{ "docId": "019dd923-622c-750b-8b98-a3d302cd2d9a", "docSlug": "2692179b6d0b", "documentTitle": "PetIQ, Inc. (PETQ)", "authorId": "54_Spruce_Point_Capital", "authorName": null, "documentKindSlug": "activist-deck", "documentKindLabel": "Activist deck", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2019-04-30 00:00:00", "orientation": "landscape", "aspectRatio": 1.3333334, "pageNumber": 69, "pageCount": 96, "prevPage": 68, "nextPage": 70, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 4, "notes": "Uses a quote-based structure to highlight management's potential deception regarding vendor dependencies.", "elementsJson": [ "headline_text", "paragraph", "callout_box", "quote_block" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-a3d302cd2d9a/69", "deckHref": "/decks/019dd923-622c-750b-8b98-a3d302cd2d9a", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-a3d302cd2d9a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-a3d302cd2d9a#slide-69", "components": [ { "bbox": { "h": 0.04, "w": 0.38, "x": 0.31, "y": 0.29 }, "kind": "callout", "text": "PETQ Earnings Call: Q1 FY18", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "eb8c6f15-2289-4a7c-b736-cfc3098dc748", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "This flies in the face of the fact that the Company eliminated $111M of FY17 sales upon combining PetIQ with VIP. This would have represented just under half of PetIQ sales in FY17.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee3d-779f-8247-18e1194bc985", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.96, "x": 0.02, "y": 0.17 }, "kind": "paragraph", "text": "On its Q1 FY18 earnings call, PetIQ management claimed that just 2% of its distributed product sales were of product sourced through the grey market, and that 90% of distributed product sales were sourced through a direct relationship with manufacturers. Management seemed to imply that these figures were similar to what they had been prior to the VIP acquisition. This flies in the face of the fact that the Company eliminated $111M of FY17 sales upon combining PetIQ with VIP. This would have represented just under half of PetIQ sales in FY17.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "391ddeea-c1b3-4964-b2d6-cf8d4e14e68d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.96, "x": 0.02, "y": 0.87 }, "kind": "paragraph", "text": "If they actually did \"[try] to answer this question numerous times over the last few months,\" would their answer have been materially different had they actually answered the question prior to the VIP acquisition? It's interesting that they conveniently decide to answer it only now, after having acquired VIP's direct line to Merial and other manufacturers. Management appears to want to suggest that grey market procurement was never a big part of the business, and that they never depended as heavily as they actually did on a single vendor such as VIP.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "b750a3c4-1090-4ada-afe4-796617b180e3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.96, "x": 0.02, "y": 0.33 }, "kind": "quote", "text": "\"Hey, Cord, just to kind of clear up a couple of things. Can you let us know for the quarter what percentage of your sales or product came from the gray market, and it related to how your relationships have changed for better for worse over the past few months with the animal health companies in terms of now that you own VIP, is there any way to qualify that?\" - Bill Chappell – SunTrust", "attrs": null, "subkind": "testimonial", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "58559754-ee6d-4491-8cb8-0e03f3f63757", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.33, "w": 0.76, "x": 0.22, "y": 0.48 }, "kind": "quote", "text": "\"Yes. We've tried to answer this question numerous times over the last few months and I'll try and put it to that once and for all.... if you take the isolated items that we distribute where we're supporting animal health manufacturers, 2% -- less than 2% of our current product that we distribute would be considered secondary sourced or gray market as you referenced it. We would have a little bit less than 8% today based on our Q1 results that would be done through what we're calling an authorized distributor. For a designated distributor, where an animal health manufacturer has asked us to purchase through a specific distributor partner as their authorized distributor. The balance of the product that we distribute we have direct relationships with the manufacturers that we are in multi-year contracts and those terms are significantly better than what they've been historically with the companies. And it has put us in a place where we've never had stronger relationships with the company. So roughly 90% of our distribution business is through a direct relationship with the animal health manufacturers. Very different than the rumors or are things that have been implied out in the marketplace about how the company is currently being supported.\" - McCord Christensen – CEO, PetIQ", "attrs": null, "subkind": "testimonial", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c44f38b3-6c24-425a-bb8b-182896bafec6", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "\"Hey, Cord, just to kind of clear up a couple of things. Can you let us know for the quarter what percentage of your sales or product came from the gray market, and it related to how your relationships have changed for better for worse over the past few months with the animal health companies in terms of now that you own VIP, is there any way to qualify that?\" — Bill Chappell – SunTrust; \"Yes. We've tried to answer this question numerous times over the last few months and I'll try and put it to that once and for all.... if you take the isolated items that we distribute where we're supporting animal health manufacturers, 2% -- less than 2% of our current product that we distribute would be considered secondary sourced or gray market as you referenced it. We would have a little bit less than 8% today based on our Q1 results that we'd be done through what we're calling an authorized distributor. For a designated distributor, where an animal health manufacturer has asked us to purchase through a specific distributor partner as their authorized distributor. The balance of the product that we distribute we have direct relationships with the manufacturers that we are in multi-year contracts and those terms are significantly better than what they've been historically with the companies. And it has put us in a place where we've never had stronger relationships with the company. So roughly 90% of our distribution business is through a direct relationship with the animal health manufacturers. Very different than the rumors or are things that have been implied out in the marketplace about how the company is currently being supported.\" — McCord Christensen – CEO, PetIQ", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd952-ee3d-779f-8247-1c6e66987077", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.65, "x": 0.31, "y": 0.03 }, "kind": "title", "text": "Mischaracterizing Vendor Relationships?", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "7b1df10e-20a4-4bc8-b51e-59c7c0bb7358", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "ceo-quote-contradiction", "slug": null, "matchId": "b1ca8e99-4be5-46f2-9b07-a7e79141ec09", "evidence": "Contrasting CEO statement with historical financial data to expose potential deception.", "confidence": 0.9 } ], "arcBeats": [ { "to": 95, "from": 6, "beatId": "96b19703-73d7-4b02-a51b-72443d554cee", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "Detailed critique of PetIQ's business practices, financials, and valuation", "position": 1, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }