otcqx virtual investor presentation -...
TRANSCRIPT
OTCQX Virtual Investor PresentationOctober 5, 2017
OTCQX: OPCOwww.ourpets.com/investors
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Investment Thesis
2
Safe Harbor Statement
This presentation may contain various “forward-looking statements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which represent ourexpectations or beliefs concerning future events. Forward-looking statements generally include words such as “anticipates,”“believes,” “expects,” “planned,” “scheduled,” or similar expressions and statements. Although we believe these forward-lookingstatements are based on reasonable assumptions, statements made regarding future results are subject to a number ofassumptions, uncertainties, and risks that could cause future results to be materially different from the results stated or implied inthis presentation. Uncertainties, risks, and other factors that may cause actual results or performance to differ materially from anyresults of performance expressed or implied by forward-looking statements in this presentation include: (1) our ability to manageour operating expenses and realize operating efficiencies, (2) our ability to maintain and grow our sales with existing and newcustomers, (3) our ability to retain existing members of our senior management team and to attract additional managementemployees, (4) our ability to manage fluctuations in the availability and cost of key materials and tools of production, (5) generaleconomic conditions that might impact demand for our products, (6) competition from existing or new participants in the petproducts industry, (7) our ability to design and bring to market new products on a timely and profitable basis, (8) challenges to ourpatents or trademarks on existing or new products, or (9) our ability to secure access to sufficient capital on favourable terms tomanage and grow our business. We caution that these risk factors are not exclusive. Additionally, we do not undertake to updateany forward looking statements that may be made from time to time by or on behalf of us except as required by law.
Agenda• OurPet’s Story
• Pet Industry & Markets
• Our Product Categories and Products
• Our Channels of Distribution
• Financial Highlights through 6-30-17
• Questions & Answers
3
Agenda
• Pet industry is large, healthy and recession resistant
• OurPet’s (OPCO) is one of the few non-retail pet pure plays
• Strong intellectual property portfolio
• Successful two-brand strategy
• Solidly positioned for growth and disciplined for profitability
• Strong management, people, systems and products
4
Why Invest in OurPet’s?
• Founded in 1995 by Dr. Steve Tsengas and Dean Tsengas - “Big Dog Feeder®”
• Focused on high growth categories in non-food pet products
• Interactive cat and dog toys and accessories ($1B/year category)
• Pet Clean-Up and Odor-Control products ($3.5B/year category)
• Healthy feeding/storage systems ($309M/year category)
• Products designed to:
• Satisfy the mental/physical health, safety and comfort of pets
• Satisfy the pet owners pleasure and convenience of owning a pet
• Satisfy the needs of retailers for innovative, upscale, profitable products
• Strong, diversified product portfolio across two brands (approximately 1,000 SKUs)
• Solid pipeline of new, innovative products and line extensions
• 170 patents issued/pending
Source: Packaged Facts Dog and Cat toys: U.S. Pet Market Trends 2017Packaged Facts Pet Litter, Clean-Up, and Odor-Control Products: U.S. Market Trends 2016Packaged Facts 2014
The OurPet’s Company
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The OurPet’s Company
Strong Management Team and People
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Business Model
Innovative Product Offerings Backed by Strong R&D and Patents
Positioning with Leading Retailers
Specific Pet Industry Trends
7Mintel, September 2016
Technology + Pet Knowledge = Innovation
✓ Products are brought to market after careful investment in behavioral and technology research
✓ Focus on functional and solution based products
✓ Aversion to developing “me too” commodity products
✓ Formidable patent fencing process to secure inimitability versus the competition
✓ Strong sell-through history with retailers such as Wal-Mart, PetSmart, and Petco
✓ Private label business helps maintain shelf space within pet specialty retailers
✓ Consolidation of vendors within leading retailers
✓ The humanization of pets is increasing to where people are treating “pets as family”
✓ #1 ranking within product category position at Amazon
✓ Broad retail presence across pet specialty and food, drug & mass retailers, as well as within e-commerce
✓ Growth in Toys & Accessories continue
✓ The Waste & Odor control market represents a particularly attractive, growing segment
Market Trends
U.S. Pet Industry
• Third largest consumer market ($81.4B in 2016)
• Projected total U.S. retail sales of expected to grow to approximately $101.3B by 2021
