Better Choice Company Inc. (BTTR) is a pet health and wellness company committed to leading the industry shift towards products and services that help dogs and cats live healthier, happier, and longer lives. With a broad portfolio of premium and super-premium pet food, treats, and supplements under the Halo brand, the company is well-positioned to capitalize on the growing trends of pet humanization and increased consumer focus on health and wellness.

Financials

In the fiscal year 2023, Better Choice Company reported annual net income of -$22.77 million and annual revenue of $38.59 million. The company's annual operating cash flow was $0.097 million, and its annual free cash flow was $0.079 million. These financial results demonstrate the company's ongoing efforts to navigate the challenges of the pet wellness market and invest in strategic initiatives to drive long-term growth.

For the three months ended March 31, 2024, Better Choice Company reported net sales of $7.90 million, a decrease of 14% compared to the same period in the prior year. This decline was primarily attributable to new payment terms enforced in the company's International channel to preserve cash, as well as a decline in traffic in the E-commerce platform. Gross profit for the quarter decreased by 19% to $2.61 million, with gross margin declining 200 basis points to 33%, driven by the company selling excess inventory at a discount.

Operating expenses for the first quarter of 2024 decreased by 22% to $5.08 million, primarily due to lower marketing and advertising costs, a reduction in employee headcount, and a decrease in non-cash charges. However, the company continued to invest in share-based compensation, which decreased by 40% to $0.5 million during the quarter.

Sales Channels

Better Choice Company's E-commerce channel, which includes sales to online retailers such as Amazon and Chewy, accounted for 41% of net sales in the first quarter of 2024, down from 42% in the same period last year. The International channel, which includes sales to foreign distribution partners and select international retailers, grew to 37% of net sales, up from 25% in the prior-year quarter. The Brick & Mortar channel, which primarily includes sales to pet specialty retailers and neighborhood pet stores, as well as select grocery chains, declined to 7% of net sales, down from 19% in the first quarter of 2023.

The company's Direct-to-Consumer (DTC) channel, which includes sales through the company's website, remained relatively stable, accounting for 15% of net sales in the first quarter of 2024, compared to 14% in the same period last year. However, the company has announced plans to exit the DTC channel in the second quarter of 2024 in an effort to improve profitability.

Customer Concentration

In terms of customer concentration, two customers in the E-commerce channel accounted for greater than 10% of the company's total net sales in the first quarter of 2024 and 2023, representing $3.2 million and $3.8 million of net sales, respectively. Additionally, one of the company's International customers that distributes products in China accounted for greater than 10% of total net sales during the same periods, representing $2.2 million and $2.1 million of net sales, respectively.

Inventory Management

The company's inventory levels decreased by 21% to $5.20 million as of March 31, 2024, compared to $6.61 million as of December 31, 2023. This reduction was driven by the company's efforts to sell excess inventory, which resulted in a higher inventory reserve of $0.97 million as of March 31, 2024, compared to $0.85 million as of December 31, 2023.

Liquidity

Better Choice Company's liquidity position remains a concern, as the company reported cash and cash equivalents of $3.88 million as of March 31, 2024, down from $4.46 million as of December 31, 2023. The company's term loan with Alphia Inc. and its Wintrust Receivables Credit Facility have imposed certain financial covenants, including minimum liquidity and EBITDA requirements, which the company was not in compliance with as of March 31, 2024. This has created substantial doubt about the company's ability to continue as a going concern for the next twelve months.

To address these liquidity challenges, Better Choice Company has implemented various margin improvement initiatives, including the consolidation and introduction of new co-manufacturers, the optimization of pricing strategies and ingredient profiles, and the development of new product innovations. The company has also announced plans to exit the DTC channel in the second quarter of 2024 to improve profitability.

Business Overview

In terms of growth strategy, Better Choice Company is focused on leveraging its differentiated omni-channel approach to design and sell products purpose-built for success in specific channels, while maintaining the ability to cross-leverage marketing and sales resources. The company believes this strategy will allow it to deliver on core consumer needs, maximize gross margin, and respond to changing channel dynamics.

Additionally, the company is well-positioned to capitalize on the growing trends of pet humanization and increased consumer focus on health and wellness. With a robust pipeline of new product innovations and a strong presence in the premium and super-premium pet food and treat categories, Better Choice Company is poised to solidify its position as a leader in the pet wellness market.

Risks and Challenges

However, the company faces several risks, including dependence on key personnel, competitive forces, successful marketing and sale of its products, the successful protection of its proprietary technologies, ability to grow into new markets, and compliance with government regulations. The company's failure to meet certain financial covenants related to its term loan and Wintrust Receivables Credit Facility has also created substantial doubt about its ability to continue as a going concern.

Conclusion

Better Choice Company is navigating the challenges of the pet wellness market with a focus on innovation, strategic initiatives, and a differentiated omni-channel approach. While the company's recent financial performance has been impacted by various factors, its commitment to delivering high-quality pet products and services positions it well to capitalize on the growing trends in the industry. However, the company's liquidity concerns and compliance with financial covenants remain key areas of focus for investors and the management team.