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OurPet's Company Reports Second Quarter 2018 Results

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E-Commerce, Club Stores and Mass Retail Growth Drive Record Revenues

FAIRPORT HARBOR, Ohio, Aug. 02, 2018 (GLOBE NEWSWIRE) -- OurPet's Company (OTCQX:OPCO) (www.ourpets.com), a leading proprietary pet supply company, today reported operating results for the three months ended June 30, 2018.

Second Quarter 2018 Summary

  • Increased net revenue by 5.7% to $6.54 million for the second quarter of 2018 compared to $6.18 million in the second quarter of 2017;
  • Reported net income of $165,398 down 32.9% from the second quarter of 2017;
  • Reported earnings per diluted share of $.01 for both the second quarter of 2018 and the second quarter of 2017;
  • Grew Food, Drug and Mass (FDM) Retail business by 20% in the second quarter of 2018 compared to the second quarter of 2017;
  • Grew E-Commerce sales by 18% to $1.2 million for the second quarter of 2018 compared to $1.0 million in the second quarter of 2017;
  • Grew the Value channel 53% to $458,000 for the second quarter of 2018 compared to $300,000 in the second quarter of 2017; and,
  • Expanded distribution into national club store chain.

Dr. Steven Tsengas, Chairman and CEO commented, "We are pleased by the record second quarter revenue and see this as a direct result of our upgraded sales team and focused efforts and investments in growing the E-Commerce, FDM, and Value channels to offset Pet Specialty's struggle. The Pet Specialty channel was down 15% as retailers adapt to lower foot traffic.  Despite the challenges, we continue to maintain a strong presence in Pet Specialty as this channel currently provides about 29% of our overall sales, down from the 36% of sales for the same year-ago period.  We recently received news from a major national Pet Specialty retailer that several of our electronic cat toys will be placed in all their stores along with various catnip products featuring our CR9 proprietary potency."

"Private label sales accounted for about 17% of our total sales for the second quarter as compared to 11% for the same year-ago period.  This increase is an example of how we can offer OurPet's products as a solution to those customers whose core branding strategy revolves around private label. International sales grew about 4.3% with the United Kingdom's major Pet Specialty retailer sales doubling from the comparable year-ago period." 

With respect to Product Categories, our Bowls/Feeders sales grew about 13%.  Our Designer Diner® 3 Height Adjustable Feeder has become one of the top Pet Accessories on Amazon.com and a customized version is selling at a major national club store chain. Our Toys/Accessories sales grew about 5% and Edibles/Consumables grew close to 12%.  Offsetting this growth was a 33% decline in our Waste/Odor products due to high 2017 initial stocking orders of our Switchgrass Natural Cat Litter. 

Dean Tsengas, Chief Operating Officer noted, "While sales increased, our net income declined, primarily due to lower gross profit margins. Gross profit decreased about $77,000 in the second quarter of 2018 when compared to the same prior year period.  Gross profit margin was 27.8% compared to 30.6% for the comparable year-ago period." He added, "These are the realities of penetrating new market segments and meeting competition. The good news is that we expect to realize significant cost reductions on many products we sell resultant from major initiatives driven by our Global Sourcing team, installation of improved warehouse storage/handling systems, and better overhead absorption as we enter the busiest part of the year. We expect both gross profit and gross margin improvement in the second half of 2018.  If we continue to hold the line on Selling, General and Administrative costs (down 0.8%) from the same year-ago period, we expect the gross profit improvement to flow down to the bottom line."

Dr. Tsengas added, "OurPet's has always taken pride in its intellectual property and the ability to create innovative solutions in house. While 70-75% of our products are patent protected we are committed to marketing products that our customers want whether they be our creation or licensed by us. As an example of this strategy, we recently became the exclusive North American distributor for certain well-known candy brand plush toys for both dogs and cats.  These colorful, eye-catching toys have been picked up by major national retailers and are expected to drive sales in the second half of 2018 and beyond.  We believe we're doing the right things to move our Company forward and through the uncertain retail landscape."

Dr. Tsengas stated in summary, "As the retail landscape develops, we are committed to offering innovative products at competitive prices to all channels, including pet specialty. We have made significant internal upgrades in our Sales and Operations departments to expand our sales efforts into our high growth channels including E-Commerce, Value retailers, and Clubs. We believe OurPet's has the strongest most innovative pet product line in the pet industry and when combined with our strengthened marketing and sales capabilities we are well positioned for long-term growth."

