UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s Class A Common Stock outstanding as of June 5, 2023 was
The number of shares of the registrant’s Class B-1 Common Stock outstanding as of June 5, 2023 was
The number of shares of the registrant’s Class B-2 Common Stock outstanding as of June 5, 2023 was
Table of Contents
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Page |
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PART I. |
2 |
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Item 1. |
2 |
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2 |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 |
Item 3. |
22 |
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Item 4. |
23 |
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PART II. |
24 |
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Item 1. |
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Item 1A. |
24 |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
24 |
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1
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, concerning expectations, beliefs, plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are not statements of historical fact, including statements regarding: our expectations with respect to our revenue, expenses, profitability, and other operating results; our growth plans; our ability to compete effectively in the markets in which we participate; the execution on our transformation initiatives; and the impact of certain macroeconomic factors, including inflationary pressures, global supply chain constraints, and global economic and geopolitical developments, on our business. Forward-looking and other statements in this Form 10-Q may also address our progress, plans, and goals with respect to sustainability initiatives, and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in our filings with the U.S. Securities and Exchange Commission (the “SEC”). Such plans and goals may change, and statements regarding such plans and goals are not guarantees or promises that they will be met. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.
Such forward-looking statements can generally be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “intends,” “will,” “shall,” “should,” “anticipates,” “opportunity,” “illustrative”, or the negative thereof or other variations thereon or comparable terminology. Although we believe that the expectations and assumptions reflected in these statements are reasonable, there can be no assurance that these expectations will prove to be correct or that any forward-looking results will occur or be realized. Nothing contained in this Form 10-Q is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of our operations or business or financial condition. All forward-looking statements are based on current expectations and assumptions about future events that may or may not be correct or necessarily take place and that are by their nature subject to significant uncertainties and contingencies, many of which are outside of our control.
Forward-looking statements are subject to many risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in such forward-looking statements, including, without limitation, those identified in this Form 10-Q as well as the following: (i) increased competition (including from multi-channel retailers and e-Commerce providers); (ii) reduced consumer demand for our products and/or services; (iii) our reliance on key vendors; (iv) our ability to attract and retain qualified employees; (v) risks arising from statutory, regulatory, and/or legal developments; (vi) macroeconomic pressures in the markets in which we operate, including inflation and prevailing interest rates; (vii) failure to effectively manage our costs; (viii) our reliance on our information technology systems; (ix) our ability to prevent or effectively respond to a data privacy or security breach; (x) our ability to effectively manage or integrate strategic ventures, alliances, or acquisitions and realize the anticipated benefits of such transactions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) business interruptions and other supply chain issues; (xiii) catastrophic events, political tensions, conflicts and wars (such as the ongoing conflict in Ukraine), health crises, and pandemics; (xiv) our ability to maintain positive brand perception and recognition; (xv) product safety and quality concerns; (xvi) changes to labor or employment laws or regulations; (xvii) our ability to effectively manage our real estate portfolio; (xviii) constraints in the capital markets or our vendor credit terms; (xix) changes in our credit ratings; and (xx) the other risks, uncertainties and other factors referred to under “Risk Factors” and identified elsewhere in this Form 10-Q and our other filings with the SEC. The occurrence of any such factors could significantly alter the results set forth in these statements.
We caution that the foregoing list of risks, uncertainties and other factors is not complete, and forward-looking statements speak only as of the date they are made. We undertake no duty to update publicly any such forward-looking statement, whether as a result of new information, future events or otherwise, except as may be required by applicable law, regulation or other competent legal authority.
In addition, statements such as “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Form 10-Q. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
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April 29, |
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January 28, |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, less allowance for credit losses ($ |
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Merchandise inventories, net |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Fixed assets |
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Less accumulated depreciation |
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( |
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( |
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Fixed assets, net |
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Operating lease right-of-use assets |
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Goodwill |
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Trade name |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and book overdrafts |
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$ |
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$ |
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Accrued salaries and employee benefits |
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Accrued expenses and other liabilities |
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Current portion of operating lease liabilities |
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Current portion of long-term debt and other lease liabilities |
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Total current liabilities |
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Senior secured credit facilities, net, excluding current portion |
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Operating lease liabilities, excluding current portion |
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Deferred taxes, net |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity: |
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Class A common stock, $ |
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Class B-1 common stock, $ |
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Class B-2 common stock, $ |
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Preferred stock, $ |
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Additional paid-in-capital |
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Retained earnings |
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Accumulated other comprehensive loss |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
2
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts) (Unaudited)
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Thirteen weeks ended |
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April 29, |
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April 30, |
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Net sales |
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$ |
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$ |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Operating income |
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Interest income |
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( |
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( |
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Interest expense |
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Loss on partial extinguishment of debt |
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— |
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Other non-operating income |
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( |
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( |
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(Loss) income before income taxes and income |
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( |
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Income tax (benefit) expense |
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( |
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Income from equity method investees |
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( |
) |
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( |
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Net (loss) income |
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( |
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Net loss attributable to noncontrolling interest |
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— |
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( |
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Net (loss) income attributable to Class A and B-1 |
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$ |
( |
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$ |
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Net (loss) income per Class A and B-1 common share: |
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Basic |
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$ |
( |
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$ |
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Diluted |
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$ |
( |
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$ |
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Weighted average shares used in computing net |
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Basic |
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Diluted |
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See accompanying notes to consolidated financial statements.
3
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(In thousands) (Unaudited)
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Thirteen weeks ended |
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April 29, |
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April 30, |
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Net (loss) income |
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$ |
( |
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$ |
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Net loss attributable to noncontrolling interest |
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— |
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( |
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Net (loss) income attributable to Class A and B-1 |
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( |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustment |
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( |
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Unrealized loss on derivatives |
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( |
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— |
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Losses on derivatives reclassified to income |
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— |
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Total other comprehensive income (loss), net of tax |
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( |
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Comprehensive (loss) income |
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( |
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Comprehensive loss attributable to noncontrolling |
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— |
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( |
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Comprehensive (loss) income attributable to Class A and |
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$ |
( |
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$ |
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See accompanying notes to consolidated financial statements.
4
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands) (Unaudited)
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Common stock |
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Class |
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Class |
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Class |
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Amount |
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Additional paid-in capital |
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Retained earnings |
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Accumulated |
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Total |
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Noncontrolling |
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Total |
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Balance at January 28, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
— |
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$ |
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Equity-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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( |
) |
Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Unrealized loss on derivatives (Note 4), |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
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Losses on derivatives reclassified to |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock, |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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— |
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( |
) |
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Balance at April 29, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
— |
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$ |
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Common stock |
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Class |
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Class |
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Class |
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Amount |
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Additional paid-in capital |
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Retained earnings |
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Accumulated |
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Total |
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Noncontrolling |
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Total |
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Balance at January 29, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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Equity-based compensation expense |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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|||
Foreign currency translation |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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— |
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( |
) |
Issuance of common stock, |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
|
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— |
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( |
) |
|
Balance at April 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
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See accompanying notes to consolidated financial statements.
5
PETCO HEALTH AND WELLNESS COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
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Thirteen weeks ended |
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April 29, |
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April 30, |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
( |
) |
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$ |
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Adjustments to reconcile net (loss) income to net cash provided by operating |
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Depreciation and amortization |
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Amortization of debt discounts and issuance costs |
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Provision for deferred taxes |
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( |
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Equity-based compensation |
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Impairments, write-offs and losses on sale of fixed and other assets |
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Loss on partial extinguishment of debt |
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— |
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Income from equity method investees |
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( |
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( |
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Amounts reclassified out of accumulated other comprehensive loss (Note 4) |
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— |
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Non-cash operating lease costs |
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Other non-operating income |
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( |
) |
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( |
) |
Changes in assets and liabilities: |
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Receivables |
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Merchandise inventories |
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( |
) |
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( |
) |
Prepaid expenses and other assets |
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( |
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( |
) |
Accounts payable and book overdrafts |
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( |
) |
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Accrued salaries and employee benefits |
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( |
) |
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Accrued expenses and other liabilities |
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( |
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Operating lease liabilities |
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( |
) |
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( |
) |
Other long-term liabilities |
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( |
) |
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Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Cash paid for fixed assets |
|
|
( |
) |
|
|
( |
) |
Cash paid for acquisitions, net of cash acquired |
|
|
( |
) |
|
|
— |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Repayments of long-term debt |
|
|
( |
) |
|
|
( |
) |
Payments for finance lease liabilities |
|
|
( |
) |
|
|
( |
) |
Proceeds from employee stock purchase plan and stock option exercises |
|
|
|
|
|
|
||
Tax withholdings on stock-based awards |
|
|
( |
) |
|
|
( |
) |
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures: |
|
|
|
|
|
|
||
Interest paid, net |
|
$ |
|
|
$ |
|
||
Capitalized interest |
|
$ |
— |
|
|
$ |
|
|
Income taxes paid |
|
$ |
|
|
$ |
|
||
Supplemental non-cash investing and financing activities disclosure: |
|
|
|
|
|
|
||
Accounts payable and accrued expenses for capital expenditures |
|
$ |
|
|
$ |
|
||
See accompanying notes to consolidated financial statements.