• Forecasted compound annual growth rate over 4.5% through 2021
• 68% of households own a pet, totaling 84.6 million pet owners
• Dogs owned by 48% and cats by 38% of households
• Recession resistant
Pet Accessories and Treats Category
• Represents about 20% of U.S. pet industry annual sales
• Annual category sales of approximately $16.5B
• Forecasted compound annual growth rate of 3.1% through 2020
• Pets are living longer: 31.8% of dogs and 21.3% of cats are “seniors”
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Source: Packaged Facts U.S. Pet Market Outlook 2017-2018/APPA National Pet Owner’s Survey, 2017-2018
Premium brand and pet specialty channel of products for
“pet parents”
• OurPets® displays are located in Pet Speciality Retailors• PetCo• PetSmart• PetValu
Pet-specialty quality products at affordable prices for pet
enthusiasts
• Pet Zone® displays are located in Food, Drug & Mass Retailors• Walmart• Kroger• Big Lots
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Dual Brand Strategy
Pet Specialty41%
Food, Drug, & Mass44%
E-Commerce10%
Other5%
10
Customers/Distribution Channels
Products Categories
Product Overview – First 6 months Year 2017
Total Revenue Toys & Accessories Waste Management Solutions
Feeding Solutions
11
42%57%
1%
Dog
Cat
Other
12%
88%
Dog
Cat
89%
7%
4%
Dog
Cat
Other
14%
83%
3%
Dog
Cat
Other
• Many types of cat and dog toys for different types of play
• Patented dog toys• IQ Treat Ball®
• Flappy® Toys
• Atomic Treat Ball®
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Interactive
Electronic• Pounce House™
• Unpredictable feather movement
• Mouse in Pouch™• Mouse rolls around randomly inside
or outside of the pouch
• Bird in a Cage™• Realistic fluttering bird and RealBird™
sound
• Whirling Wiggler™• Dual butterflies flutter as they fly
• Catty Whack®• Random feather movement and
patented electronic RealMouse®
Toys & Accessories
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Toys & Accessories
North American Catnip
Cat Scratchers
• NEW – Scratch-N-Sniff Cat Scratcher with microencapsulated catnip bursts
• Cats love to scratch a variety of surfaces and angles including carpet, corrugate, and sisal
• Innovative leader with patented catnip technologies
• Loose Catnip Flakes• 100% Filled Toys, Refillable Toys• Spray & Liquid• Catnip Gel• Compressed Catnip• Edibles (Tuna Flakes)
Feeding Solutions
Big Dog Feeder®(OurPet’s First Product)
High Rise Diner
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Barking Bistro®3- position feeder
All these feeders are Made in USA
Category Creator & Innovator: Complete Program of Feeders and Storage Systems
Wonderbowl® Selective Feeder
Chalkboard Bowls
No-Tip BowlsOval Cat Dish
Store-N-Feed® Single
Slow Feed Bowls
Festiva Bowls
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Feeding Solutions: New Product Pipeline
is a method of electrically depositing metals such as Chrome on special plastic.
• MetalShield™ finish has a luxurious look
• Durable, chip resistant coating
• Dishwasher safe
• MetalShield™ technology discourages the growth of surface bacteria
• MetalShield™ does not release toxic colorants or plasticizers when exposed to food
• Patent-Pending technique makes it easy to make elaborate, sophisticated designs on products
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Waste Management Solutions
Litter Disposal Systems
• OurPet’s offers a full line of innovative solutions in waste management to make cleaning up after pets an easy, hygienic, and hassle-free experience
• Innovative and convenient systems featuring: • No Touch • Odor Control• No-Stick
Smart Scoop® Automatic Litter Box odorLESS™ Disposable Litter Boxes
Proudly Made in U.S.A.
Kitty Potty™ Litter Box
EZ Scoop™ No Touch Litter Box
What is Switchgrass?A hardy, natural grass that is exclusive to and grows in North America and does not require fertilization, use of chemical sprays (pesticides, herbicides & fungicides) or use of toxins. It is a biodegradable, flushable material. Primarily used for flood control, landscaping & thermal fuel (pelletized form)
What is Biochar?A highly absorbent, non-marking, specially produced activated carbon. Due to it’s absorptive properties, it’s used for water absorption, retention and odor control
Why Switchgrass Natural Cat Litter™ with BioChar?
• Holds waste odors with activated carbon traps • High water absorption• Sturdy clumping action• Biodegradable – not apt to cause problems,
similar to clay litters, if inhaled• 100% Natural• Minimal dust & Light weight• Made in the USA
Switchgrass Natural Cat Litter™ with BioChar
It’s what customers want!
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The smarter way to love your pet with one complete system!
• The Intelligent Pet Care™ products are changing the face of traditional waste management systems, pet feeders, and pet water systems.
• Allows pet parents to monitor their pets’ essential functions as they would their own via the dedicated OurPets® IntelligentPetLink™ app.
