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PetIQ, Inc. (NASDAQ:PETQ)
Q1 2018 Earnings Conference Call
May. 15, 2018 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the PetIQ first-quarter 2018 earnings conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Katie Turner of ICR. Please proceed.

Katie Turner -- ICR Investor Relations

Thank you. Good afternoon and thank you for joining us on PetIQ's first-quarter 2018 earnings conference call. On today's call are McCord Christensen, chairman and chief executive officer, and John Newland, chief financial officer. Before we begin, please remember that during the course of this call management may make forward-looking statements within the meaning of the federal securities laws.

These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events and those described in these forward-looking statements. Please refer to the company's annual report on Form 10-K for the year ended December 31, 2017, and other reports filed from time to time with the Securities and Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied and any forward-looking statements made today. Finally, please note on today's call management will refer to non-GAAP financial measures including adjusted net income and adjusted EBITDA, while the company believes these non-GAAP financial measures will provide useful information for investors. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Please refer to today's press release for a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. And now, I'd like to turn the call over to McCord Christensen, chairman and chief executive officer.

McCord Christensen -- Chairman and Chief Executive Officer

Thank you, Katie, and good afternoon, everyone. Today, I'll provide an overview of our strong start to 2018 and discuss the progress we have made in our Follow the Pets long-term growth plan. John will then review our first-quarter financial results in more detail and reiterate our annual guidance. Finally, John and I'll be available to answer your questions.Our team executed at an incredibly high-level during the first quarter.

We generated record quarterly net sales of $115.1 million, a 71.7% increase over Q1 of 2017, and adjusted EBITDA of $5.4 million. Both net sales and adjusted EBITDA were above the high end of the first-quarter outlook we provided in April.We are very pleased with our business momentum. Our business is well on track to have a record year. The first-quarter financial results reflect the strength of our diversified business model across products, services, and sales channels.

This past quarter there's been a lot of discussion about the slow start to the flea and tick season. All of that is very warranted based on the extremely cold spring we have had across the country, and Nielsen data measured accounts reporting that flea and tick category was down 18% compared to last year. PetIQ, despite the slow start to the season, did extremely well. The first thing I want everyone to understand about our company is only 36% of our sales in Q1 were in Nielsen's measured sales channels.

The 64% of our sales that was in unmeasured sales channels dramatically outpaced the measured flea and tick customers.PetIQ has an extremely diversified business across over 700-plus items, seven different categories, and one of the most diversified customer bases in the country. For example, our e-commerce sales channel had the highest growth rate for the fifth quarter in a row, much higher than the total company growth rate. The evolution of e-commerce continues to be a compelling growth opportunity for us and we intend to be a trusted and valued partner to our customers that are pursuing a variety of go-to-market strategies to accommodate today's consumer shopping habits.Our prescription drug program had the highest product category growth rate of all our product categories. This is driven by more consumers using our pharmacies to fill their scripts and a significant number of pet parents using chewable prescription flea and tick products instead of OTC options.In addition, during the first quarter, we gained over 2,100 new points of distribution in brick and mortar across food, drug, and mass; farm and feed; and independent pet sales channels.

Pet parents increasingly have greater opportunities to find veterinarian-grade medications as well as their over-the-counter flea and tick preventives wherever or whenever they want them.Our mission, to make pets' lives better with more affordable and accessible veterinarian services and products, has never been stronger. The mission continues to allow PetIQ to deliver significant and consistent results quarter after quarter and year over year. We believe our category leadership, broad product portfolio, compelling service offerings, value proposition, and strong customer relationships will continue to fuel our future growth. The first quarter also represented a significant corporate milestone for us, with our previously announced strategic entrance into the large and rapidly growing veterinarian's service industry through our acquisition of VIP Petcare.

Bringing these two companies together, we believe sends a very clear message that we can bring value to everyone, healthier pets, saving pet owners time and money, adding value to retailers through new sales and adding an incremental traffic driver, helping the animal health industry grow faster by accessing the highest concentration of pets that never go to the veterinarian and ultimately all this adds up to us increasing shareholder value.We are quickly leveraging best practices across our organizations and opened two VetIQ Wellness Clinics on time and under budget during the quarter, nine additional clinics so far in the second quarter, and remain on track to have all 20 open by the end of the quarter. We also opened one VIP Wellness Center in the quarter. In total, we ended the first quarter with two VetIQ and 10 VIP Wellness Centers. This is just the beginning of our execution on our Follow the Pets long-term strategic growth initiative.