6
PETCO HEALTH AND WELLNESS COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
Petco Health and Wellness Company, Inc. (together with its consolidated subsidiaries, the “Company”) is a category-defining health and wellness company focused on improving the lives of pets, pet parents, and its own partners. The Company manages its business as
In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary for a fair presentation as prescribed by accounting principles generally accepted in the United States (“GAAP”). All adjustments were comprised of normal recurring adjustments, except as noted in these Notes to Consolidated Financial Statements.
There have been no significant changes from the significant accounting policies disclosed in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023.
The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Interim financial results are not necessarily indicative of results anticipated for the full year. The accompanying consolidated financial statements and these Notes to Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2023, from which the prior year balance sheet information herein was derived.
Use of Estimates
The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates are based on information that is currently available and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could vary from those estimates under different assumptions or conditions.
Veterinary Joint Venture
The Company previously held a
Derivative Instruments
In November 2022, the Company entered into a series of interest rate cap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to the three-month Secured Overnight Financing Rate as published by CME Group ("Term SOFR"). The interest
7
rate caps are accounted for as cash flow hedges, and changes in the fair value of the interest rate caps are reported as a component of accumulated other comprehensive (loss) income ("AOCI").
In March 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collar is accounted for as cash flow hedge, and changes in the fair value of the interest rate collar are reported as a component of AOCI.
Cash and Cash Equivalents
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets to the total amounts reported in the consolidated statements of cash flows (in thousands):
|
|
April 29, |
|
|
January 28, |
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted cash included in |
|
|
|
|
|
|
||
Total cash, cash equivalents and restricted cash in |
|
$ |
|
|
$ |
|
||
2. Revenue Recognition
Net sales by product type and services were as follows (in thousands):
|
Thirteen weeks ended |
|
|||||
|
April 29, |
|
|
April 30, |
|
||
Consumables |
$ |
|
|
$ |
|
||
Supplies and companion animals |
|
|
|
|
|
||
Services and other |
|
|
|
|
|
||
Net sales |
$ |
|
|
$ |
|
||
3. Senior Secured Credit Facilities
On
As of April 29, 2023,
Term Loan Facilities
On December 12, 2022, the Company amended the First Lien Term Loan to replace the LIBOR-based rate with a SOFR-based rate as the interest rate benchmark. Interest on the First Lien Term Loan is based on, at the Company’s option, either a base rate or Term SOFR plus the credit spread adjustment recommended by the Alternative Reference Rates Committee ("Adjusted Term SOFR"), subject to a
In March 2023, the Company voluntarily prepaid $
8
and, as a result, the entire remaining balance was included in senior secured credit facilities, net, excluding current portion in the consolidated balance sheets as of April 29, 2023. The Company accounted for the repayment as a partial extinguishment and recognized a loss on debt extinguishment of $
As of April 29, 2023, the outstanding principal balance of the First Lien Term Loan was $
Revolving Credit Facilities
As of April 29, 2023 and January 28, 2023, no amounts were outstanding under the ABL Revolving Credit Facility. At April 29, 2023, $
The ABL Revolving Credit Facility has availability up to $
On December 12, 2022, the Company amended the ABL Revolving Credit Facility to replace the LIBOR-based rate with a SOFR-based rate as the interest rate benchmark. Interest on the ABL Revolving Credit Facility is based on, at the Company’s option, either the base rate or Adjusted Term SOFR subject to a floor of
The applicable margin is adjusted quarterly based on the average historical excess availability as a percentage of the Line Cap, which represents the lesser of the aggregate ABL Revolving Credit Facility and the borrowing base, as follows:
Average Historical Excess Availability |
|
Applicable |
|
|
Applicable |
|
||
Less than |
|
|
% |
|
|
% |
||
Less than |
|
|
% |
|
|
% |
||
Greater than or equal to |
|
|
% |
|
|
% |
||
The ABL Revolving Credit Facility is subject to an unused commitment fee. If the actual daily utilized portion exceeds 50%, the unused commitment fee is
9
4. Derivative Instruments
In November 2022, the Company entered into a series of interest rate cap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate caps became effective
In March 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collar became effective
The interest rate caps and collar are accounted for as cash flow hedges because they are expected to be highly effective in hedging variable rate interest payments. Changes in the fair value of the cash flow hedges are reported as a component of AOCI. As of April 29, 2023, AOCI included unrealized losses of $
The cash flow hedges are reflected in the Company’s consolidated balance sheets as follows (in thousands):
Assets (Liabilities) |
|
Balance sheet location |
|
April 29, |
|
|
January 28, |
|
||
Current asset portion of cash flow hedges |
|
|
$ |
|
|
$ |
— |
|
||
Current liability portion of cash flow |
|
|
|
( |
) |
|
|
( |
) |
|
Non-current liability portion of cash flow |
|
|
|
( |
) |
|
|
( |
) |
|
Total cash flow hedges |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
5. Fair Value Measurements
Assets and Liabilities Measured on a Recurring Basis
The following table presents information about assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):
|
|
April 29, 2023 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Assets (liabilities): |
|
|
|
|
|
|
|
|
|
|||
Money market mutual funds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Investments of officers' life insurance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Non-qualified deferred compensation plan |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Interest related to Rover Group, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
January 28, 2023 |
|
|||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|||
Assets (liabilities): |
|
|
|
|
|
|
|
|
|
|||
Money market mutual funds |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Investments of officers' life insurance |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Non-qualified deferred compensation plan |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Investment in Rover Group, Inc. |
|
$ |
|
|
$ |
|
|
$ |
|
|||
10
The fair value of money market mutual funds is based on quoted market prices, such as quoted net asset values published by the fund as supported in an active market. Money market mutual funds included in the Company’s cash and cash equivalents were $
The Company maintains a deferred compensation plan for key executives and other members of management, which is funded by investments in officers’ life insurance. The fair value of this obligation is based on participants’ elected investments, which reflect the closing market prices of similar assets.
In April 2023, the Company sold its interest in Rover Group, Inc. Class A common stock to a buyer at a price to be determined based on the daily volume weighted average price, in addition to a premium, over an agreed upon period. The cash proceeds, when determined, will be received throughout the remainder of fiscal 2023. The Company's interest in the unsettled cash proceeds is remeasured at fair value at each reporting period, and the resulting gains or losses are included in other non-operating income in the consolidated statements of operations.
Assets Measured on a Non-Recurring Basis
The Company’s non-financial assets, which primarily consist of goodwill, other intangible assets, fixed assets and equity and other investments, are reported at carrying value, or at fair value as of the date of the Company’s acquisition of Petco Holdings, Inc. LLC on January 26, 2016, and are not required to be measured at fair value on a recurring basis. However, on a periodic basis (at least annually for goodwill and indefinite-lived intangibles or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable), non-financial assets are assessed for impairment. If impaired, the carrying values of the assets are written down to fair value using Level 3 inputs.
There were no triggering events identified and no indication of impairment of the Company’s goodwill, indefinite-lived trade name, other intangible assets or equity and other investments during the thirteen week periods ended April 29, 2023 and April 30, 2022. During the thirteen week periods ended April 29, 2023 and April 30, 2022, the Company recorded fixed asset and right-of-use asset impairment charges of $
6. Stockholders’ Equity
Equity-Based Compensation
Equity-based compensation awards under the Company’s current equity incentive plan (the “2021 Equity Incentive Plan”) include restricted stock units (“RSUs,” which include performance-based stock units), restricted stock awards (“RSAs”), non-qualified stock options, and other equity compensation awards. The Company also has an employee stock purchase plan (“ESPP”).
