PetIQ, Inc.
Q4 2020 Earnings Call Transcript

Published: 27 Feb 2021

[Operator:]

Thank you for standing by. This is the conference operator. Welcome to the PetIQ Fourth Quarter and Full Year 2020 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the conference over to Katie Turner, Investor Relations. Please go ahead.

[Katie Turner:]

Good afternoon. And thank you for joining us on PetIQ’s fourth quarter and full year 2020 earnings conference call. On today’s call are Cord Christensen, Chairman and Chief Executive Officer; Susan Sholtis, President; and John Newland, Chief Financial Officer.

[Cord Christensen:]

Thank you, Katie, and good afternoon, everyone. We appreciate you joining us today to discuss our fourth quarter and full year 2020 financial results. Today, I will begin with an overview of our strategic business and financial highlights, then Susan will provide greater detail on our Services segment, and John will discuss and review our financial results. Finally, Susan, John and I will be available to answer your questions. In 2020, the diversification of our business model and the complementary nature of how we connect with pet parents across our Products and Services segment has never been more evident. We generated record fourth quarter and full year net sales of $164.2 million and $780.1 million, respectively and full year consolidated adjusted gross margin improved 130 basis points to 19.6%, and adjusted EBITDA of $67.8 million increased nearly 12%. This is impressive considering we operated much of the year with our wellness centers and community clinics temporarily closed due to COVID-19 and while we started reopening a small number of our locations in May, we still had certain regions, for example, in California, where our clinics and wellness centers were not reopened until early in the fourth quarter based on local and state regulations and restrictions.

[Susan Sholtis:]

Thank you, Cord. The fourth quarter marked a significant turning point for the Services segment, as we continue to navigate operating in the ongoing COVID-19 environment. In line with our stated objectives, we reopened 100% of our community clinics and wellness centers during the quarter and we celebrated 19 new wellness center openings. Of these openings, 58% were greenfield clinics, and 42% were community clinic conversions. This brings us to a total of 126 wellness centers in operation to end 2020. Our 37 field offices remained open and fully operational and continued to ramp throughout the quarter in order to put us in line with prior year rates to start 2021. We believe we are well positioned for future growth, demonstrated by a strong sequential improvement in our financial results as compared to the third quarter of 2020. Services segment net revenues increased 60% from third quarter of 2020 and adjusted EBITDA improved by 129%. We also saw tremendous growth in all of our KPIs versus the prior period. The number of clinics we ran increased by 74%, and the number of pets we saw increased by 78%. This is quite an accomplishment for our organization when you consider the external transitory headwinds we experienced during the year from COVID-19.

[John Newland:]

