Better Choice Company Inc. (BTTR) is a rapidly growing pet health and wellness company committed to leading the industry shift toward pet products and services that help dogs and cats live healthier, happier, and longer lives. With a broad portfolio of premium and super-premium pet products under the Halo brand umbrella, Better Choice is poised to capitalize on the surging demand for high-quality pet care solutions.

Business Overview and History

Company Founding and Initial Growth

Better Choice Company, Inc. was founded in 2019 as a pet health and wellness company focused on providing pet products and services that help dogs and cats live healthier, happier and longer lives. The company has a broad portfolio of pet health and wellness products for dogs and cats sold under its Halo brand across multiple forms, including foods, treats, toppers, dental products, chews and supplements.

Public Listing and Expansion

In 2019, the company completed a reverse merger transaction and began trading publicly on the OTCQB exchange. The following year, Better Choice completed a private placement and uplisted its shares to the NYSE American exchange. Over the next few years, the company continued to focus on expanding its Halo brand portfolio and distribution channels.

Challenges and Response

However, Better Choice faced significant challenges during this period. In 2022, the company reported substantial net losses and impairment charges related to its intangible assets, which led to non-compliance with the NYSE American’s listing standards. In response, the company worked to address these issues by consolidating and rationalizing its product offerings and distribution channels.

Customer Base and Distribution

Despite these obstacles, Better Choice has maintained a broad and loyal customer base. Its products are sold through various channels, including online retailers, pet specialty and independent pet retailers, distributors, and international foreign distribution partners. This diverse and established customer base has enabled the company to penetrate multiple channels of trade.

Strategic Acquisition

In 2024, the company made a significant move to further strengthen its position in the market by announcing the acquisition of SRx Health Solutions, a leading provider of innovative healthcare solutions in Canada. This transformative deal is expected to position Better Choice as a global health and wellness powerhouse, providing better products and solutions for pets, people, and families.

Product Portfolio

The Halo brand portfolio offers a variety of platforms through which the company innovates. Halo Holistic is designed for pet parents seeking complete digestive health with prebiotics, probiotics and postbiotics, and is one of the only brands made with only whole animal proteins and no meat meals. Halo Elevate features leading nutrient levels supporting the top five pet parent health concerns including digestive health, heart and immunity support, healthy skin and coat, hip and joint support and strength and energy. Halo Freeze Dried Raw recipes preserve the natural flavor and nutrition of raw food with 100% protein from natural sources.

Financials and Performance

Financials

Better Choice’s financial performance has been impressive, showcasing its ability to navigate the dynamic pet care landscape. For the nine months ended September 30, 2024, the company reported net sales of $27.82 million, a decrease of 15% compared to the same period in the prior year. This decline was primarily attributable to the company’s strategic decision to exit unprofitable channels and customers, as well as the closure of its direct-to-consumer (DTC) platform.

Despite the top-line challenges, Better Choice has made significant strides in improving its profitability. Gross margin increased by 308 basis points to 37% for the nine-month period, driven by favorable terms on its co-supply agreements and a shift in product sales mix. The company also achieved a notable milestone in the third quarter of 2024, reporting its first profitable quarter in years with net income of $1.5 million and earnings per share of $0.74.

For the three months ended September 30, 2024, Better Choice reported net sales of $11.37 million, a decrease of 13% compared to the prior year period. However, gross profit increased 2% to $4.52 million, with gross margin expanding 591 basis points to 40%. This improvement was primarily driven by better pricing from manufacturers and a shift in product sales mix.

Operating expenses decreased by 20% to $5.64 million, largely due to lower sales and marketing costs as the company shifted investment from direct-to-consumer activities to focus on the Amazon and Chewy online platforms. The company reported net income of $1.53 million for the quarter, compared to a net loss of $1.62 million in the prior year period.

The company’s digital channel, which includes sales to online retailers such as Amazon and Chewy, as well as the now-closed direct-to-consumer channel, accounted for 34% of net sales in the first nine months of 2024. The international channel contributed 49% of net sales, while the brick-and-mortar channel made up the remaining 6% of sales.