2018 Second-Quarter Results
Net revenue increased 5.7% to $6,536,549 for the second quarter of 2018 compared to revenues of $6,183,800 for the prior-year period. The approximate $353,000 increase was due to strong sales growth in three channels: 20% in the FDM channel, 18% E-Commerce sales growth and 53% sales growth from the Value channel.  Most of our sales growth came from our Bowls/Feeders product category, particularly raised feeders and more specifically our Designer Diner® 3 Height Adjustable Feeder. Offsetting these channels' sales growth was a decline in Pet Specialty sales of about 15% or down about $333,000 from the second quarter of 2018 compared to the same year-ago period. 

Gross profit decreased 4.1% to $1,816,638 for the second quarter 2018 compared to $1,893,818 for the prior-year period. Gross profit margin decreased to 27.8% from 30.6% in the prior-year period.

Net income decreased 32.9% to $165,398 in the second quarter of 2018 compared to $246,619 for the prior-year period. Net income per diluted share was $0.01 compared to $0.01 in the prior-year period, based on weighted average shares of 19,911,281 for the current quarter compared to a weighted average of 18,922,288 shares for the prior-year period.

Adjusted EBITDA decreased 7.2% to $419,384 for the second quarter of 2018 compared to 451,678 for the prior-year period.  A reconciliation of Adjusted EBITDA to GAAP Net Income is provided in an attachment to the summary financial statements.

2018 First Six Months Results
Net revenue decreased 0.6% to $12,643,929 for the first six months of 2018 compared to revenues of $12,720,610 for the same prior-year period. The approximate $ 77,000 decrease was due to a 13.7% decline in Pet Specialty sales compared to the same year-ago period which was offset by 18% sales growth in the E-commerce channel, 5.3% growth in the FDM channel and 11.4% sales growth in the Value channel.  The Bowls/Feeders product category grew about 6% over the same prior year-ago period while Toys/Accessories decreased about 2% and Waste/Odor product sales decreased about 18% from the same year-ago period.

Gross profit decreased 13.7% to $3,466,181 for the first six months of 2018 compared to $4,018,586 for the prior-year period. Gross profit margin decreased to 27.4% from 31.6% in the prior-year period.

Net income decreased 53.5% to $292,971 in the first six months of 2018 compared to $629,996 for the prior-year period. Net income per diluted share was $0.01 compared to $0.03 in the prior-year period, based on weighted average shares of 19,973,078 for the first six months compared to a weighted average of 18,691,913 shares for the prior-year period.

Adjusted EBITDA decreased 41.5% to $ 629,895 the first six months of 2017 compared to $1,067,333 for the prior-year period.  A reconciliation of Adjusted EBITDA to GAAP Net Income is provided in an attachment to the summary financial statements.

About OurPet's Company
OurPet's Company designs, produces and markets a broad line of innovative, high-quality accessory and consumable pet products in the U.S. and overseas. Investors and customers may visit www.ourpets.com for more information about our company and its products. OurPet's websites include www.petzonebrand.com and www.ourpets.com.

Forward-Looking Statements
Certain of the matters set forth in this press release are forward-looking and involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions; growth in the industry; general economic conditions; addition or loss of significant customers; the loss of key personnel; product development; competition; risks of doing business abroad; foreign government regulations; fluctuations in foreign currency rates; rising costs for raw materials and sources of supply that may be limited or unavailable from time to time; the timing of orders booked; and the other risks that are described from time to time in OurPet's filings with the Securities and Exchange Commission. For further information, contact:

Contacts
                                                           
OurPet's Company
Dr. Steven Tsengas, CEO
(440) 354-6500, x111

Alpha IR Group
Chris Donovan or Steve Calk
(312) 445-2870
OPCO@alpha-ir.com


     
 OURPET'S COMPANY AND SUBSIDIARIES
  CONSOLIDATED OPERATING RESULTS
             
   For the Three Months Ended    For the Six Months Ended
   June 30,    June 30,
    2018       2017     2018     2017
             
Net revenue $   6,536,549     $   6,183,800   $   12,643,929   $   12,720,610
Cost of goods sold     4,719,911         4,289,982       9,177,748       8,702,024
Gross profit on sales     1,816,638         1,893,818       3,466,181       4,018,586
             
Selling, general and administrative expenses     1,584,418         1,597,633       3,161,952       3,241,514
             
Income from operations     232,220         296,185       304,229       777,072
             
Other (income) and expense, net     (11,876 )       4,291       16,453       14,244
Interest expense     31,016         22,914       57,354       44,759
Income before taxes     213,080         268,980       230,422       718,069
             