Thank you, Susan. We are pleased with our robust fourth quarter 2020 financial results. As Cord mentioned, both our net sales and adjusted EBITDA were higher than we expected to finish the quarter and the year. Our diversified business model has helped to fuel our consolidated results and positions us well to continue to benefit from the favorable pet health and wellness industry tailwinds. Our Products segment generated solid results and our Services segment improved 60% from third quarter this year, almost achieve breakeven sales with the prior year quarter. This is quite impressive as we continue to experience absenteeism between 12% to 16% creating closures week-to-week due to COVID-19 illness. We estimate the COVID-19-related impact from the temporary closure of our Services segment to be approximately $5.6 million in lost net revenue and a reduction of $680,000 in adjusted EBITDA for the quarter. This assumes that our existing Services locations had remained opened and performed at budget. On a year-to-date basis, this equates to $80.3 million in estimated loss net revenue and $16.3 million corresponding reduction in adjusted EBITDA. Based on these estimates, full year Services segment net revenue would have been $134.6 million and adjusted EBITDA of $19.7 million. Shifting to our consolidated results, we generated record net sales increase of $10 million to $164.2 million. This was $20 million above our expectations for the quarter driven by a return to normalized inventory levels at our customers and a return to prior sell-through growth rates. As a reminder, we had an unusual surge in Products segment orders in Q2 related to COVID-19, which corrected itself during Q3. We are pleased with how well our Products business performed during 2020 and our team’s ability to have agility as they navigated through COVID-19 and the shift in consumer shopping habits related to the pandemic. To start 2021, we expect to see continued growth in our manufactured higher margin product offerings, particularly as we benefit from the contribution of Capstar’s portfolio of products, which we acquired on July 31, 2020, and continued growth in both our Perrigo Animal Health acquisition items, and our existing health and wellness products. Fourth quarter gross profit increased 39.7% to $28.6 million and gross margin increased 415 basis points to 17.4% even as the company experienced an estimated 264-basis-point headwind from the temporary Services segment closures due to COVID-19. Adjusted gross profit was $32.3 million and adjusted gross margin was 20% for the fourth quarter of 2020, representing 280 basis points of margin expansion when costs associated with the temporary Services segment closures are added back. Fourth quarter 2020 general and administrative expenses were $32.6 million, compared to $23.6 million in the prior year period, an increase of $9.7 million. Adjusted general and administrative expenses were $26.9 million, compared to $22.4 million in the prior year period, an increase of $4.5 million. This increase reflects $3 million of incremental amortization expense associated with the purchase of Capstar, $1 million of normalized selling and marketing expenses related to Capstar brand, and $500,000 of professional fees associated with the first year of Sarbanes-Oxley control testing. Excluding the increased amortization expense and the control testing fees previously mentioned, adjusted general and administrative expenses would have been $23.4 million or 14.2% of net revenue, displaying 26 basis points and continued G&A leverage. At the segment level, our Products segment net sales for the quarter were $145.1 million, an increase of 7.5% year-over-year. For the full year, our Products segment net sales were up 17.6% to $725.7 million. This was on top of a strong Products segment net sales growth of 41.8% in 2019. And adjusted EBITDA increased approximately 45% to over $24.8 million. On a full year basis, Products adjusted EBITDA increased 59% to $117.2 million. Our 2020 Products segment results are ahead of expectations that we had for the business at the start of the year. Keep in mind, in the fourth quarter we experienced a more normal margin contribution from the Capstar products now that wily sold through the on hand inventory that was at our historical distributed product margin profile. Also, consistent with recent trends across the consumer industry, our e-commerce channel experienced disproportionately higher growth rates than other sales channels. In total, our manufactured brands, including PetArmor and Capstar are experiencing some of the highest growth rates they have ever generated. These factors help fuel healthy operating leverage, which is a primary driver for the strong growth of the Products segment adjusted EBITDA. Within our Services segment, net revenues were $19.2 million, compared to $19.4 million in the same period last year. As Cord and Susan discussed, due to COVID-19-related temporary closures of the Services locations, the company generated lower revenue during the quarter than the prior year period, however, we significantly closed the gap seen in Q2 and Q3, and our results and on a year-over-year basis, we were nearly back to breakeven versus a significant deficit in Q2 and Q3. On a sequential basis, net revenue increased 60% for Q4 from Q3, a nice sign of stabilization in the Services business as compared to the significant COVID-19 headwinds during the year. As a result, we reported adjusted EBITDA of $510,000 and while down as expected from the $1.9 million in Q4 of last year, it is an improvement of 129% from a loss of $200,000 in the third quarter of 2020. Finally, on a consolidated basis, Q4 adjusted EBITDA was $13 million, an increase of 34%. If you factor in or add back our estimated loss of $680,000 of adjusted EBITDA from the Services segment, then our Q4 adjusted EBITDA would have been approximately $13.7 million and if you add back our estimated lost adjusted EBITDA of $16.3 million for the full year, our adjusted EBITDA would have been $84 million, an increase of 38% year-over-year. This assumes that our existing Services locations had remained open and performed at budget. In this scenario, we are actually tracking better than our original guidance of $80 million of adjusted EBITDA for the full year that we provided in March of 2020. Turning to our balance sheet and liquidity. As of December 31, 2020, our long-term debt balance, which is largely comprised of our revolving credit facility, term loan and convertible debt issued in May of 2020, $355.7 million. We had total liquidity of approximately $128 million. We also have an additional $15 million available via an accordion feature of the credit agreement for a total of $143 million of available liquidity. Working capital increased to $141.2 million for the year ended December 31, 2020 versus prior year primarily due to the $123 million of net proceeds from a convertible note offering partially offset by the purchase of Capstar. When combined with our available liquidity, the consistent positive contribution from the Products segment puts PetIQ in a position to drive free cash flow and build cash in the quarters ahead, as well as opportunistically pay down our debt. From an outlook perspective, we are currently not providing Q1 or annual 2021 guidance due to the uncertainty surrounding the impact and duration of the COVID-19 pandemic on our Services business. As we noted in today’s earnings release, all of our company’s community clinics and wellness centers have reopened as of December 31, 2020. The Services segment continues to experience an elevated level of absenteeism due to COVID-19-related illnesses, and as a result, 12% to 16% of the Services segment operations are temporarily closed week-to-week in an effort to keep employees and pet parents safe. Nonetheless, we are pleased with the results we have experienced in our wellness centers and community clinics in operation, giving us confidence in our plan to open 130 to 170 wellness centers in 2021, as Susan discussed in detail. We are pleased with the Capstar results in the nearly seven months since we acquired the business. Our team continues to have confidence about the incremental growth potential for Capstar, as compared to when we completed the acquisition and we believe the basis for our greater than $20 million of EBITDA contribution for Capstar for the fiscal year 2021 is very achievable. In closing, we are pleased with our results for the fourth quarter and the year. We generated record net sales and what continues to be a dynamic operating environment. Our team has executed well and their contributions along with the strength of our pet health and wellness products and service capabilities, will enable us to reach more pet parents and their pets with our convenient and affordable offerings. With that overview, Cord, Susan and I are available for your questions. Operator?