Today approximately 86% of pet owners purchase their pets' food at our retail partners. As we announced earlier this year, we are trying to open at least 1000 veterinarian health and wellness centers by the end of 2023 with our retail partners, which we will fund through the strength of our balance sheet and cash flow and will require no outside capital sources. We will follow these pets and pet owners by bringing veterinarian services and products to where they are already shopping for their pets' needs. We believe we are well-positioned to drive incremental growth and value for everyone with this program.We continue to share best practices across our organization through our ongoing integration of VIP.

During the first quarter, we completed our review of the mobile clinic business and have implemented changes in the second quarter that have already increased the profitability of the service segment through the discontinuation of approximately 370 host mobile clinic locations. We have seen immediate benefits to our average pets per clinic, dollars per pet while eliminating operating costs. We expect that additional performance improvements will be realized as we optimize frequency, location, and clinic hours. The unit economics of our VetIQ and VIP Wellness Centers are very attractive.On our call in April, we referenced the survey done with the American Animal Hospital Association that said the average services revenue of a veterinary clinic is over $700,000 per year.

Based on our historical numbers from our current operations of VIP and studies we've done in a number of different areas in the market, we continue to believe our conservative first-year projection for a new clinic will be approximately $375,000 in sales, with a net contribution margin of negative $25,000. This ties to the fact that the day we open, there's no business or awareness and it builds a little bit each month, with estimated maturity sometime between Month 13 and Month 18, getting us to a mature level of at least $640,000 of revenue with a net contribution of $190,000 or roughly 30% contribution margin. The payback for all the investment that will be made between capital expenditures and pre-opening expenses will run roughly between 24 and 36 months.PetIQ is well-positioned to take advantage of the macro trends that are happening in the pet industry where there is rising pet ownership, pet humanization, and increased aging of pets that all depend on better healthcare. We believe PetIQ has created a differentiated business model focused on providing convenient access and affordable choice for pet preventive and wellness products and veterinarian services.

This provides us with numerous opportunities to drive growth and returns for our shareholders. We look forward to another exceptional year of execution and strong financial results.With that overview, I will now turn the call over to John.

John Newland -- Chief Financial Officer and Secretary

Thank you, Cord. I would like to reiterate how excited we are about our first-quarter results and our team's ability to deliver on the financial targets we provided on our business call in early April. Net sales and adjusted EBITDA were above the high end of our guidance. During the quarter, our team did a great job of managing all of the controllable aspects of our business.

As we move forward, we continue to believe we are well-positioned to achieve our growth objectives. This is an exciting time for us at PetIQ. With that, let's review our first-quarter financial summary in more detail. With the acquisition of VIP, we now have two reportable segments, products and services.

For first-quarter 2018 consolidated net sales were $115.1 million, an increase of $48.1 million, or 71.7%, over the first quarter of 2017. Organic growth was primarily driven by further penetration of existing accounts with distributed products across different channels and new customer wins. This was partially offset by the impact of adopting ASC 606, which creates some subtle timing shifts as to when sales dollars are recognized. VIP sales contribution for the quarter-to-date period since closing the transaction on January 17, 2018, makes up the balance of the reported year-over-year growth in the first quarter.

Product segment net sales for the first quarter were $97.7 million, an increase of 46% percent year over year. Product segment, operating income was $8.9 million, an increase of about 6.5% compared to Q1 last year after adjustments for the impact of ASC 606. As Cord mentioned, we are very excited that we realize significant gains and new points of distribution for our manufactured product. We continue to have excellent traction within our distributed business and are focusing our efforts on establishing new customer relationships.

It should be noted that this mix shift for 2018 toward the distributed product is consistent with communications we provided during the April business update. Service segment net sales on a reported basis since January 17, 2018, the date we acquired VIP for $17.2 million and an operating loss was $400,000. The prior-year period, the first quarter of 2017, predates our acquisition of VIP and as a result, no financial contribution was recorded. As Cord mentioned, we are excited about the quality of the base services business following the some rightsizing of the network.

And we remain confident about building the business from here as well as expanding our retail presence with the new wellness centers. First-quarter 2018 adjusted EBITDA of $5.4 million and adjusted EBITDA margin of 4.7% were above our guidance. I'd reiterate how the cadence of earnings has changed with the addition of the services business to our consolidated financials. We anticipate that EBITDA as a percentage of net sales will be seasonally lower in the first and fourth quarters and higher in the second and third quarter.First-quarter 2018 gross profit was $15.9 million, or 13.8% as a percentage of net sales, compared to $12.2 million, or 18.2% as a percentage of net sales, in the same period last year.