The Company’s controlling parent, Scooby LP, also maintains an incentive plan (the “2016 Incentive Plan”) under which it has awarded partnership unit awards to certain current and former employees, consultants, and non-employee directors of the Company that are restricted profit interests in Scooby LP subject to a distribution threshold (“Series C Units”).
11
The following table summarizes the Company’s equity-based compensation expense by award type (in thousands):
|
|
Thirteen weeks ended |
|
|||||
|
|
April 29, |
|
|
April 30, |
|
||
RSUs and RSAs |
|
$ |
|
|
$ |
|
||
Options |
|
|
|
|
|
|
||
ESPP |
|
|
|
|
|
|
||
Other awards |
|
|
|
|
|
|
||
Total equity-based compensation expense |
|
$ |
|
|
$ |
|
||
Activity under the 2021 Equity Incentive Plan was as follows (shares and dollars in thousands):
|
|
RSUs and RSAs |
|
|
Options |
|
||
Nonvested/outstanding, January 28, 2023 |
|
|
|
|
|
|
||
Granted |
|
|
|
|
|
|
||
Vested and delivered/exercised |
|
|
( |
) |
|
|
|
|
Forfeited/expired |
|
|
( |
) |
|
|
( |
) |
Nonvested/outstanding, April 29, 2023 |
|
|
|
|
|
|
||
Unrecognized compensation expense as of April 29, 2023 |
|
$ |
|
|
$ |
|
||
Weighted average remaining expense period as of April 29, 2023 |
|
|
|
|
||||
RSA activity has not been material and relates to an RSA of Class A common stock granted to an executive in March 2021. For this grant,
The ESPP allows eligible employees to contribute up to
Series C Unit activity under the 2016 Incentive Plan was as follows (in thousands):
|
|
Units |
|
|
Outstanding, January 28, 2023 |
|
|
|
|
Granted |
|
|
|
|
Forfeited |
|
|
( |
) |
Outstanding, April 29, 2023 |
|
|
|
|
Vested, April 29, 2023 |
|
|
|
|
(Loss) Income Per Share
Potentially dilutive securities include potential Class A common shares related to outstanding stock options, unvested RSUs and RSAs, and the ESPP, calculated using the treasury stock method. The calculation of diluted shares outstanding excludes securities where the combination of the exercise or purchase price (in the case of
12
options and the ESPP) and the associated unrecognized compensation expense is greater than the average market price of Class A common shares because the inclusion of these securities would be anti-dilutive.
All outstanding equity awards were excluded from the calculation of diluted loss per Class A and B-1 common share in the thirteen weeks ended April 29, 2023, as their effect would be antidilutive in a net loss period.
There were approximately
7. Commitments and Contingencies
The Company is involved in legal proceedings and is subject to other claims and litigation arising in the ordinary course of its business. The Company has made accruals with respect to certain of these matters, where appropriate, which are reflected in the Company’s consolidated financial statements but are not, individually or in the aggregate, considered material. For other matters, the Company has not made accruals because management has not yet determined that a loss is probable or because the amount of loss cannot be reasonably estimated. While the ultimate outcome of the matters cannot be determined, the Company currently does not expect that these matters will have a material adverse effect on its consolidated financial statements. The outcome of any litigation is inherently uncertain, however, and if decided adversely to the Company, or if the Company determines that settlement of particular litigation is appropriate, the Company may be subject to liability that could have a material adverse effect on its consolidated financial statements.
13
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the corresponding Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 28, 2023 (the “2022 Form 10-K”). The discussion and analysis below contains certain forward-looking statements about our business and operations that are subject to the risks, uncertainties, and other factors referred to in Part II, Item 1A, “Risk Factors” of this Form 10-Q. These risks, uncertainties, and other factors could cause our actual results to differ materially from those expressed in, or implied by, the forward-looking statements. The risks described in this Form 10-Q and in other documents we file from time to time with the U.S. Securities and Exchange Commission (the “SEC”), including the section entitled “Forward-Looking Statements” in this Form 10-Q, should be carefully reviewed. All amounts herein are unaudited.
Overview
Petco Health and Wellness Company, Inc. (“Petco”, the “Company”, “we”, “our” and “us”) is a category-defining health and wellness company focused on improving the lives of pets, pet parents, and our own partners. We have consistently set new standards in pet care while delivering comprehensive pet wellness products, services and solutions, and creating communities that deepen the pet-pet parent bond. In recent years, we have transformed our business from a successful yet traditional retailer to a disruptive, fully integrated, omnichannel provider of holistic pet health and wellness offerings, including premium products, services, and veterinary care. Through our integrated ecosystem, we provide our over 25 million total active customers with a comprehensive offering of differentiated products and services to fulfill their pets’ health and wellness needs through our more than 1,500 pet care centers in the U.S., Mexico, and Puerto Rico, including a growing network of more than 250 in-store veterinary hospitals, our digital channel, and our flexible fulfillment options.
Our multicategory, go-to-market strategy integrates our strong digital assets with our nationwide physical footprint to meet the needs of pet parents who are looking for a single source for all their pet’s needs. Our e-commerce site and personalized mobile app serve as hubs for pet parents to manage their pets’ health, wellness, and merchandise needs, while enabling them to shop wherever, whenever, and however they want. By leveraging our extensive physical network of pet care centers, we are able to offer our comprehensive product and service offering in a localized manner with a meaningful last-mile advantage over much of our competition. The full value of our health and wellness ecosystem is realized for customers through our Vital Care Premier membership program. From the nutrition and supplies pets need each day, to the services that keep them at optimal health, Vital Care Premier makes it easier and more affordable for pet parents to care for their pet’s whole health all in one place. Vital Care Premier memberships are at the top of our integrated loyalty programs, followed by Vital Care Core and our perks programs that provide rewards for frequent purchasing.
We strive to be a truly unique company, one that is saving and improving millions of pet lives and tangibly improving the lives of pet parents and the partners who work for us, while at the same time executing our differentiated strategy with excellence. In tandem with Petco Love (formerly the Petco Foundation), an independent nonprofit organization, we work with and support thousands of local animal welfare groups across the country and, through in-store adoption events, we have helped find homes for nearly 7 million animals.
Macroeconomic factors, including rising interest rates, inflationary pressures, supply chain constraints, and global economic and geopolitical developments have varying impacts on our results of operations, such as decreases in sales of discretionary items like supplies, that are difficult to isolate and quantify. We cannot predict the duration or ultimate severity of these macroeconomic factors or the ultimate impact on our operations and liquidity. Please refer to the risk factors referred to in Part II, Item 1A, “Risk Factors” of this Form 10-Q.
14
How We Assess the Performance of Our Business
In assessing our performance, we consider a variety of performance and financial measures, including the following:
Comparable Sales
Comparable sales is an important measure throughout the retail industry and includes both retail and digital sales of products and services. A new location or digital site is included in comparable sales beginning on the first day of the fiscal month following 12 full fiscal months of operation and is subsequently compared to like time periods from the previous year. Relocated pet care centers become comparable pet care centers on the first day of operation if the original pet care center was open longer than 12 full fiscal months. If, during the period presented, a pet care center was closed, sales from that pet care center are included up to the first day of the month of closing. There may be variations in the way in which some of our competitors and other retailers calculate comparable sales. As a result, data in this filing regarding our comparable sales may not be comparable to similar data made available by other retailers.
Comparable sales allow us to evaluate how our overall ecosystem is performing by measuring the change in period-over-period net sales from locations and digital sites that have been open for the applicable period. We intend to improve comparable sales by continuing initiatives aimed to increase customer retention, frequency of visits, and basket size. General macroeconomic and retail business trends are also a key driver of changes in comparable sales.
Non-GAAP Financial Measures
Management and our board of directors review, in addition to GAAP (as defined herein) measures, certain non-GAAP financial measures, including Adjusted EBITDA, and Free Cash Flow, to evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. Further explanations of these non-GAAP measures, along with reconciliations to their most comparable GAAP measures, are presented below under “Reconciliation of Non-GAAP Financial Measures to GAAP Measures.”