[Operator:]

Thank you. Our first question is from the line of David Westenberg with Guggenheim Securities. Please go ahead.

[David Westenberg:]

Hi. Thank you for taking the question and congrats on a good quarter. So when I am looking at the service center math, I think, you noted $5.6 million, is what you would have done, that’s a 29% increase. Does that include the absenteeism of the 12% to 16% or is that just the opening here? And I mean if it’s not -- if you didn’t include the absenteeism, I mean, does that imply 40% year-over-year growth?

[Cord Christensen:]

Thanks, Dave, for the question. The comments on the quarter. But the $5 million does take into account the 12% to 16% absenteeism. What it doesn’t take into account in the margin profile is the increased expenses we are spending to run the base business during COVID. So the margins would have been significantly higher without those expenses on the $19 million or the $25 million and would have been in line with both 2018 and 2019 operating results on the total sales from a margin and sales perspective. So it does -- despite does add back to lost sales from the 15%, the 29% is the more accurate growth rate for the quarter.

[David Westenberg:]

Perfect. No. Thank you very much. And then in terms of your long-term view with Capstar, I mean, it sounds like you are integrating this into the portfolio very well. It wasn’t necessarily core to Elanco. I know you have a lot of the channels to use and those kind of levers to pull. Now longer term, let’s say, that product in 2022, do you think that, well, what do you think the natural growth rate of that product is and would it have to have marketing spend behind it once you fully put it on your channels?

[Cord Christensen:]

Great question, Dave. I think, first, I’ll kind of take it in a reverse order. The good news is that the base P&L that we acquired from Elanco included $6 million to $8 million of marketing spend against the brand and we think that that money will continue to be invested against the brand. But, obviously, we understand how to spend it, we think significantly better in the right channels that will allow us to properly support the brand going forward. We saw a very significant year-over-year growth in Q4 on the brand in certain channels and very nice growth, better than we expected overall. But if you remember, flea and tick is seasonal, fourth quarter is the lowest quarter of the year from a seasonality perspective. We have started the year with a similar trend in Q1, where we are starting to get into the season. We are anxious to see how Q2 goes. But there’s no doubt the margin profile of this product line, the early indications of the growth that’s there that we are being conservative right now with our estimates and if we continue to see these kind of results, we will be able to give you an update of what the actual long-term growth trajectory is. But right now we think it’s in line with our overall belief of how the company can grow and with that margin profile. It’s going to be very accretive to the company.

[David Westenberg:]

Great. No. Thank you very much. And then just back to the clinics, you had a lot of re-openings in the quarter, you performed well. Can you just maybe give us a base in terms of what they -- a snapshot of what they look like when you did reopen them? And what I mean by that is, when you reopened the newer ones, what I mean, did they perform, like say it’s a six-month out -- a six-month old clinic. Did they perform like a six-month-old clinic or did you have to kind of reopen them and redo the marketing assets as maybe they are a three-month clinic, does that question makes sense?

[Cord Christensen:]

Yeah. It does. Susan, do you want to take it. I think these are topics you and I have talked about a lot lately, so I think you will do great at it.