You should note that there was a non-cash purchase accounting inventory adjustment associated with the VIP acquisition that was recognized in the first quarter of 2018 cost of goods sold in the amount of $1.5 million. This had a 130-basis-point impact on gross profit margin. Adjusting for this one-time inventory change, the adjusted gross margin was 15.1% for the quarter, which we will use as the basis for the bridge.To provide better color, we need to compare the prior-year 18.2% margin to the current-year adjusted 15.1% margin. To explain the 310-basis-point difference, I will need to cover three specific areas.

First, the adoption of the revenue-recognition standard ACS 606 in the first quarter had a cumulative effect of reducing net sales and gross profit in the first quarter with an offsetting increase in net sales and gross profit in the remainder of the year. This also has the effect of reclassifying costs that were previously accounted for within G&A and moves these to cost of goods sold. This impacted gross profit margin by 70 basis points and we'll have the corresponding 70 basis point pickup to our gross profit margin going forward.Second, there was a 140-basis-point impact related to the anniversary of the launch of our Advecta 3 and PetLock MAX product in the first quarter of 2017. This does not affect the margin for the rest of the year as the comparison will be against replenishment of product as opposed to the initial fill orders at the launch in the first quarter of 2017.

To summarize the two points, we expect to have an increase in our gross profit margin of approximately 210 basis points for the remainder of the year.Third, there was a 100-basis-point impact associated with the mix shift toward distributed items. General and administrative expenses were $19 million, or 16.5% as a percentage of net sales, which was better than the guidance we provided in early April. D&A includes $3.2 million of expenses related to our acquisition of VIP, which closed during the quarter. Excluding these one-time expenses, adjusted D&A as a percentage of net sales was 13.7%.Overall, we are really happy with our expense rates, as they came in better than planned for both the products and services segment.

The drivers of the lower expense run rates reflect the adoption of ASC 606, which shifted 656,000 from G&A to cost of goods sold in the products segment. And lower than anticipated amortization as a result of updated purchase accounting for our acquisition of the VIP. Going forward, this will translate to approximately 700,000 of savings on a quarterly basis to the balance of 2018.Net loss was $4 million for the first quarter of 2018, compared to a net income of $4.3 million for the prior-year period. The first-quarter net loss includes $3.2 million in one-time transaction costs associated with the acquisition of VIP, $1.5 million of purchase accounting inventory adjustments, an additional $500,000 of expenses including stock-based comp, a fair-value adjustment of the contingent note, clinic opening costs, and integration costs partially offset by a tax benefit.

Excluding these items, adjusted net income was $1.3 million in the first quarter of 2018, compared to the adjusted net income of $4.3 million in the prior-year period.Turning now to our balance sheet, at the end of first quarter the company had cash and cash-equivalents of $4.7 million, compared to $37.9 million at December 31, 2017. The company's long-term debt balance, which is largely comprised of its revolving credit facility and term loan was $126.9 million as of March 31, 2018, compared to $17.2 million at December 31, 2017. The decrease in cash versus the prior-year period is primarily due to the acquisition of VIP, which closed on January 17, 2018.Now on to our 2018 outlook, we are reiterating our full-year 2018 expectations that we originally shared in conjunction with the announcement of the VIP acquisition in early January. Specifically, we are expecting the full-year 2018 consolidated net sales of $450 million to $500 million, an increase of 69% to 87% year over year, and 2018 adjusted EBITDA of $40 million to $45 million, an increase of 79% to 102% year over year.With respect to our two segments, product and services, we are also reiterating our net sales guidance for each that we provided on April 2.

We also continue to expect incremental annual interest expense of $5.7 million associated with the financing of the transaction, for a total 2018 interest expense of approximately $7.4 million. Again, we expect to realize a 25% statutory tax rate, which reflects the decrease in statutory rates as a result of the recent tax legislation that was passed.In closing, our entire PetIQ team worked hard to deliver these results. We are very pleased with our 71.7% revenue growth with earnings over the high-end of our guidance.

This concludes our financial overview. Cord and I are now available to take your questions. Operator?

Questions and Answers:

Operator

Thank you. At this time, we will conduct a question-and-answer session. [Operator instructions]. Our first question comes from Brian Nagel with Oppenheimer.

Please proceed with your question.

Brian Nagel -- Oppenheimer & Company -- Analyst

Hi, good afternoon. I've got maybe few questions here -- I'll try to grab one quickly. First off, when you start talking about with fewer comments on the flea and tick business, my question there is, as the weather has, I guess normalized, have you seen an improvement in that business, I guess [Inaudible] end of the quarter?And then, also, if you could quantify maybe [Inaudible] what impact weaker flea and tick sales did actually have on sales in the quarter?

McCord Christensen -- Chairman and Chief Executive Officer

Yes. Well, Brian, I think, taking your question a little bit in backward order. I mean No. 1, you see that our large sales were extremely strong for the quarter.

And I think we've let all of that we've got extremely diversified business that has significant customer diversification between measured and unmeasured accounts. This is the first time I've ever communicated that our measured accounts that report through Nielsen in Q1 was 36% of our business, which means unmeasured accounts were 64%. Unmeasured accounts are doing extremely well and made up for any disappointment we would have had in the measured accounts.Nielsen data had flea and tick category in total negative 18% through the end of Q1 and had a negative 21% through April 21, which was the last data that we have seen. Scan data through the register across all accounts, both measured and unmeasured, and the significant replenishment orders as we've seen the first of May kick in, leads us to feel very comfortable that not only did the trend we saw in Q1 that allowed us to have such an incredibly strong sales quarter.

We're seeing some of the best days we have seen in the history of the company with last Friday being the most significant number of flea and tick orders we've received in the history of the company in a single day.So the season's definitely starting to warm up significantly. The sun's out, we're seeing absorption rates at significant rates and I'm confident you'll see the measured accounts data start to be significantly better when the May data polls and we're definitely with not only this deal, overall diversification across prescription drugs and health and wellness items and services and everything else -- that the tough start to the measured accounts in the Nielsen side had no impact, just the opposite. We've been able to have enough diversification that you've seen the company go out the top end of the range that we were expecting for Q1.

Brian Nagel -- Oppenheimer & Company -- Analyst

Got it. Perfect. And then, the [Garbled] with regard to the gross margin commentary you outlined, just want to make sure, I heard this correctly. So, in Q1 as you previously discussed there was a number of kind of one-time-ish factors impacting the gross margin we saw that down year-on-year.

So, I just want to make sure I heard it correctly, if the balance of the year in the next three quarters, in aggregate, you should expect gross margins to be up 210 basis points? Is that correct?

John Newland -- Chief Financial Officer and Secretary

That's 210 basis points over the base run rate for Q1, Brian. They actually will be higher in general but I'd like you to take you through a bridge if I could on gross margin in general because we did anticipate there'd be some questions here. I think I'd like to remind everyone that when we provided the pro forma numbers about a month ago, it was based up to 393 combined performance sales. That carried 22.3 historical margin percentage.So, for your models or how you look at it, I mean I would assume that that's your basis on how you look at the business going forward but remember at that time, we also communicated that there was going to be a 150-basis-point mix shift associated with the changing mix of product that was being sold.

And then, from there we also have a move of 1.9% between G&A and margin. And that's just a result of finalizing our accounting policies for the new combined company has agreed to with other partners KPMG. So there is a corresponding decrease in what you would expect from G&A of 1.9% as a percent of sales going forward as well as a decrease in margin percentage as well.

I think if you take all of that into the consideration it gives you a pretty good understanding of what we should expect from a margin percent for the rest of the year.

Brian Nagel -- Oppenheimer & Company -- Analyst

Got it.

John Newland -- Chief Financial Officer and Secretary

All right. Thanks, Brian.

Operator

Our next question comes from Bill Chappell with SunTrust. Please proceed with your question. Bill your line is live.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Can you hear me now? Can you hear me now?

McCord Christensen -- Chairman and Chief Executive Officer

We got you, Bill.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

I'm learning this phone thing. 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 a related, how your relationships have changed for better or 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?

McCord Christensen -- Chairman and Chief Executive Officer

Yes. We've tried to answer this question numerous times over the last few months and I'll try and put it to bed once and for all. If you think about our business, obviously the products we manufacture come through our factories. We're the manufacturer.

Those wouldn't be considered in this question, but if you take the isolated items that we distribute where we're supporting animal health manufacturers, 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, or 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 multiyear 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 companies.So roughly 90% of our distribution business is through a direct relationship with the animal health manufacturers, very different than the rumors or things that have been implied out in the marketplace about how the company is currently being supported. And I think you see it in the fact that we're achieving a 71.7% increase in sales and going to the top end of the range and are expressing such confidence in our ability to easily be inside of the range into the top end of the range that we've communicated from a sales perspective, Bill.So hopefully that dispels this once in for all and we can focus on the results that we're delivering as a company and how positively the business is operated and helping people find great veterinarian products and services through where they want to shop and when they want to shop.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

No. I appreciate the color clarification. On the VIP business or on the wellness center business, can you maybe give us some color, had you heard from other retailers since this has been announced? And also is there a chance that the number can go meaningfully higher this year or is it really more of a focus on next year?Yes. So, I think this year we were giving a range of 20 to 30 units.

