication.

The company sells medication in three categories.

• Prescription medications for heartworm prevention, arthritis and heart disease.
• Over-the-counter medications for flea and tick prevention.
• Health and wellness products, which include vitamins, treats, hygiene products and nutritional supplements.

The company has its products in 40,000 retail pharmacies. It also has supply deals with Wal-Mart (WMT), Sam’s Club, Costco (COST), PetSmart (PETM), Petco (PETC), Kroger (KR), Target (TGT) and BJ’s Wholesale.

PetIQ is considering investing in a trial program that would put pet clinics in or near retailers where you can buy its products.

The company was named True Science, but changed its name to PetIQ in July 2016.

3. We Are Family, Say Pets

Looking at the market, sales of pet medications were $7.4 billion in 2016 and will have a compound annual growth rate of 6% until 2019 to $8.9 billion, the company said in an SEC filing, citing Packaged Facts.

In U.S. Households, 52% had pets and more households have pets than have children.
About 79% of dog owners and 77% cat owners view their pets as members of the family. (Could that 2% difference be when the cat knocks things off the bookcase?) But such high rates make pets “a financial priority,” PetIQ said.

“Consumers are exhibiting greater interest in improved health for their pets and, as a result, are increasing their purchases of the most effective veterinarian-grade pet products and supplies,” the company said. “Pet owners of all demographic and income levels aspire to purchase leading veterinarian-grade treatments.”

The company noted its first-to-market advantage.

“For human pharmacies, Rx pet medication is an attractive high-margin, cash-based business with no delayed insurance reimbursement, no co-payers, and no government formularies or pricing policies,” it also noted.

There is also an interesting legislative aspect to this future prospects of the company: The Fairness to Pet Owners Act 2017 (FTPOA).

If passed, this would require veterinarians to provide prescriptions for medicine that can be used elsewhere, like local drugstores, something vets are not currently required to do.

“Because a pet prescription is required to purchase many pet medications, we believe that the FTPOA, if enacted, would significantly increase retail sales of pet medications and our net sales and profits,” the company said.

4. PetIQ Posted a 1Q Profit

PetIQ

Sales for the first quarter ended March 31, 2017 rose to $67 million from $52.3 million the same period a year ago.

For all of 2016, net sales dropped to $200.2 million from $205.7 million.

Other expense decreased by $0.8 million to $4.1 million in 2016, compared to $4.9 million in 2015. Of the $4.1 million of other expense in 2016:

The company posted a net profit of $4.3 million, switching from a loss in the same quarter a year ago of $304,000.

The company said enhancing margins will be a major strategy.

“We expect that our margins will increase as our product mix continues to evolve and include a greater portion of our proprietary value-branded products,” PetIQ said. “Additionally, as net sales increase, we will realize the benefits of leveraging our existing assets and facilities and share efficiency gains with our sourcing and manufacturing partners further driving margin improvement.”

5. Pet Insurance Is a New Perk

From a personal perspective, the business model does look attractive. After being offered 15 cat pills for $700, we eventually found 25 of the same medication for $85 online.

The cost of medical treatment for pets continues to increase.

The demand for affordable pet care is increasing so much that employers are offering pet insurance among benefits. That can be essential with pets now going through procedures similar to humans, such as CTs, MRIs and ACL surgery.

Are you a thoughtful investor looking for uncommon investment ideas?

Stirling Strategic Investor is a new source of high-quality investment ideas from seasoned investment professionals Tim Collins and Kim Khan, formerly senior members of TheStreet.com. Tim and Kim share 50 insightful equity trade’s per year for $100. That’s just $2 per trade.

Tim and Kim’s first recommendation, Mobileye, was recently acquired at a 34% premium by Intel. We provide the first two ideas at Stirling Strategic Investor for free. We look forward to providing you uncommon ideas of true value.

Learn more at Stirling.