[Susan Sholtis:]

Yeah. Thank you and thank you for the question, David. It’s a good question. I think that there were -- I want to just back up for one moment just to talk about the headwinds that we were experiencing when you look at those fourth quarter results. If you remember, at the end of the day, we were obviously had to put completely different protocols in place, number one. Number two, we have the PPE in place. Number three, we didn’t spend anything in marketing in Q4. And so the numbers that you are seeing right now, where we were basically back to where we were in the -- in prior year quarter. That’s without marketing spend. So the demand is there. And in the clinics that you are talking about, the clinics that we opened in fourth quarter, they opened very busy, and I think, again, it comes back to the fact that we are in the right place at the right time and pet parents, that pent-up demand that’s out there, they have been waiting a year to come into clinics and we are definitely seeing that. I think that the other piece too is that, if 50% of the people that are coming to us right now are brand new to us. That means that number one they are not getting into their full service veterinarians right now or number two, they are looking to us for affordability.

[David Westenberg:]

Thank you very much. I will jump back in queue.

[Operator:]

Our next question is from the line of Joe Altobello with Raymond James. Please go ahead.

[Joe Altobello:]

Thanks. Hey, guys. Good afternoon. So first question on the wellness center closures due to absenteeism, the number that you quoted for us tonight the 12% to 16%, that was basically the same number that you gave us three months ago. So I am curious here in early ‘21, January, February, with case numbers coming down overall, is that number getting better at all in Q1?

[Cord Christensen:]

Susan, you want to go ahead?

[Susan Sholtis:]

Yes. No. I’d be happy to. Thank you for the question. Interestingly that the absenteeism rate has remained in the range of 12% to 16%, it has not changed. It fluctuates from week-to-week. So there may be a week where we are at 12% and then there’s a week that we are at 16%. We believe that we will be more able to accurately forecast absenteeism once we start to see that trend dropping very consistently and we haven’t seen that trend drop very consistently. To give you just a touch of flavor, I think, around what causes absenteeism. I think I will give you just a couple of the top reasons. Number one is an individual that is working in our clinics that has COVID-like symptoms. Our number one rule at PetIQ, whether you are in one of our facilities or in our -- in one of our clinics is that you do not come to work with symptoms, you do not come to work if you are sick. Number two is we have veterinarians that have a child or a family member that wakes up with COVID-like symptoms and they stay home. That’s another big reason why we have absenteeism. And then third, if an individual feels fine and they come walking into our clinics, we temperature monitor every time people come walking into our doors and if they have an elevated temperature but they still feel fine, we have to close that clinic down. So it is more than just a positive COVID case. It really is very linked to symptoms and I think, again, just making sure that we continue to keep people safe. But that 12% to 16% right now is pretty consistent. I think as we continue to get the vaccine out and available around the country, we will start to see those rates drop.

[Joe Altobello:]

Got it.

[Cord Christensen:]

Joe, I think…

[Joe Altobello:]

Yes.

[Cord Christensen:]

Joe, from my point -- hey, Joe. This is Cord real quick. I think the thing I would mention to you is, we have modeled out what we are seeing across the entire four quarters and although we are showing it at these ranges for Q1 and most of Q2. We do show a pretty significant tapering off in Q3 and Q4, and I feel like we have been reasonably conservative in our assumptions for full year. If this absenteeism rate is where we have assumed, that we should have about a $15 million revenue impact, but no more than a $5 million EBITDA impact and very different than the $80 million and $16 million we had in 2020, and obviously, we work every day to bring that number down even faster and hopeful that it’s better than that. But we definitely have control of the variables that are affecting the sales and the margin. We know how the impact was felt financially. Our people are very aware how to do the right things to get the numbers at the right place. But again, we are going to put safety first and work our best to get that safety first to also allow us to have our clinics running.

[Joe Altobello:]

Got it. Okay. So if I am interpreting you correctly, Cord, it sounds like from an EBITDA perspective, the contribution from Services this year, in ‘21 is going to be closer to the $20 million that you did in ‘19, obviously, than the $3 million you did in ‘20.

[Cord Christensen:]

Correct.

[Joe Altobello:]

Okay. I think that’s about it for me. I will handle everything else offline. Thanks.

[Cord Christensen:]

Thanks, Joe.

[Operator:]

Our next question is from the line of Jon Andersen with William Blair. Please go ahead.

[Jon Andersen:]

Good afternoon, everybody.

[Cord Christensen:]

Good afternoon, Jon.