It's unlikely that we will surpass that 20 to 30 units when you think of lead times on review sites. Leases and all the stuff that needs to happen. And the other part is, us being responsible in allowing ourselves to gauge the success of the clinics and how they're performing to make sure we're seeing the right activity and replication that we've seen in past models. And so we feel like we have a responsible level that we communicated and are now watching those results to see if we want to accelerate what takes place in future years.

Right now, what we judge success by today is, we opened up in the first quarter we opened up three wellness centers, two VetIQ Wellness Centers, and one VIP Wellness Center. So we did two different retail banners that we opened up wellness centers in Q1 of this year. So far in Q2, we've opened up another nine wellness centers and we're on track to have all 20 locations open by the end of the quarter.So from the execution of the timing of the program, how positively our team is able to deal with recruiting, hiring and training getting great looking facilities and great services ready to be deployed out in the market. We feel very good about the results.

We're also excited because we assume that these first locations will be the most expensive locations that we would deploy because of the speed that we were trying to deploy them. And even with that speed issue being hit and delivering on the schedule we're already seeing that the capital budgets that we've anticipated are high and conservative and we've been able to do better than what our initial projections are. So we're feeling really good about the ability to get locations out there. And considering the 13- to 18-month mature schedule, we're right where we think we should be relative to opening an initial customer response and so it's early in the innings but the thing that you can measure, we definitely feel like we have the right batting average and we're going into the right innings with the right tools.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. Thanks so much.

Operator

Our next question comes from Kevin Grundy with Jefferies. Please proceed with your question.

Kevin Grundy -- Jefferies -- Analyst

Hey, good afternoon guys. John, a question if you want to come back to the gross margin. So two questions really what's the right gross margin for this business longer term and what have you embedded in your long-term guidance. I'm just trying to parse out here how much of this is structural and it seems like the mix shift going toward distributed products on the legacy business seems like that will likely be something you'll have to continue to contend with.

And I'm just still trying to get there, I guess relative to the pro forma number, which was 22.3% in fiscal '17. So you start to harp on this but I just want to make sure I'm clear.

John Newland -- Chief Financial Officer and Secretary

Yes. So in early April, Kevin, we talked about the fact that there was going to be a compression of 100 basis points off of that 22.3. So and that just dealt with the fact that we had a higher concentration on our distributed items to new customer wins associated with that. So, we're very excited about.

And then additionally we did have some geographic changes between G&A to margin from an expense standpoint that was just as a result of the finalization of our accounting policy which basically takes us to where you would expect the run rate for the remainder of this year. As you look forward, the better question is, how do we expect that to turn out as we go forward and with the growth of these wellness centers, obviously, the service model is a higher margin model. So we do expect margins to rise in 2019 and beyond as we continue to build out the service center model.

Kevin Grundy -- Jefferies -- Analyst

But, on the base business John, is it fair to say that drag will likely be it I think, if you go back at some point in time, the hope was maybe to push some of the branded products but I think the way the growth has been fantastic but where it's been coming from this is on the legacy business and not in the VIP business has really been coming from distributed products. So is it your expectation that will continue to be the case. And if so understanding the mix shifts on the retail side but on the legacy side that will likely continue to be a drag. Is that fair?

John Newland -- Chief Financial Officer and Secretary

That 150 basis points that we talked about was for the year.

McCord Christensen -- Chairman and Chief Executive Officer

I think, Kevin, this is Cord but, I think we have to be able to appreciate that the growth rate we've seen this year is significantly higher than what we would expect to. If we were trying to project the rate at which you're going to see a shift from that channel over or that we're going to disproportionately win control over being the preferred choice to the animal health products in retail, we may see some extreme growth in the distributed items in those events that take place. The good news is, we don't see G&A expanding much from here, it's very little expansion to support significant growth in these categories.

And so although it can be that we're growing at a more realistic growth rate, you won't see the normal drag and if we are growing on an extreme growth rate the dollar contributions will be significant. And as John said, when you look at the services business and what that mix is and what it starts to drive you should start seeing significant margin accretion due to the service margins and ultimately the demand creation we create in the prescription business and the margins associated with that are some of our better margins from a distribution-model standpoint. So I think the model is very healthy going forward and it's what's so hard when you're making a market for the first time and you're significantly impacting such a change in growth in a market. We try and do our best to project what the right growth rate across everything and then you'll have years like this where we have such significant increases and it's driven off of expanded technologies and prescription with two new significant entrances into chewable flea and tick this year that we're seeing benefit from huge gains in distribution on distributed flea and tick as our model starts to be significantly stronger and preferred choice versus alternatives but we're very confident in the trajectory and the total and the balance we are going to see in the future.