Executive Summary
The financial results for the thirteen weeks ended April 29, 2023 reflect continued business and customer growth and operational execution, while investing in strategic growth initiatives. Comparing the thirteen weeks ended April 29, 2023 with the thirteen weeks ended April 30, 2022 (unless otherwise noted), our results included the following:
15
Results of Operations
The following tables summarize our results of operations and the percent of net sales of line items included in our consolidated statements of operations (dollars in thousands):
|
|
Thirteen weeks ended |
|
|
|||||
|
|
April 29, |
|
|
April 30, |
|
|
||
Net sales |
|
$ |
1,555,908 |
|
|
$ |
1,475,991 |
|
|
Cost of sales |
|
|
951,426 |
|
|
|
868,317 |
|
|
Gross profit |
|
|
604,482 |
|
|
|
607,674 |
|
|
Selling, general and administrative expenses |
|
|
576,865 |
|
|
|
557,735 |
|
|
Operating income |
|
|
27,617 |
|
|
|
49,939 |
|
|
Interest income |
|
|
(1,177 |
) |
|
|
(20 |
) |
|
Interest expense |
|
|
37,202 |
|
|
|
19,634 |
|
|
Loss on partial extinguishment of debt |
|
|
441 |
|
|
|
— |
|
|
Other non-operating income |
|
|
(2,819 |
) |
|
|
(314 |
) |
|
(Loss) income before income taxes and income |
|
|
(6,030 |
) |
|
|
30,639 |
|
|
Income tax (benefit) expense |
|
|
(1,008 |
) |
|
|
10,000 |
|
|
Income from equity method investees |
|
|
(3,130 |
) |
|
|
(3,163 |
) |
|
Net (loss) income |
|
|
(1,892 |
) |
|
|
23,802 |
|
|
Net loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(891 |
) |
|
Net (loss) income attributable to Class A and B-1 |
|
$ |
(1,892 |
) |
|
$ |
24,693 |
|
|
|
|
Thirteen weeks ended |
|
|
|||||
|
|
April 29, |
|
|
April 30, |
|
|
||
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of sales |
|
|
61.1 |
|
|
|
58.8 |
|
|
Gross profit |
|
|
38.9 |
|
|
|
41.2 |
|
|
Selling, general and administrative expenses |
|
|
37.1 |
|
|
|
37.8 |
|
|
Operating income |
|
|
1.8 |
|
|
|
3.4 |
|
|
Interest income |
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
Interest expense |
|
|
2.4 |
|
|
|
1.3 |
|
|
Loss on partial extinguishment of debt |
|
|
0.0 |
|
|
|
— |
|
|
Other non-operating income |
|
|
(0.1 |
) |
|
|
(0.0 |
) |
|
(Loss) income before income taxes and income |
|
|
(0.4 |
) |
|
|
2.1 |
|
|
Income tax (benefit) expense |
|
|
(0.1 |
) |
|
|
0.7 |
|
|
Income from equity method investees |
|
|
(0.2 |
) |
|
|
(0.2 |
) |
|
Net (loss) income |
|
|
(0.1 |
) |
|
|
1.6 |
|
|
Net loss attributable to noncontrolling interest |
|
|
— |
|
|
|
(0.1 |
) |
|
Net (loss) income attributable to Class A and B-1 |
|
|
(0.1 |
)% |
|
|
1.7 |
% |
|
|
|
Thirteen weeks ended |
|
|||||
|
|
April 29, |
|
|
April 30, |
|
||
Operational Data: |
|
|
|
|
|
|
||
Comparable sales increase |
|
|
5.1 |
% |
|
|
5.1 |
% |
Total pet care centers at end of period |
|
|
1,428 |
|
|
|
1,427 |
|
Total veterinarian practices at end of period |
|
|
257 |
|
|
|
201 |
|
Adjusted EBITDA (in thousands) |
|
$ |
111,026 |
|
|
$ |
119,195 |
|
16
Thirteen Weeks Ended April 29, 2023 Compared with Thirteen Weeks Ended April 30, 2022
Net Sales and Comparable Sales
|
Thirteen weeks ended |
|
|||||||||||||
(dollars in thousands) |
April 29, |
|
|
April 30, |
|
|
$ |
|
|
% |
|
||||
Consumables |
$ |
763,051 |
|
|
$ |
685,930 |
|
|
$ |
77,121 |
|
|
|
11.2 |
% |
Supplies and companion animals |
|
553,545 |
|
|
|
599,179 |
|
|
|
(45,634 |
) |
|
|
(7.6 |
%) |
Services and other |
|
239,312 |
|
|
|
190,882 |
|
|
|
48,430 |
|
|
|
25.4 |
% |
Net sales |
$ |
1,555,908 |
|
|
$ |
1,475,991 |
|
|
$ |
79,917 |
|
|
|
5.4 |
% |
Net sales increased $79.9 million, or 5.4%, to $1.56 billion in the thirteen weeks ended April 29, 2023 compared to net sales of $1.48 billion in the thirteen weeks ended April 30, 2022, driven by a 5.1% increase in our comparable sales. Our sales growth period-over-period was driven by our strong execution and differentiated model across digital and in our pet care centers. Our total sales mix remains strong, led by continued momentum in consumables and services, whose customers shop more frequently and have among our highest long-term value. This growth is slightly offset by a decrease in supplies and companion animals sales driven by softening in discretionary spend associated with the current inflationary macroeconomic environment. We have made certain pricing actions to partially offset cost increases during the thirteen weeks ended April 29, 2023.
The increase in consumables sales between the periods was driven in part by our continued expansion of our product assortment and momentum in premium consumables and owned brand offerings. The decrease in supplies and companion animals sales is due to a decrease in spending on certain non-essential items. The increase in services and other was due to growth in our membership offerings like Vital Care and growth in our grooming services and veterinary hospital business in which we now operate over 250 veterinary hospitals.
For the thirteen weeks ended April 29, 2023, pet care center merchandise and Vital Care delivered growth of 2.5% with strong growth in consumables. E-commerce and digital sales increased 11.2% during the thirteen weeks ended April 29, 2023, driven by strength in our online initiatives such as repeat delivery, same day delivery and our digital pharmacy. Service-related sales, which include veterinary hospitals, increased 13.4% during the thirteen weeks ended April 29, 2023, reflecting expansion and maturity of our veterinary hospital footprint and strong growth in veterinary and grooming customers.
We are unable to quantify certain factors impacting sales described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification.
Gross Profit
Gross profit decreased $3.2 million, or 0.5%, to $604.5 million in the thirteen weeks ended April 29, 2023 compared to gross profit of $607.7 million for the thirteen weeks ended April 30, 2022. As a percentage of sales, our gross profit rate was 38.9% for the thirteen weeks ended April 29, 2023 compared with 41.2% for the thirteen weeks ended April 30, 2022. The decrease in gross profit rate between the periods was primarily due to the mix impact of strong consumables sales and softer supplies sales during the thirteen weeks ended April 29, 2023. While the strong consumables mix impacts the gross margin rate, the average consumables customer has a higher lifetime value than most other categories of customers. Sales channel impacts driven by strength in our digital, services and vet business, and moderate increases in distribution costs also contributed to the decrease in gross profit rate during the thirteen weeks ended April 29, 2023 as compared to the prior year period. We are unable to quantify the factors impacting gross profit rate described above due to the fact that such factors are based on input measures or qualitative information that do not lend themselves to quantification.
Selling, General and Administrative (“SG&A”) Expenses
SG&A expenses increased $19.1 million, or 3.4%, to $576.9 million for the thirteen weeks ended April 29, 2023 compared to $557.7 million for the thirteen weeks ended April 30, 2022. As a percentage of net sales, SG&A expenses were 37.1% for the thirteen weeks ended April 29, 2023 compared with 37.8% for the thirteen weeks ended April 30, 2022, reflecting operating leverage from net sales growth. The increase in SG&A expenses
17
period-over-period was to support our growth as we continue to invest in infrastructure and our people, along with higher variable costs on increased sales and was partially offset by a $10.4 million decrease in advertising expenses.