New Products: Intelligent Pet Care™
SmartScoop® – Intelligent Litter Box SmartLink® Feeder – Intelligent Pet Bowl SmartLink® Feeder –Intelligent Water Fountain
SmartLink® TagSmartLink® Gateway – WiFi Pet Care Connector
Health Monitoring System +
The Pet Landscape is Changing
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Traditional Channels
Consumer purchasing channel preferences are changing
• Pet Specialty & FDM Large Box Retailers – Slow/No Growth
• Pet Regional Chains – Moderate Growth
• TV Direct (HSN, Infomercials) – Moderate Growth
Growth Channels
OPCO will focus our efforts strategically to follow growth
• E-Commerce – Rapid Growth
• International Pet Business – Moderate Growth
• Value Stores (Big Lots, TJ Max) – Moderate Growth
Source: https://www.forbes.com/sites/richardkestenbaum/2017/09/11/there-will-be-more-retail-stores-opening-than-closing-in-2017/#5b8972543447
AdaptabilityInnovative Products
Response
E-Commerce
• E-Commerce sales in 1st half 2017 have grown 70% over first half of 2016 and 77.% in Q2’17 over Q2’16.
• E-Commerce accounted for almost 10% 2016 of all OPCO sales
– E-Commerce will comprise 20% of all sales within the next 5 years
• OPCO has made E-Commerce a primary strategic initiative
– OPCO has allocated resources to continue growing E-Commerce business
• Recent Industry Acquisitions
– Walmart – Jet.com
– PetSmart – Chewey.com ($26m to $2b valuation in 6 years)
– Petco – Drs. Foster & Smith
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International
• Europe Master Distributor
– German based, can distribute within the 28 countries in EU
– Products will be marketed under the OurPets® and PetZone® brands as well as under private label.
• Amazon EU – Direct Import Program
– OPCO ships to NY port
– Amazon distributes to EU
• Chinese Distributor
– FOFOs to market OurPet’s brand
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Value Stores
• Big Lots
– Traditionally a close out account with roughly 1500 stores
– Evolved to a strategic partner
– Moving away from private label to carry our Pet Zone® brand for all their pet products
• TJ Maxx
– Treasure chest business model, 4000 stores
– Expanding their Pet Toys and Accessories offerings
– Want OurPet’s as their cat toy vendor
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89%
11%
Private Label vs. Branded Sales-2017
Branded
Private Label
75% of Sales are Covered by Patents
39%
15%
36%
10%
Sales by Channel-2017
Food, Drug, &Mass
E-Commerce
Pet Specialty
Other
90%
10%
Domestic vs. International Sales-2017
US
International
6%
1%
48%39%
0% 1%
5%
Sales by Product Category-2017
Edibles/Consumables
Housing
Toys/Accessories
Bowls/Feeders
Health/Wellness
Universal/Other
Waste & Odor Control
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Financials
Demonstrated commitment to growing both top and bottom lines
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
2012 2013 2014 2015 2016 2017
Net Income
10
15
20
25
30
35
2012 2013 2014 2015 2016 2017
Net Sales--$Millions
25%
27%
29%
31%
33%
35%
2012 2013 2014 2015 2016 2017
Gross Margin %
0%
2%
4%
6%
8%
10%
12%
14%
2012 2013 2014 2015 2016 2017
EBITDA as % of Net Sales
Dollars and shares outstanding in millions except per share amounts
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2012 2013 2014 2015 2016 2017
Net Sales 20.2 21.5 22.8 23.8 27.1 28.2
Gross Profit Margin 26.0% 31.0% 29.9% 31.7% 32.3% 33.2%
Income from Operations 0.4 1.7 1.2 2.2 2.7 2.8
Income Tax expense (benefit) -0.1 0.7 0.4 0.8 0.5 .4
Net Income 0.2 1.1 0.8 1.3 2.1 2.4
Net Income per share $0.01 $0.06 $0.04 $0.07 $0.11 $.12
Weighted average number of shares and common share equivalents outstanding
16.2 18.3 18.2 19.3 20.1 18.9
Financial Trends
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2016 Financial Results 2017 Financial Results (1st 6 months)
$'s in '000's 2016 2015 % Change 2017 2016 % Change
Net sales $27,070 $23,819 13.65% $12,720 $11,613 9.53%
Gross profit margin 32.33% 31.70% 1.99% 31.59% 29.31% 2.28%
Income from operations $2,683 $1,428 87.89% $777 $643 20.86%
Income tax expense $531 $497 6.84% $88 $195 -54.94%
Net income $2,145 $886 142.10% $630 $421 49.57%
Net income per common share $0.11 $0.04 150.00% $0.03 $0.02 50.00%
Financials
27
Q2’2017 vs. Q2’2016
$'s in '000's 2017 2016 % Change
Net sales $6,184 $5,437 13.74%
Gross profit margin 30.62% 28.91% 5.91%
Income from operations $296 $228 30.08%
Income tax expense $22 $53 -57.50%
Net income $247 $155 59.49%
Net income per common share $0.01 $0.01 -0-
Financials
OPCO 1 Year Share Performance
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• OPCO shares have seen strong one-year growth
• Positioned comfortably above $1.50
• Recent increase in volume to support more trading
• Pet industry is large, healthy and recession resistant
• OurPet’s (OPCO) is one of the few non-retail pet pure plays
• Strong intellectual property portfolio
• Successful two-brand strategy
• Solidly positioned for growth and disciplined for profitability
• Strong management, people, systems and products
29
Why Invest in OurPet’s?