[Jon Andersen:]

Okay. A few questions on the Products side, so we are kind of targeting or budgeting, when I think about -- we look at 2021, we are budgeting around $100 million of EBITDA, understand there’s some risk around absenteeism a little bit that could move that up or down. But when we think about that $100 million in EBITDA, how much is related to kind of your own brand business? The product brands that you own and manufacture, because I think it may be larger than we and maybe investors perceive, and obviously, a branded business has more equity with retailers and consumers. So I just want to understand order of magnitude there and make sure that’s fully appreciated by the market? Thanks.

[Cord Christensen:]

Thanks for the question, Jon. Really appreciate the question. You will find in the supplemental PowerPoint that we posted on our website, a deck that has a slide number six in the deck that goes through some of the strengths of the business and I do think people have missed some of the strength of what’s happening in our Products business. We literally maintained almost a 40% CAGR on that business since we went public in 2017 to grow sales from $267 million to $725 million this past year and on track for a growth rate to see another significant increase into 2021. And we have seen our EBITDA margins for that division go up 460 basis points at the same time to go from $30 million in 2017 to $117 million in 2020 with a very significant increase again in 2021 being projected. For the $100 million of EBITDA we have projected for this year, our own brands will contribute a little over 26%, 27% of the sales in our Products division to be greater than $225 million of the sales, but will contribute 70% of our EBITDA margin for the year, almost $70 million. And so it’s a significant contribution to the company’s success and when you see the growth rates that we are achieving and the right channels with our own brands, like, our Capstar brand in fourth quarter was up almost 73%, online our overall business up 63% for our own brands online, PetArmor Plus up 41%. We just think we are off to a great start with huge margin expansion in this category for the business, but more importantly, we have line of sight to another significant increase in margin expansion in 2021, that’s going to drive our ability to go from $67 million of adjusted EBITDA this year to over $100 million in 2021. So I really appreciate the question. I hope that is a clear enough answer.

[Jon Andersen:]

Yeah. That’s extremely helpful. It leads directly into the next question, which is, if you can tell us a little bit more about what you are doing within the own brand portfolio. I understand Capstar, you have kind of addressed that in a prior question. But tell us a little bit about the rest of the own brand portfolio and where it’s growing, why it’s growing, new business opportunities and retail sets for 2021. Yeah, I will leave with that.

[Cord Christensen:]

Yeah. Great. Well, I think, Jon, first and foremost, we have obviously had a very strong foothold and have more registrations than anybody in the flea and tick category across both topical and our oral category now with the Capstar brand. And view that as a category that we are going to continue to retain our dominant position in and continue to see growth as we continue to develop new items and continue to market and push. But we saw renewal of all of our items in our core business and the contribution, and we are seeing the growth rate in those items in the category that we have just the highest gross margin profile for the company. So we are very excited about what we are seeing in the flea and tick category. The other category that we play a significant role in is the health and wellness category. And that’s a category where we put a significant amount of development work on and we will be launching some significant new lines this year in 2021 that we view will position us to quickly grow into that number one spot for the health and wellness space. As well that category just a couple of years ago was only a $300 million category. It’s now an $800 million category with almost all of the growth coming online.

[Jon Andersen:]

Okay. And that’s helpful. Last one for me is…

[Cord Christensen:]

Okay.

[Jon Andersen:]

Sorry, Cord, are you there?

[Cord Christensen:]

I am here. Can you hear me, Jon?

[Jon Andersen:]

Yeah. I can hear you. So, it generally comes up, we all get asked about it a lot is, on the distribution side, I know it’s not anywhere near a significant portion of your underlying profit base, but is there any kind of an update with respect to distribution partner relationships? Thank you.

[Cord Christensen:]

Yeah. I think I have told you in the last call that we have roughly 80% of our distribution volume and profitability coming through our BI partnerships, with the other 20% coming from our Zoetis relationship. The BI agreement, we have aligned on all terms and agreed in all terms, the legal departments are just finishing the documentation and we expect to have the amendment signed shortly and view that, that relationship is in a very stable place to be a significant contributor for many years with the agreement we have in place. The Zoetis agreement, we believe is still something that will get addressed in second quarter or third quarter, but is not at the top of the priority list yet at Zoetis at this time. But again, we feel great where we are, with what we can accomplish with BI and that we are in great shape there and don’t see any risk to that business.

[Jon Andersen:]

That’s also sounds good.

[Cord Christensen:]

For U.S…

[Jon Andersen:]

Thanks. That’s good news and congrats on the quarter.