We couldn't be more excited about sales and profit dollars that we're generating and where that will lead in the future as you blend all three contributing factors, our manufactured products, our distributed product and our services business.

Kevin Grundy -- Jefferies -- Analyst

Thanks, Cord. One more follow-up just on the on the flea and tick commentary because the Nielsen data that we have Cord, this is even through like early May. So for your own brands, it was still down mid-teens and that builds on sort of mid-teens declines that we saw in the month of April. So I guess can you just reconcile that? I mean, you talked about better growth in non-track channels, you talked about better growth in RX and online.

And then, all the commentary also suggests you're getting much better growth in distributed products versus own brands. Is it a combination of all of that because I guess the Nielsen data that we look at suggests that some of the ground you're going up against some difficult year-over-year comps in Nielsen channels on your own brands? But is that sort of those are factors if you could just sort of reconcile what I'm looking at in Nielsen data versus the strong trends you referred to?

McCord Christensen -- Chairman and Chief Executive Officer

Kevin, I don't have your specific report. So when we have our own call maybe it would be good for you to share exactly what you're looking at. So I'm not trying to take my report and think it's the same as your report. I have all flea and tick, not just my brand sitting in front of me right now.

Through the end of Q1 and through the 21st of April, 18% down through Q1 and 21% down through the 21st of April. We've seen a significant change in that. We do have some specific anomalies where we've had a specific customer that was a serious contributor pull back significantly on their inventory levels and pullbacks, significantly on their displays but that one account can affect the number but again not knowing exactly what you're looking at I can't comment specifically the differences in what you're looking at. What we have seen is, what the level of orders are coming from our most important track accounts and what the orders coming in and what the sell-through is from our unmeasured accounts and our flea and tick number is extremely healthy, which is contributing to our success but, then you take our services business as you take our prescription drug business that I've told you from a category standpoint has our highest growth rate.

And then e-commerce, which we've had significant increases year over year and have a very good contribution to all aspects of our business flea and tick and another aspect. So, the business is performing extremely well. The season is definitely turned at this point. And we see us making up any losses we had in that specific measured accounts segment which is 36% of our sales and that small category but we're well on track.

I feel great about our outlook on where we'll be with our total for the year, where we will be for our earnings for the year.

Kevin Grundy -- Jefferies -- Analyst

OK, very good. Thank you, guys.

Operator

[Operator instructions]. Our next question comes from John Anderson with William Blair. Please proceed with your question.

John Anderson -- William Blair & Company -- Analyst

Hey, good afternoon, everybody. Last but not least, just following up on Kevin's questions on flea and tick. Could you just run me, is Q1 more of a set to shelf order for flea and tick? And then, Q2 is a replenishment-order quarter based on demand trends as you get further into the season. And it sounds like from what you've said, and correct me if I'm wrong, that a month and a half into Q2 here, you're seeing a healthy replenishment activity and you're feeling good about kind of double-digit organic growth in the product side of your business on a full-year basis.

Is that is that a fair characterization?

McCord Christensen -- Chairman and Chief Executive Officer

Yes. I think, John, what we're saying is, we have from a sales perspective a record quarter with information from our desk looking at how the business is performing and that the company will have a record year. Flea and tick is a significant contributor. And flea and tick those across our prescription drug business.

It goes across measured, it goes across unmeasured accounts. First quarter, we do get stores back up to ready for season inventory levels. So there is a sense of fill the shelf that you're talking about taking stores that will have two pieces on hand up to four pieces on hand and so the amount of fill that happens and it isn't like a new fill from empty to full, it's just increasing weeks of supply and it can slowly build and continue to build during Q2. The Nielsen data through the end of a Q1 had consumption in Q1 through the register on measured accounts of $93 million.

Last year for the same quarter was $114 million. And that's across liquid drops, that's across collars, powders, everything that would be measured in that flea and tick. When you about just between what happened in the first three months of the year and what happens through April, the consumption jumped $32 million because of just that ramping of the season, but last year it jumped $45 million for the same time period. So there definitely is that.