30
Appendix
Trading and Stock Characteristics 31
Organization Chart 32
Capitalization Structure 33
EBITDA Details 34
2016 Review 35
OurPet’s History 38
Page(s)
Trading and Stock Characteristics
31
• Ticker: OPCO
• Exchange: OTCQX
• 19,522,001 shares outstanding (21,000,000 fully diluted)
• 8,000,000 Float
• 800 shareholders
• Stock price-$1.75, High $1.79 , Low $.80
• EPS 2016 - $.11
• P/E ratio range – 12.5 to 15.0
• Avg volume/day – 13,000
www.ourpets.com/investorsAs of 9/26/17
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Organization Chart
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Capitalization Structure
Authorized OutstandingCommon Stock
Equivalents
Common Stock 50,000,000 19,522,001 19,522,001
Preferred Stock
No Series 4,825,000 63,500 635,000
Series 2009 175,000 -0- -0-
Options 1,750,000 484,167 484,167
Warrants N/A 396,343 396,343
Total 20,466,011 21,037,511
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EBITDA Calculation
2012 2013 2014 2015 2016 2017 TTM
Net Income ($) 192,740 1,070,995 769,274 1,336,910 2,144,586 2,371,784
Interest ($) 158,269 160,572 126,771 115,735 109,591 93,596
Tax Expense ($) 58,298 660,893 373,007 750,593 531,055 406,775
Depreciation ($) 602,576 571,682 571,586 619,647 599,417 536,869
Amortization ($) 41,418 52,921 79,353 76,341 54,291 58,271
Total EBITDA ($) 1,053,301 2,517,063 1,919,991 2,899,226 3,438,940 3,467,295
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 operatingperformance, financing capability and liquidity, it is not regarded as a measure of operating performance and liquidity under generally acceptedaccounting principles (“GAAP”). It also does not represent cash flows from operating activities. In addition, the Company’s EBITDA may not becomparable to similar indicators provided by other companies. The Presentation of this additional information is not meant to be considered inisolation or as a substitute for net income (loss), or any component thereof, in accordance with GAAP.
Products Categories
Product Overview - Full Year 2016
Total Revenue Toys & Accessories Waste Management Solutions
Feeding Solutions
35
37%
62%
1%
Dog
Cat
Other
9%
91%
0%
Dog
Cat
Other86%
10%4%
Dog
Cat
Other
18%
79%
3%
Dog
Cat
Other
36
85%
15%
Private Label vs. Branded Sales-2016
Branded
Private Label
75% of Sales are Covered by Patents
43%
10%
41%
5%
Sales by Channel-2016
Food, Drug, &Mass
E-Commerce
Pet Specialty
Other
91%
9%
Domestic vs. International Sales-2016
US
International
6%
2%
53%
34%
0%1% 4%
Sales by Product Category-2016
Edibles/Consumables
Housing
Toys/Accessories
Bowls/Feeders
Health/Wellness
Universal/Other
Waste & Odor Control
37
$18
$20
$22
$24
$26
$28
2012 2013 2014 2015 2016
Mill
ion
s
Net Sales
$4
$5
$6
$7
$8
$9
2012 2013 2014 2015 2016
Mill
ion
s
Gross Profit
$0
$0
$1
$1
$2
2012 2013 2014 2015 2016
Mill
ion
s
Net Income
0%
2%
4%
6%
8%
10%
12%
14%
2012 2013 2014 2015 2016
EBITDA as % of Net Sales
Financials
Demonstrated commitment to growing both top and bottom lines
38
OurPet’s History