[Cord Christensen:]

Thanks, Jon.

[Operator:]

Our next question is from the line of Bill Chappell with Truist Securities. Please go ahead.

[Bill Chappell:]

Thanks. Good afternoon. First just on absenteeism, just trying to understand like, with the understanding it’s not coming down. I mean how much is that in play in terms of both your wellness center rollout and even growing the clinics this year? I mean does that cap, could you do more if the absenteeism went lower is, could you possibly do less than you expect because absenteeism persists in the next several months, just any thoughts around that?

[Cord Christensen:]

We really, Bill, separated the issue between our building schedule and the absentee issue from the company’s standpoint. We have set the schedule back in place that we originally established and we have let every know we are going to open 130 to 170 locations. We have a strong belief that the absentee issue will subside and go away this year and with the development of these centers taking 12 month to 18 months to mature, we want to get them open, start to get the people in place and train, get the communities we serve aware that we are there and start building them. So we are not slowing down because of absenteeism, we will be letting people know how it affects it. But again, with a fairly even development schedule across the year, we believe most of them will be getting opened when the absenteeism will be coming down. So there right now the Board and us as a management team, we have aligned and agreed on the schedule to stay to the 130 to 170 locations for 2021.

[Bill Chappell:]

Yeah. I was just kind of wondering, I mean, if you have a conversion where there’s 16% absenteeism and then you are trying to go from three days a week to five days a week, it would seem like there would be some complications there?

[Cord Christensen:]

Yeah. Not really. I mean the issue is, we are seeing the 15% or 12% absenteeism across the broader base and there’s a lot of days we are able to open and keep those clinics open and running. And right now, it’s on a run rate, even with that in place, where we are profitable across the total service organization, which means we think it’s the right thing to do to stand up the locations and get them started. As far as building more than what we projected. Remember there’s other barriers to growth, which is the rate at which we can hire veterinarians and train and deploy them and we do feel like we have the right schedule in total for our development schedule of 130 to 170 for this year.

[Bill Chappell:]

Okay. And then turning to kind of your discussion about the more premium product for the online channel, can you just give us, you said, you built up manufacturing distribution in the fourth quarter, so as that implies that, we will see these products fairly soon. Does that affect your existing relationships with retailers, does -- do you expect a meaningful impact here, do you have a brand name that we should be looking for, anything like that?

[Cord Christensen:]

Well, I think, Bill, if you were to go look at the Amazons and Chewys of the world, where most of the health and wellness brands have seen their -- most of their success were direct-to-consumer. There’s a few brands that have done a really good job at very high price points with premium ingredients and premium packaging and we have increased our ability to part is a significantly higher rate of cold forming products and we have gone through with our formulation teams and new hires to build some very significant items that we will be launching. You will see them start to launch the first of Q3. The premium line, there is a couple of product items we have launched actually this month with Amazon in that space that are more in line with our historical products. But this is a category that we believe there is a significant amount of volume available to us. We do not believe it impacts our other retailers because we make all of our items available to all of our retail partners and they will decide if the shelf space is available. But at least online, we know we can get all of the items available and it is where almost all of the new growth in the category has been achieved. So we are excited to get our sites focused on this high growth category and we are excited to participate in having our health and wellness department inside our Product division to close the gap in volume and profit contribution similar to our flea and tick category.

[Bill Chappell:]

Got it. Thanks so much.

[Cord Christensen:]

Thanks, Bill.

[Operator:]

Our next question is from the line of Steph Wissink with Jefferies. Please go ahead.

[Steph Wissink:]

Thank you. Good afternoon, everyone. Most of our questions have been asked. But I have one, Susan, for you, you mentioned productivity enhancements in the Services business. I think I caught what you said both volume and revenue per site had improved. I am wondering if you can talk a little bit about what you are seeing in terms of receptivity among consumers, any tech enhancements you have made that consumers seem to be adopting any upsell. Talk a little bit about volume and revenue per site improvement if you could? Thank you.