Now, as we start seeing every single week, it's more and more and more consumption and we typically see peak week for consumption for flea and tick being around the Fourth of July but we still get great numbers all the way through this fall and even into the fourth quarter from a season standpoint. So right now our unmeasured accounts are outpacing growth rate in volume contribution than our measured accounts. Our measured accounts have had a tough start to this season and if you see the profile of the Wal-Mart shopper and some of the other people out there, it can make sense I think in a lot of ways but we've seen their numbers bounce back significantly and all of our measured accounts bounced back significantly. And, as I said earlier, last Friday, it was the largest single day of orders we had for replenishment inventory in the flea and tick category in the history of the company.

So I think it's a great sign of what we're seeing going through the register and what we're seeing coming from the orders and what you said as far as having the tremendous amount of confidence and continue to have the growth rates in the product segment of our business. We fully believe we will continue and we expect to have a great rest of the year.

John Anderson -- William Blair & Company -- Analyst

Great. That's really helpful. Thank you. Shifting to services, it's very early days.

Any learnings so far with the wellness centers that you've set up and then it sounds like you're going to market under two different banners. I wasn't quite clear on that but could you talk about if that why two different banners and is the service offering the same just tailored for different retailers trying to get a sense for that? Thanks.

McCord Christensen -- Chairman and Chief Executive Officer

Yes. I think for those that have known us for a long time, we've always maintained a channel strategy that had brands to support different channels and we've learned that our branded VIP is used in the past which is the VIP Petcare brand has been where they've operated wellness centers in pet specialty retailers like Petsmart and Petvalu and PET FOOD EXPRESS and Tractor Supply. And we will continue to support a list of retailers with the VIP Petcare brand and continue to expand that as we find the right locations and the right support from the retailers to support expanding the VIP brand.VetIQ brand is a brand that we've introduced to support expanding wellness centers and our traditional resellers of PetIQ legacy retailers like Walmart where we've opened up our first two locations in Q1 and another nine locations so far in Q2 and we'll have 20 locations under the VetIQ brand by the end of the second quarter. And we'll maintain those two brands on going forward.

The services that we offer are wellness services, which means the service list is very similar between both banners. And so you can find the same great quality service in both places. Both banners, we use the same training programs to support how the veterinarians and both are supported.

John Anderson -- William Blair & Company -- Analyst

Thanks. In the services business, given the seasonality, the Q1 obviously is more of a trough quarter in terms of profitability. Is Q4 similar? And then, really the profit in that business, is all derived, you think, in Q2 and Q3?

John Newland -- Chief Financial Officer and Secretary

Yes. John that's a correct way of looking at it. It is seasonal in nature the service is peaked on that and we did communicate previously that it's really pretty close to breakeven model in Q1 and Q4 with a significant amount of the earnings occurring to the middle of the year.

John Anderson -- William Blair & Company -- Analyst

OK. Last one for me. And you have this in your prepared remarks just want to make sure I got it right. The plan to get through a thousand health and wellness center, you plan to self-fund that through internal cash flow, debt capacity that you have, there's not a need to go outside the company for funding in order to execute the five-year plans? Is that accurate?

John Newland -- Chief Financial Officer and Secretary

Yes. That's a correct statement, John. That's a good question. When we put together the model, we did it all predicated based on self-generated funds.

So obviously, if the day comes that we want to escalate that model that's a high-class problem to have and we will make the right decisions as to how we want to fund that at that point if we were to but to be able to handle the organic growth with the thousand clinics that we're talking about, wellness centers that we're talking about that's all based on self-generated funds.

John Anderson -- William Blair & Company -- Analyst

Thank so much. Good luck going forward.

Operator

Our next question comes from Joe Altobello with Raymond James. Please proceed with your question.

Sarah Concannon -- Raymond James --- Analyst

Hi, everyone. This is Sarah on for Joe. Thank you for taking my question. So I was wondering, are you guys going to continue to operate pop-up clinics to really be phased out?

John Newland -- Chief Financial Officer and Secretary

Thanks for the question. Yes. We have no intention of changing, what we call community clinics. Those are clinics that pop up stores, store within the store where we are going out to a retail location.

One day a week, one day a month, a couple days a month and operating those services. Today VIP is supporting pop-up clinics in over 2000 retail locations and, I think, in 2017, we had a little over 72,000 pop-up clinics that we operated. We will grow the number of pop clinics that we will run in 2018 and see it as a continued growth opportunity for us in the future.

Sarah Concannon -- Raymond James --- Analyst

OK. And then, does your guidance still contemplate the revenue impact and not the EBITDA impact in the clinic openings this year and what is the expected EBITDA intact from the 20 to 30 clinics openings?