Income Tax expense     47,682         22,361       (62,549 )     88,073
Net Income $   165,398     $   246,619   $   292,971   $   629,996
             
             
Basic and Diluted Earnings Per Common Share            
After Dividend Requirements For Preferred            
Stock:            
Net Income $   0.01     $   0.01   $   0.01   $   0.03
             
             
Weighted average number of common shares            
outstanding used to calculate            
basic earnings per share     19,809,405         18,276,189       19,807,319       18,043,671
             
Weighted average number of common and            
equivalent shares outstanding used to            
calculate diluted earnings per share     19,911,281         18,922,288       19,973,078       18,691,913
             
             
             
 OURPET'S COMPANY AND SUBSIDIARIES       
 CONSOLIDATED BALANCE SHEETS       
             
  June 30,   December 31,      
  2018    2017      
ASSETS            
Cash and cash equivalents $   503,201     $   522,170      
Investments - Trading     1,508,757         993,911      
Receivables, net     4,595,218         5,425,513      
Inventories, net     7,356,729         7,235,440      
Prepaid expenses     946,385         1,000,679      
Total current assets     14,910,290         15,177,713      
             
LONG TERM ASSETS             
Property and equipment, net     2,028,223         1,997,186      
Amortizable intangible assets, net     407,455         421,078      
Intangible Assets     477,328         477,328      
Goodwill     67,511         67,511      
Deposits and Other assets     25,000         25,900      
Total long term assets     3,005,517         2,989,003      
             
Total assets $   17,915,807     $   18,166,716      
             
LIABILITIES AND STOCKHOLDERS' EQUITY             
Current maturities of long-term debt     553,494         561,723      
Accounts payable     825,112         792,122      
Accrued expenses     457,442         691,293      
Total current liabilities     1,836,048         2,045,138      
             
LONG TERM LIABILITIES             
Long-term debt - less current portion above     889,150         1,172,374      
Revolving line of credit     1,813,728         1,777,907      
Deferred income taxes     221,566         325,223      
Total long term liabilities     2,924,444         3,275,504      
             
Total liabilities     4,760,492         5,320,642      
             
Stockholders' Equity     13,155,315         12,846,074      
             
Total liabilities and stockholders' equity $   17,915,807     $   18,166,716      
             

 

                 
EBITDA          1st six months   Q2'18 Variance vs. Q1'17 2018 vs 2017 Variance YTD
    Q2'18 Q2'17     2018     2017   $'s %   $'s %
                         
Net Income $    165,398 $    246,619   $    292,971   $    629,996   $    (81,221 ) -32.93 %   $    (337,025 ) -53.50 %
Interest expense $    31,016 $    22,914   $    57,355   $    44,759   $    8,102   35.36 %   $    12,596   28.14 %
Tax Expense $    47,682 $    22,361   $    (62,550 ) $    88,073   $    25,321   113.24 %   $    (150,623 ) -171.02 %
Depreciation $    154,763 $    138,657   $    300,411   $    262,725   $    16,107   11.62 %   $    37,686   14.34 %
Amortization $    14,525 $    15,127   $    29,708   $    29,780   $    (601 ) -3.97 %   $    (72 ) -0.24 %
  Total EBITDA $    413,384 $    445,678   $    617,895   $    1,055,333   $    (32,292 ) -7.25 %   $    (437,438 ) -41.45 %
                         
Stock Options expense $    6,000 $    6,000   $    12,000   $    12,000   $    -   0.00 %   $    -   0.00 %
Warrants expense $    - $    -   $    -   $    -            
  Total Adjusted EBITDA $    419,384 $    451,678   $    629,895   $    1,067,333   $    (32,294 ) -7.15 %   $    (437,438 ) -40.98 %
                 

The above table reconciles the Company's disclosure of Net Income per GAAP with the non GAAP financial measure EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization.) As the investment community has often requested the EBITDA calculation to help them evaluate performance, Management has chosen to provide this disclosure. Although EBITDA is widely used in the investment community as a benchmark to reflect operating performance, financing capability and liquidity, it is not regarded as a measure of operating performance and liquidity under generally accepted accounting principles ("GAAP"). It also does not represent cash flows from operating activities. In addition, the Company's EBITDA may not be comparable to similar indicators provided by other companies. The Presentation of this additional information is not meant to be considered in isolation or as a substitute for net income (loss), or any component thereof, in accordance with GAAP.

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