[Susan Sholtis:]

Yes. Absolutely. Thank you for the question. We -- I think something important that we have started to do is we are really following a lot of the published veterinary service industry reports. One of them, in particular, VetSuccess data we follow. It’s powered by the AVMA and Vetsource. And what’s interesting is that if you look at the veterinary services industry in last quarter of last year in 2020, volume is relatively flat. So new pets are -- pet count is actually not increasing but revenue is, and revenue has been pretty -- was pretty consistent last year, somewhere between 7% and 10%. In fourth quarter, we literally were at that same level of what the industry standards were. But we basically surpassed that starting in January. And I would say that we did a couple of things in January. We doubled actually what the industry was seeing in January from both a volume and a revenue standpoint. Number one, I think that it’s -- technology aside, it was more of offering our wellness plans. And I think when you think about the consumer today and what they are looking for and what their needs are, they are looking for consistency when it comes to what they are spending on and our wellness plans actually help them to be able to budget and to plan to spend on a monthly basis versus spending in quarterly or half year increments. So we have had tremendous uptake. I think the industry average for wellness plans is less than 5% and we have 7% -- over 7% of our pet parents that are taking these wellness plans on, because they want to take care of their pets, but they want to do so in a way that they can manage their budgets as well too. So I think that, that is very -- it’s COVID related and I think it’s going to continue to happen throughout this year. In regards to, I think, Telehealth is another place where we are also seeing enhancements and increases as well too. Our calls continue to go up and you look outside in most of the country, it’s under snow and it’s cold. But pet parents, as they are staying at home or as they are working from home, they are picking up the telephone and they want to talk to somebody about their pet. They are not necessarily going out and visiting a veterinary clinic, but they want to get that basic advice on the phone. And our 24x7 service has definitely helped us to keep in contact with our pet parents and especially keep in contact with them while we were closed. But we continue to do that when we are open. So I would say from a technology standpoint, people getting on their telephones, apps as well too in regards to chat features, people are going online chatting just to get basic answers to health questions.

[Steph Wissink:]

Great. Thank you very much.

[Operator:]

Your next question is from the line of Brian Nagel with Oppenheimer. Please go ahead.

[Brian Nagel:]

Hi. Good afternoon. Thank for taking my question. So with regard to the plan to open 130 to 170 clinics in 2021, could you tell us a little bit about the progress thus far to-date and also what would the geographic dispersion will be?

[Susan Sholtis:]

Yeah. Hi, Brian. I am happy to take the question. First of all, I want to reemphasize that we are very committed and comfortable with the 130 to 170 this year. I think I mentioned last quarter that we have confirmed all locations. So I think that what has happened in this past year, in particular with our retail partners, is really our ability to bond with them, partners in crime, I would call us, managing through this COVID environment. So our retail partners have committed and we have our locations selected for this year without a doubt. Our cadence is going to be pretty much spread throughout the year. I see -- one of the things that we have been asked to do by our retail partners is to be flexible on timing of the build-out. But I am talking about a month here and a month there, I am not talking about six-month swings in the timing. So we are working closely together to make sure that we are getting these open, and again, it will be pretty much spread throughout the year.

[Brian Nagel:]

Okay. Excellent. Thank you. And one more to -- one final question, as you guys push more aggressively into e-commerce, how should we be thinking about margins as you move more into this channel?

[Cord Christensen:]

Yeah. Great question. We have been fortunate that with our categories and the margin profile of our categories. We have not seen dilutive margins to be online like maybe some of the other categories. So you should see, still like I said earlier in 2021, a fairly significant margin increase across the Product division, very close in size to what you saw this year out of that division. So obviously, with all the growth coming there, it wouldn’t happen if we didn’t have fantastic margins in that category. So I think you will find that the margin profile will be consistent with the total company’s profile and if anything just accelerating as we are seeing our higher margin items growing at a faster rate. Did I break up, guys. Are you still there?

[Brian Nagel:]

Yeah. I am still here. Thank you for the answer there.

[Operator:]

And since we have no…

[Cord Christensen:]

Anything else to report.

[Operator:]

…further questions at this time. I will turn the call back to you.

[Cord Christensen:]

Thank you everybody for joining us today. Obviously, we are very excited with our results coming out of fourth quarter and full year, with the acceleration we saw. It’s allow us to have results better than we had expected for the quarter, which then led to better results for the year. More importantly, we are extremely excited about the momentum we have going into 2021, where we will see another year with significant increases in our sales and significant increases in our EBITDA margins, where the management team has estimated our internal budgets to be over $950 million in revenue and $100 million in adjusted EBITDA. So we look forward to talking to you in just a couple of months when we report first quarter and the results we have there and thanks again for joining us today on our earnings call for fourth quarter and full year.

[Operator:]

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day.