John Newland -- Chief Financial Officer and Secretary

Are you talking about the 20 VetIQ clinics? Yes, so we will talk about this on a go-forward basis as you look same-store sales versus prior years. So we'll give you what the total sales are to include the wellness centers. And then we will back out anything that's been open less than one year and for comparative purposes that's where we will compare ourselves to and as the anniversary will fold those in.

Sarah Concannon -- Raymond James --- Analyst

OK. All right. Thank you. That's all.

Operator

[Operator instructions]. We have a follow-up question from Brian Nagel. Please proceed.

Brian Nagel -- Oppenheimer & Company -- Analyst

Hi, good afternoon again. So I wanted to follow up with a question on the clinics. So the 20 clinics we're opening here in the next I guess several weeks or so. How should we think about, I know you've given the guidance for the year within the context of a longer-term guidance? But how should we think about [Technical Problem] released initially? And then, the second question is, [Technical Problem] is there going to be some type of significant module campaign that's going to help you get you to those revenue numbers?

McCord Christensen -- Chairman and Chief Executive Officer

Brian your first question kind of blurred out. I think the question you asked was, what is the short-term EBITDA and kind of revenue impact from the clinics? Is that correct? Is that what you asked?

Brian Nagel -- Oppenheimer & Company -- Analyst

Well, I'm going to ask again. What I'm asking is, how should we think about if you want the revenue ramp up at these clinics. You talk about what we should expect for the first year, how is that going to ramp initially?

John Newland -- Chief Financial Officer and Secretary

I think we've given you kind of a one-year what we believe the inventory or the revenue is going to be, it's roughly $375,000 in Year 1. We right now are seeing about 20% of that revenue number and in product and 80% of it in services. And then, we're literally modeling them from Month 1 being no business at all to where it slowly ramps every month until we get to Month 18 and we hit maturity, which I don't have the number in front. I think it's $640,000 maturity, and during Year 1, we show that will generate negative contribution margin at about $25,000 in Year 1 from a contribution standpoint but depreciation virtually offsets that to where it should be on an annualized basis about a net neutral to EBITDA.

Brian Nagel -- Oppenheimer & Company -- Analyst

OK. Sorry.

John Newland -- Chief Financial Officer and Secretary

The second question you had around, what are we doing from a marketing standpoint and we obviously have got a strategy where we open the clinics for roughly about a month to deal with any timing and getting our building permits and our people trained and making sure that we've hit an operating level of confidence before we grand open the location. So we're trying to grand open the locations on roughly week-5. Now, week-5 we have a huge Saturday event. We typically have everything from offering some incentive an item and price that people can't say no, they come in and just really understand who we are and what we do.

And then, we're doing a number of other things relative to grand opening that we're going to keep in place through the full year to include customer intercepts and the aisle signage programs across the Walmart store both inside and out. We have community outreach programs where we're able to hit and target both from a social-media standpoint by zip code and from a mailer by ZIP code. So I think we've got some pretty well-thought-out plans. The plans we've seen work in our past lives of operating similar type facilities.

And in what we've seen work in VIP historical experience, I think we've got a great plan. We're going to tweak them and we're going to learn best practices and hopefully get better and hopefully shorten that acceleration time to maturity closer to the 13 versus the 18 months but, we feel very good about where we sit today and where we're going and all of those marketing plans are budgeted into those initial investments and into the P&L that we've disclosed.

Brian Nagel -- Oppenheimer & Company -- Analyst

Got it. Thank you.

Operator

Thank you. At this time, I would like to turn the call back to Mr. Christensen for closing comments.

McCord Christensen -- Chairman and Chief Executive Officer

Well, thank everybody for joining us today. Obviously, there's been a lot of hard work done here on our side of the table to deliver the results we have this quarter. And as you can tell from our enthusiasm for the business we're very excited about the momentum and the momentum gain that we see across the total company and couldn't be more excited with the results that we've been able to achieve in this quarter and what we expect out of the rest of the year. We look forward to talking to you again in a few months as we are able to report the results from Q2 and look forward to interacting with all of you as we see you at various conferences and things over the next few months.

And thank you again for coming today and I appreciate all of your support.

Operator

[Operator signoff]

Duration: 52 minutes

Call Participants:

Katie Turner -- ICR Investor Relations

McCord Christensen -- Chairman and Chief Executive Officer

John Newland -- Chief Financial Officer and Secretary

Brian Nagel -- Oppenheimer & Company -- Analyst

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Kevin Grundy -- Jefferies -- Analyst

John Anderson -- William Blair & Company -- Analyst

Sarah Concannon -- Raymond James --- Analyst

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