Interest Expense
Interest expense increased $17.6 million, or 89.5%, to $37.2 million in the thirteen weeks ended April 29, 2023 compared with $19.6 million in the thirteen weeks ended April 30, 2022. The increase was primarily driven by higher interest rates on the First Lien Term Loan. For more information on these obligations, refer to Note 3, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Loss on Partial Extinguishment of Debt
Loss on partial extinguishment of debt was $0.4 million for the thirteen weeks ended April 29, 2023. This loss was recognized in conjunction with the $35.0 million repayment on the First Lien Term Loan in March 2023. There was no loss on debt extinguishment and modification for the thirteen weeks ended April 30, 2022. For more information regarding these activities, refer to Note 3, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Other Non-Operating Income
Other non-operating income was $2.8 million and $0.3 million for the thirteen weeks ended April 29, 2023 and April 30, 2022, respectively. For more information regarding this activity, refer to Note 5, “Fair Value Measurements,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Income Tax (Benefit) Expense
Our effective tax rate was 34.8% resulting in income tax benefit of $1.0 million for the thirteen weeks ended April 29, 2023, compared to an effective tax rate of 28.8% resulting in income tax expense of $10.0 million for the thirteen weeks ended April 30, 2022. The increase in effective tax rate for the thirteen weeks ended April 29, 2023 is primarily driven by an increase in nondeductible equity compensation and a change in pre-tax earnings.
Reconciliation of Non-GAAP Financial Measures to GAAP Measures
The following information provides definitions and reconciliations of certain non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP. Such non-GAAP financial measures are not calculated in accordance with GAAP and should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the most comparable GAAP measures. The non-GAAP financial measures presented may differ from similarly-titled measures used by other companies.
Adjusted EBITDA
We present Adjusted EBITDA, a non-GAAP financial measure, because we believe it enhances an investor’s understanding of our financial and operational performance by excluding certain material non-cash items, unusual or non-recurring items that we do not expect to continue in the future, and certain other adjustments we believe are or are not reflective of our ongoing operations and performance. Adjusted EBITDA enables operating performance to be reviewed across reporting periods on a consistent basis. We use Adjusted EBITDA as one of the principal measures to evaluate and monitor our operating financial performance and to compare our performance to others in our industry. We also use Adjusted EBITDA in connection with establishing discretionary annual incentive compensation targets, to make budgeting decisions, to make strategic decisions regarding the allocation of capital, and to report our quarterly results as defined in our debt agreements, although under such agreements the measure is calculated differently and is used for different purposes.
Adjusted EBITDA is not a substitute for net income (loss), the most comparable GAAP measure, and is subject to a number of limitations as a financial measure, so it should be used in conjunction with GAAP financial measures and not in isolation. There can be no assurances that we will not modify the presentation of Adjusted
18
EBITDA in the future. In addition, other companies in our industry may define Adjusted EBITDA differently, limiting its usefulness as a comparative measure. Refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reconciliation of Non-GAAP Financial Measures to GAAP Measures” included in the 2022 Form 10-K for more information regarding how we define Adjusted EBITDA.
The table below reflects the calculation of Adjusted EBITDA and Adjusted EBITDA Margin for the periods presented:
|
|
Thirteen weeks ended |
|
|||||
(dollars in thousands) |
|
April 29, |
|
|
April 30, |
|
||
Net (loss) income attributable to Class A and B-1 |
|
$ |
(1,892 |
) |
|
$ |
24,693 |
|
Interest expense, net |
|
|
36,025 |
|
|
|
19,614 |
|
Income tax (benefit) expense |
|
|
(1,008 |
) |
|
|
10,000 |
|
Depreciation and amortization |
|
|
49,255 |
|
|
|
46,967 |
|
Income from equity method investees |
|
|
(3,130 |
) |
|
|
(3,163 |
) |
Loss on partial extinguishment of debt |
|
|
441 |
|
|
|
— |
|
Asset impairments and write offs |
|
|
4 |
|
|
|
162 |
|
Equity-based compensation |
|
|
22,129 |
|
|
|
12,222 |
|
Other non-operating income |
|
|
(2,819 |
) |
|
|
(314 |
) |
Mexico joint venture EBITDA (1) |
|
|
8,734 |
|
|
|
6,778 |
|
Acquisition-related integration costs (2) |
|
|
— |
|
|
|
2,236 |
|
Other costs (3) |
|
|
3,287 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
111,026 |
|
|
$ |
119,195 |
|
Net sales |
|
$ |
1,555,908 |
|
|
$ |
1,475,991 |
|
Net margin (4) |
|
|
(0.1 |
)% |
|
|
1.7 |
% |
Adjusted EBITDA Margin |
|
|
7.1 |
% |
|
|
8.1 |
% |
————————————
|
|
Thirteen weeks ended |
|
|||||
(dollars in thousands) |
|
April 29, |
|
|
April 30, |
|
||
Net income |
|
$ |
6,259 |
|
|
$ |
5,133 |
|
Depreciation |
|
|
5,708 |
|
|
|
4,294 |
|
Income tax expense |
|
|
4,074 |
|
|
|
2,997 |
|
Foreign currency loss (gain) |
|
|
127 |
|
|
|
(64 |
) |
Interest expense, net |
|
|
1,300 |
|
|
|
1,196 |
|
EBITDA |
|
$ |
17,468 |
|
|
$ |
13,556 |
|
50% of EBITDA |
|
$ |
8,734 |
|
|
$ |
6,778 |
|
————————————
Free Cash Flow
Free Cash Flow is a non-GAAP financial measure that is calculated as net cash provided by operating activities less cash paid for fixed assets. Management believes that Free Cash Flow, which measures our ability to
19
generate additional cash from our business operations, is an important financial measure for use in evaluating the Company’s financial performance.
The table below reflects the calculation of Free Cash Flow for the periods presented:
|
|
Thirteen weeks ended |
|
|||||
|
|
April 29, |
|
|
April 30, |
|
||
(dollars in thousands) |
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
$ |
37,651 |
|
|
$ |
57,519 |
|
Cash paid for fixed assets |
|
|
(62,050 |
) |
|
|
(65,910 |
) |
Free Cash Flow |
|
$ |
(24,399 |
) |
|
$ |
(8,391 |
) |
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are funds generated by operating activities and available capacity for borrowings on our $500 million secured asset-based revolving credit facility maturing March 4, 2026 (the “ABL Revolving Credit Facility”). Our ability to fund our operations, to make planned capital investments, to make scheduled debt payments and to repay or refinance indebtedness depends on our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond our control. Our liquidity as of April 29, 2023 was $592.8 million, inclusive of cash and cash equivalents of $148.9 million and $443.9 million of availability on the ABL Revolving Credit Facility.
We are a party to contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. We believe that our current resources, together with anticipated cash flows from operations and borrowing capacity under the ABL Revolving Credit Facility will be sufficient to finance our operations, meet our current cash requirements, and fund anticipated capital investments for at least the next 12 months. We may, however, seek additional financing to fund future growth or refinance our existing indebtedness through the debt capital markets, but we cannot be assured that such financing will be available on favorable terms, or at all.
Cash Flows
The following table summarizes our consolidated cash flows:
|
|
Thirteen weeks ended |
|
|||||
(dollars in thousands) |
|
April 29, |
|
|
April 30, |
|
||
Total cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
37,651 |
|
|
$ |
57,519 |
|
Investing activities |
|
|
(62,775 |
) |
|
|
(65,910 |
) |
Financing activities |
|
|
(37,082 |
) |
|
|
(15,260 |
) |
Net decrease in cash, cash equivalents |
|
$ |
(62,206 |
) |
|
$ |
(23,651 |
) |
Operating Activities
Our primary source of operating cash is sales of products and services to customers, which are substantially all on a cash basis, and therefore provide us with a significant source of liquidity. Our primary uses of cash in operating activities include: purchases of inventory; freight and warehousing costs; employee-related expenditures; occupancy-related costs for our pet care centers, distribution centers and corporate support centers; credit card fees; interest under our debt agreements; and marketing expenses. Net cash provided by operating activities is impacted by our net (loss) income adjusted for certain non-cash items, including: depreciation, amortization, impairments and write-offs; amortization of debt discounts and issuance costs; deferred income taxes; equity-based compensation; impairments of goodwill and intangible assets; other non-operating income; and the effect of changes in operating assets and liabilities.
20
Net cash provided by operating activities was $37.7 million in the thirteen weeks ended April 29, 2023 compared with net cash provided by operating activities of $57.5 million in the thirteen weeks ended April 30, 2022. The decrease in operating cash flow was due to lower operating income, an increase in cash paid for inventory, an increase in cash paid for interest as well as higher payroll and fringe benefits. This was partially offset by timing differences in accounts payable as well as lower cash paid for incentive compensation.
Investing Activities
Cash used in investing activities consists of capital expenditures, which in the thirteen weeks ended April 29, 2023 and the thirteen weeks ended April 30, 2022 primarily supported our initiatives including the continued build-out of our veterinary hospitals. Net cash used in investing activities was $62.8 million and $65.9 million for the thirteen weeks ended April 29, 2023 and April 30, 2022, respectively.
Financing Activities
Net cash used in financing activities was $37.1 million for the thirteen weeks ended April 29, 2023, compared with $15.3 million used in financing activities in the thirteen weeks ended April 30, 2022.
Financing cash flows in the thirteen weeks ended April 29, 2023 primarily consisted of the $35.0 million principal repayment on the term loan.
Financing cash flows in the thirteen weeks ended April 30, 2022 primarily consisted of the scheduled quarterly repayments on the term loan and payments for tax withholdings on stock-based awards.
Sources of Liquidity
Senior Secured Credit Facilities
On March 4, 2021, the Company completed a refinancing transaction by entering into a $1,700 million secured term loan facility maturing on March 4, 2028 (the “First Lien Term Loan”) and the ABL Revolving Credit Facility, which matures on March 4, 2026 and has availability of up to $500.0 million, subject to a borrowing base. Interest on the First Lien Term Loan is based on, at the Company’s option, either a base rate or Adjusted Term SOFR, subject to a 0.75% floor, payable upon maturity of the SOFR contract, in either case plus the applicable rate. The base rate is the greater of the bank prime rate, federal funds effective rate plus 0.5% or Adjusted Term SOFR plus 1.0%. The applicable rate is 2.25% per annum for a base rate loan or 3.25% per annum for an Adjusted Term SOFR loan. Principal and interest payments commenced on June 30, 2021. Principal payments are typically $4.25 million quarterly. In March 2023 and May 2023, the Company repaid $35.0 million and $25.0 million in principal, respectively, of the First Lien Term Loan using existing cash on hand. The repayments were applied to remaining principal payments in order of scheduled payment date.
For more information regarding this indebtedness, refer to Note 3, “Senior Secured Credit Facilities,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Derivative Instruments
In November 2022, the Company entered into a series of interest rate cap agreements to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate caps became effective December 30, 2022 and expire on December 31, 2024.
In March 2023, the Company entered into an interest rate collar agreement to limit the maximum interest on a portion of the Company’s variable-rate debt and decrease its exposure to interest rate variability relating to three-month Term SOFR. The interest rate collar became effective March 31, 2023 and expires on March 31, 2026.
21
For more information regarding derivative instruments, refer to Note 4, “Derivative Instruments,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make assumptions and estimates about future results and apply judgments that affect the reported amounts of assets, liabilities, net sales, expenses and related disclosures. We base our estimates and judgments on historical experience, current trends and other factors that we believe to be relevant at the time our consolidated financial statements are prepared. On an ongoing basis, we review the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in the 2022 Form 10-K.
Recent Accounting Pronouncements
Refer to Note 1, “Summary of Significant Accounting Policies,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for information regarding recently issued accounting pronouncements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to market risks arising from transactions in the normal course of our business. These risks are primarily associated with interest rate fluctuations, as well as changes in our credit standing, based on the capital and credit markets, which are not predictable. We do not currently hold any instruments for trading purposes.
Interest Rate Risk
We are subject to interest rate risk in connection with the First Lien Term Loan and the ABL Revolving Credit Facility. As of April 29, 2023, we had $1,635.3 million outstanding under the First Lien Term Loan and no amounts outstanding under the ABL Revolving Credit Facility. The First Lien Term Loan and the ABL Revolving Credit Facility each bear interest at variable rates. An increase of 100 basis points in the variable rates on the First Lien Term Loan and the ABL Revolving Credit Facility as of April 29, 2023 would have increased annual cash interest in the aggregate by approximately $16.6 million. Additionally, we entered into cash flow hedges to limit the maximum interest rate on a portion of our variable-rate debt and limit our exposure to interest rate variability, refer to Note 4, “Derivative Instruments,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
We cannot predict market fluctuations in interest rates and their impact on our debt, nor can there be any assurance that long-term fixed-rate debt will be available at favorable rates, if at all. Consequently, future results may differ materially from estimated results due to adverse changes in interest rates or debt availability.
Credit Risk
As of April 29, 2023, our cash and cash equivalents were maintained at major financial institutions in the United States, and our current deposits are likely in excess of insured limits. We believe these institutions have sufficient assets and liquidity to conduct their operations in the ordinary course of business with little or no credit risk to us.
Foreign Currency Risk
Substantially all of our business is currently conducted in U.S. dollars. We do not believe that an immediate 10% increase or decrease in the relative value of the U.S. dollar as compared to other currencies would have a material effect on our operating results.
22
Item 4. Controls and Procedures.
Management’s Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of April 29, 2023.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended April 29, 2023, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based on certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
23
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 7, “Commitments and Contingencies,” to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q for a description of legal proceedings, which is incorporated herein by reference.
Item 1A. Risk Factors.
Reference is made to Part I, Item 1A, “Risk Factors” included in the 2022 Form 10-K for information concerning risk factors. There have been no material changes with respect to the risk factors disclosed in the 2022 Form 10-K. You should carefully consider such factors, which could materially and adversely affect our business, financial condition, and/or results of operations. The risks described in the 2022 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition, and/or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information about purchases of the Company’s Class A common stock by the Company during the first quarter of 2023:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Total Number of Shares Purchased(1) |
|
Average Price Paid Per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
|
|||||||||
|
|
|
|
|
|
|
|||||||||||||
Period |
|
|
|
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
January 29, 2023 to February 28, 2022 |
|
— |
|
|
— |
|
— |
|
|
— |
|
||||||||
March 1, 2023 to March 31, 2023 |
|
10,881 |
|
$ |
8.95 |
|
— |
|
|
— |
|
||||||||
April 1, 2023 to April 29, 2023 |
|
— |
|
|
— |
|
— |
|
|
— |
|
||||||||
Total |
|
10,881 |
|
$ |
8.95 |
|
— |
|
|
— |
|
||||||||
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
24
The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q:
Exhibit Number |
|
Description |
|
|
|
|
|
|
10.1†
|
|
|
|
|
|
10.2†
|
|
|
|
|
|
10.3† |
|
Employment Letter between Petco Animal Supplies Stores, Inc. and Amy College dated February 18, 2022 |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1* |
|
|
|
|
|
32.2* |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
|
|
* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
† Management contract or compensatory plan or arrangement.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Petco Health and Wellness Company, Inc. |
|
|
|
|
|
Date: June 7, 2023 |
By: |
|
/s/ Brian LaRose |
|
|
|
Brian LaRose |
|
|
|
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
|
|
|
|
26
2023 CEO FORM Exhibit 10.1
PETCO HEALTH AND WELLNESS COMPANY, INC.
2021 EQUITY INCENTIVE PLAN
GRANT NOTICE FOR
PERFORMANCE STOCK UNIT AWARD
FOR GOOD AND VALUABLE CONSIDERATION, Petco Health and Wellness Company, Inc. (the “Company”), hereby grants to the Participant named below the target number of performance stock units (the “PSUs”) specified below (the “Award”) as performance-based Restricted Stock Units under the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan (as amended from time to time, the “Plan”). Each Earned PSU represents the right to receive one share of Common Stock, upon the terms and subject to the conditions set forth in this Grant Notice (including Exhibit C), the Plan and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan and attached hereto as Exhibit A, and the Confidentiality and Inventions Agreement attached hereto as Exhibit B. This Award is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan.