In the most recent fiscal year (2023), Better Choice reported revenue of $38.59 million and a net loss of $22.77 million. The company generated $97,000 in operating cash flow and $79,000 in free cash flow during this period.

Liquidity

The company’s strong operational performance was further reflected in its working capital position, which improved significantly during the period. As of September 30, 2024, Better Choice reported net working capital of $9.5 million, up from $3.1 million in the previous quarter. This enhanced financial flexibility will allow the company to continue investing in growth initiatives and capturing market share.

Better Choice’s liquidity position remains solid, with $4.74 million in cash as of September 30, 2024. The company has a debt-to-equity ratio of 0.006, indicating a conservative capital structure. Additionally, Better Choice has access to a $4.75 million receivables-based credit facility with Wintrust, of which $1.9 million was outstanding as of September 30, 2024. The company’s current ratio of 2.38 and quick ratio of 1.81 further underscore its strong liquidity position.

Growth Strategies and Outlook

Better Choice’s growth strategy is centered around four key pillars: building the Halo brand, capturing fair share online, expanding its omnichannel presence, and winning globally, with a particular focus on the Asia-Pacific region.

The company’s brand-building efforts are focused on sharpening its positioning, improving storytelling, and increasing its share of voice through a defined innovation strategy and platform-based approach to new product development. In the digital channel, Better Choice is driving increased and efficient investment, full-funnel activation, enhanced discoverability, and maximizing tent-pole events to capture a fair share of the rapidly growing e-commerce pet care market.

Internationally, Better Choice is developing a scalable go-to-market strategy and forging long-term partnerships to accelerate growth, with a disproportionate focus on the Asia-Pacific region, where the pet food market is experiencing rapid expansion. The company has seen particular strength in this region, with sales growing 9% year-over-year. Management cited the rapid growth in the number of pet-owning households in China as a key opportunity for the company.

Underpinning these strategic initiatives are continuous supply chain improvements, global formula harmonization for cost savings, and a more effective portfolio management approach to drive greater operating leverage and fuel future growth.

The company is also actively pursuing new growth opportunities in Latin American markets. The upcoming acquisition of SRx Health is expected to yield operational efficiencies and synergies, while providing near and long-term growth opportunities that will drive sustainable organic growth.

Risks and Challenges

While Better Choice has demonstrated impressive progress, the company is not without its risks and challenges. The pet wellness industry is highly competitive, and the company must navigate evolving consumer preferences, regulatory changes, and potential supply chain disruptions. The ongoing integration of the SRx Health acquisition will also require careful execution to ensure a seamless transition and the realization of expected synergies.

Additionally, macroeconomic factors such as inflationary pressures and geopolitical tensions could impact the company’s financial performance and consumer spending patterns. Better Choice must remain agile and responsive to these external forces to maintain its competitive edge.

Conclusion

Better Choice Company is a compelling player in the pet health and wellness space, leveraging its premium Halo brand, innovative product portfolio, and strategic growth initiatives to drive sustainable profitability and shareholder value. The company’s recent financial performance, including its first profitable quarter in years and improved gross margins, demonstrates its ability to execute on its strategic objectives.

The U.S. pet food and treat market, estimated at $64 billion in 2023, is expected to grow at a 15% CAGR between 2020 and 2024, reaching $251 billion by 2030. Additionally, the global plant-based pet food market is projected to grow at a 9.2% CAGR from 2022 to 2032, presenting significant opportunities for Better Choice’s innovative product lines.

As the company continues to execute on its ambitious plans, including the transformative acquisition of SRx Health, investors will closely watch its ability to navigate the evolving pet care landscape and capitalize on the industry’s promising long-term growth prospects. With a strong liquidity position, improving profitability, and a clear strategic focus, Better Choice appears well-positioned to build on its recent successes and deliver sustainable growth in the coming years.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.