Name of Participant: |
|
Grant Date: |
|
Target Number of PSUs: |
[●] (the “Target PSUs”) |
Award Type: |
The Award represents the right to receive shares of Common Stock in an amount from [●]% to [●]% of the Target PSUs. The Award shall vest and become earned and nonforfeitable upon (i) the Participant’s satisfaction of the Service Requirement (as defined below) and (ii) the Committee’s certification of the final level of achievement of the Performance Goals (as defined below). PSUs that become earned upon satisfaction of the Service Requirement and the Performance Goals are referred to herein as “Earned PSUs.” |
Performance Period: |
|
Service Requirement: |
The “Service Requirement” is set forth on Exhibit C attached hereto. |
Performance Goals: |
The “Performance Goals” is set forth on Exhibit C attached hereto. |
IN ORDER TO RECEIVE THE BENEFITS OF THIS AGREEMENT, PARTICIPANT MUST EXECUTE AND RETURN THIS GRANT NOTICE (THE “ACCEPTANCE REQUIREMENTS”). IF YOU FAIL TO SATISFY THE ACCEPTANCE REQUIREMENTS WITHIN 60 DAYS AFTER THE GRANT DATE, THEN (1) THIS GRANT NOTICE WILL BE OF NO FORCE OR EFFECT AND THIS AWARD WILL BE AUTOMATICALLY FORFEITED TO THE COMPANY WITHOUT CONSIDERATION, AND (2) NEITHER PARTICIPANT NOR THE COMPANY WILL HAVE ANY FUTURE RIGHTS OR OBLIGATIONS UNDER THIS GRANT NOTICE OR THE STANDARD TERMS AND CONDITIONS.
By accepting this Grant Notice, Participant acknowledges that Participant has received and read, and agrees that this Award shall be subject to, the terms of this Grant Notice (including Exhibit C), the Plan, and the Standard Terms and Conditions and the Confidentiality and Inventions Agreement.
PETCO HEALTH AND WELLNESS COMPANY, INC.
By:
Name:
Title:
PARTICIPANT
[Name]
Signature Page to
Grant Notice for
Performance Stock Unit Award
EXHIBIT A
PETCO HEALTH AND WELLNESS COMPANY, INC.
2021 EQUITY INCENTIVE PLAN
STANDARD TERMS AND CONDITIONS FOR
PERFORMANCE STOCK UNITS
These Standard Terms and Conditions apply to the Award of performance stock units granted pursuant to the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan (the “Plan”), which are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Standard Terms and Conditions, the performance stock units shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
Petco Health and Wellness Company, Inc. (the “Company”) has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an award of performance stock units (the “Award” or “PSUs”) specified in the Grant Notice, with each Earned PSU representing the right to receive one share of Common Stock. The Award is subject to the conditions set forth in the Grant Notice, these Standard Terms and Conditions and the Plan. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.
Exhibit A
Standard Terms and Conditions for
Performance Stock Units
A-2
The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued pursuant to Earned PSUs, including (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other holders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.
To the extent required by applicable federal, state, local or foreign law, the Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of the grant or vesting of the PSUs. The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied.
The Participant understands, acknowledges and agrees that, except as otherwise provided in the Plan or as permitted by the Committee, the Award may not be sold, assigned, transferred, pledged or otherwise directly or indirectly encumbered or disposed of other than by will or the laws of descent and distribution. Notwithstanding the foregoing, (a) the Participant shall be permitted to transfer the Award as a gift to an Assignee Entity in accordance with and subject to the limits of Section 17 of the Plan and (b) if not previously so transferred, any shares of Common Stock that become issuable hereunder but which otherwise remain unissued at the time of the Participant’s death shall be transferred to the Participant’s designated beneficiary or, if none, to the Participant’s estate.
The Grant Notice, these Standard Terms and Conditions, the Confidentiality and Inventions
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Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the Award. Any prior agreements, commitments or negotiations concerning the Award are superseded; provided, however, that the terms of the Confidentiality and Inventions Agreement are in addition to and complement (and do not replace or supersede) all other agreements and obligations between the Company and any of its affiliates and the Participant with respect to confidentiality and intellectual property.
Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person in connection with the Award. Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.
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The PSUs and any shares of Common Stock issued pursuant to the Earned PSUs will be subject to recoupment in accordance with any clawback policy adopted by the Company. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company. By accepting the Award, the Participant is agreeing to be bound by any such clawback policy, as in effect or as may be adopted and/or modified from time to time by the Company in its discretion.
By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the PSUs via Company web site or other electronic delivery.
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EXHIBIT B
CONFIDENTIALITY AND INVENTIONS AGREEMENT
As a condition to the receipt of the Award granted pursuant to the Grant Notice to which this Confidentiality and Inventions Agreement is attached and in consideration of the Participant’s continued employment with the Company, the Participant hereby confirms the Participant’s agreement as follows:
The Participant’s employment by the Company is in a capacity in which he or she may have access to, or contribute to the production of, Confidential Information and the Company Work Product (both as defined below). The Participant’s employment creates a relationship of confidence and trust between the Company and the Participant with respect to the Confidential Information and the Company Work Product as set forth herein. This Confidentiality and Inventions Agreement are subject to the terms of the Standard Terms and Conditions attached as Exhibit A to the Grant Notice to which this Confidentiality and Inventions Agreement is attached; provided however, that in the event of any conflict between the Standard Terms and Conditions and this Confidentiality and Inventions Agreement, this Confidentiality and Inventions Agreement shall control.
Capitalized terms not otherwise defined herein shall have the meaning set forth in the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan, as amended from time to time. For purposes of this Confidentiality and Inventions Agreement:
Exhibit B
Confidentiality and Inventions Agreement
B-2
All apparatus, computers, computer files and media, notes, data, documents, reference materials, sketches, memoranda, records, drawings, engineering log books, equipment, lab/inventor notebooks, programs, prototypes, samples, equipment, tangible embodiments of information, and other physical property, whether or not pertaining to Confidential Information, furnished to the Participant or produced by the Participant or others in connection with the Participant’s employment, shall be and remain the sole property of the Company and any such property actually in the Participant’s possession or control shall be returned promptly to the Company as and when requested in writing by the Company. Should the Company not so request, the Participant shall return and deliver all such property to the Company upon termination of the Participant’s employment. The Participant may not retain any such property or any reproduction of such property upon such termination. The Participant further agrees that any property situated on the Company’s premises and owned, leased, maintained or otherwise contracted for by the Company, including, but not limited to, computers, computer files, e-mail, voicemail, disks and other electronic storage media, filing cabinets, desks or other work areas, are subject to inspection by the Company’s representatives at any time with or without notice.
Subject to Section 6 and 7 below, the Participant agrees that any Work Product, in whole or in part, conceived, developed, made or reduced to practice by the Participant (either solely or in conjunction with others) during the term of his or her employment with the Company (collectively, the “Company Work Product”) shall be owned exclusively by the Company (or, to the extent applicable, a Purchaser pursuant to an Acquisition). Without limiting the foregoing, the Participant agrees that any of the Company Work Product shall be deemed to be “works made for hire” as defined in U.S. Copyright Act §101, and all right, title, and interest therein shall vest solely in the Company from conception. The Participant hereby irrevocably assigns and transfers, and agrees to assign and transfer in the future on the Company’s request, to the Company all right, title and interest in and to any Company Work Product, including, but not limited to, patents, copyrights and other intellectual property rights therein. The Participant shall treat any such Company Work
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Product as Confidential Information. The Participant will execute all applications, assignments, instruments and other documents and perform all acts consistent herewith as the Company or its counsel may deem necessary or desirable to obtain, perfect or enforce any patents, copyright registrations or other protections on such Company Work Product and to otherwise protect the interests of the Company therein. The Participant’s obligation to reasonably assist the Company in obtaining and enforcing the intellectual property and other rights in the Company Work Product in any and all jurisdictions shall continue beyond the termination of the Participant’s employment. The Participant acknowledges that the Company may need to secure the Participant’s signature for lawful and necessary documents required to apply for, maintain or enforce intellectual property and other rights with respect to the Company Work Product (including, but not limited to, renewals, extensions, continuations, divisions or continuations in part of patent applications). The Participant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as the Participant’s agents and attorneys-in-fact, to act for and on the Participant’s behalf and instead of the Participant, to execute and file any such document(s) and to do all other lawfully permitted acts to further the prosecution, issuance and enforcement of patents, copyright registrations and other protections on the Company Work Product with the same legal force and effect as if executed by the Participant. The Participant further hereby waives and relinquishes any and all moral rights that the Participant may have in the Company Work Product.
Pursuant to Section 2870 of the California Labor Code, the requirements set forth in Section 5 of this Agreement shall not apply to an invention that the Participant develops entirely on his or her own time without using the Company’s equipment, supplies, facilities, or trade secret information except for those inventions that either: (i) relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or (ii) result from any work performed by the Participant for the Company.
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The Participant agrees that he or he or she will keep and maintain adequate and current written records (in the form of notes, sketches, drawings or such other form(s) as may be specified by the Company) of all the Company Work Product made by the Participant during the term of his or his or her employment with the Company, which records shall be available at all times to the Company and shall remain the sole property of the Company.
If any application for any United States or foreign patent related to or useful in the business of the Company or any customer of the Company shall be filed by or for the Participant during the period of one year after the Participant’s employment is terminated, the subject matter covered by such application shall be presumed to have been conceived during the Participant’s employment with the Company.
The Participant acknowledges that the Company from time to time may have agreements with other persons or entities, or with the U.S. Government or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. The Participant agrees to be bound by all such obligations and restrictions of which the Participant has been made aware of by the Company and to take all action necessary to discharge the obligations of the Company thereunder.
Because of the unique nature of the Confidential Information and the Company Work Product, the Participant understands and agrees that the Company may suffer immediate and irreparable harm if the Participant fails to comply with any of his or her obligations under this Confidentiality and Inventions Agreement and that monetary damages may be inadequate to compensate the Company for such breach. Accordingly, the Participant agrees that in the event of a breach or threatened breach of this Confidentiality and Inventions Agreement, in addition to any other remedies available to it at law or in equity, the Company will be entitled, without posting bond or other security, to seek injunctive relief to enforce the terms of this Confidentiality and Inventions Agreement, including, but not limited to, restraining the Participant from violating this Confidentiality and Inventions Agreement or compelling the Participant to cease and desist all unauthorized use and disclosure of the Confidential Information and the Company Work Product. The Participant will indemnify the Company against any costs, including, but not limited to, reasonable outside legal fees and costs, incurred in obtaining relief against the Participant’s breach of this Confidentiality and Inventions Agreement. Nothing in this Section 11 shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including, but not limited to, recovery of damages.
The Participant is hereby permitted and the Participant authorizes the Company to provide a copy of this Confidentiality and Inventions Agreement and any exhibits hereto to any of the Participant’s
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future employers, and to notify any such future employers of the Participant’s obligations and the Company’s rights hereunder, provided that neither party is under any obligation to do so.
This Confidentiality and Inventions Agreement will be governed by the laws of the State of California without regard to any conflicts-of-law rules. To the extent that any lawsuit is permitted under this Confidentiality and Inventions Agreement, the Participant hereby expressly consents to the personal and exclusive jurisdiction and venue of the state and federal courts located in San Diego, California for any lawsuit filed against the Participant by the Company. Nothing herein shall limit the right of the Company to seek and obtain injunctive relief in any jurisdiction for violation of the portions of this Confidentiality and Inventions Agreement dealing with protection of Confidential Information or the Company Work Product.
Neither this Confidentiality and Inventions Agreement nor any duties or obligations under this Confidentiality and Inventions Agreement may be assigned by the Participant without the prior written consent of the Company. The Participant understands and agrees that the Company may freely assign this Confidentiality and Inventions Agreement. This Agreement shall inure to the benefit of, and shall be binding upon, the permitted assigns, successors in interest (including any Purchaser upon consummation of an Acquisition), personal representatives, estates, heirs, and legatees of each of the parties hereto. Any assignment in violation of this Section 14 shall be null and void.
The rights and obligations of the parties to this Confidentiality and Inventions Agreement will survive termination of my employment with the Company.
In the event that any provision hereof or any obligation or grant of rights by the Participant hereunder is found invalid or unenforceable pursuant to judicial decree or decision, any such provision, obligation or grant of rights shall be deemed and construed to extend only to the maximum permitted by law, the invalid or unenforceable portions shall be severed, and the remainder of this Confidentiality and Inventions Agreement shall remain valid and enforceable according to its terms. This Confidentiality and Inventions Agreement may not be amended, waived or modified, except by an instrument in writing executed by the Participant and a duly authorized representative of the Company.
EMPLOYEE ACKNOWLEDGES THAT, IN EXECUTING THE GRANT NOTICE TO WHICH THIS CONFIDENTIALITY AND INVENTIONS AGREEMENT IS ATTACHED, EMPLOYEE HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND EMPLOYEE HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS CONFIDENTIALITY AND INVENTIONS AGREEMENT. THIS
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CONFIDENTIALITY AND INVENTIONS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
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EXHIBIT C
PERFORMANCE GOALS AND SERVICE REQUIREMENT
Exhibit C
Performance Goals
2023 OFFICER FORM Exhibit 10.2
PETCO HEALTH AND WELLNESS COMPANY, INC.
2021 EQUITY INCENTIVE PLAN
GRANT NOTICE FOR
PERFORMANCE STOCK UNIT AWARD
FOR GOOD AND VALUABLE CONSIDERATION, Petco Health and Wellness Company, Inc. (the “Company”), hereby grants to the Participant named below the target number of performance stock units (the “PSUs”) specified below (the “Award”) as performance-based Restricted Stock Units under the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan (as amended from time to time, the “Plan”). Each Earned PSU represents the right to receive one share of Common Stock, upon the terms and subject to the conditions set forth in this Grant Notice (including Exhibit C), the Plan and the Standard Terms and Conditions (the “Standard Terms and Conditions”) promulgated under such Plan and attached hereto as Exhibit A, and the Confidentiality and Inventions Agreement attached hereto as Exhibit B. This Award is granted pursuant to the Plan and is subject to and qualified in its entirety by the Standard Terms and Conditions. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan.
Name of Participant: |
|
Grant Date: |
|
Target Number of PSUs: |
[●] (the “Target PSUs”) |
Award Type: |
The Award represents the right to receive shares of Common Stock in an amount from [●]% to [●]% of the Target PSUs. The Award shall vest and become earned and nonforfeitable upon (i) the Participant’s satisfaction of the Service Requirement (as defined below) and (ii) the Committee’s certification of the final level of achievement of the Performance Goal (as defined below). PSUs that become earned upon satisfaction of the Service Requirement and the Performance Goal are referred to herein as “Earned PSUs.” |
Performance Period: |
|
Service Requirement: |
The “Service Requirement” is set forth on Exhibit C attached hereto. |
Performance Goal: |
The “Performance Goal” is set forth on Exhibit C attached hereto. |
IN ORDER TO RECEIVE THE BENEFITS OF THIS AGREEMENT, PARTICIPANT MUST EXECUTE AND RETURN THIS GRANT NOTICE (THE “ACCEPTANCE REQUIREMENTS”). IF YOU FAIL TO SATISFY THE ACCEPTANCE REQUIREMENTS WITHIN 60 DAYS AFTER THE GRANT DATE, THEN (1) THIS GRANT NOTICE WILL BE OF NO FORCE OR EFFECT AND THIS AWARD WILL BE AUTOMATICALLY FORFEITED TO THE COMPANY WITHOUT CONSIDERATION, AND (2) NEITHER PARTICIPANT NOR THE COMPANY WILL HAVE ANY FUTURE RIGHTS OR OBLIGATIONS UNDER THIS GRANT NOTICE OR THE STANDARD TERMS AND CONDITIONS.
By accepting this Grant Notice, Participant acknowledges that Participant has received and read, and agrees that this Award shall be subject to, the terms of this Grant Notice (including Exhibit C), the Plan, and the Standard Terms and Conditions and the Confidentiality and Inventions Agreement.
PETCO HEALTH AND WELLNESS COMPANY, INC.
By:
Name:
Title:
PARTICIPANT
[Name]
Signature Page to
Grant Notice for
Performance Stock Unit Award
EXHIBIT A
PETCO HEALTH AND WELLNESS COMPANY, INC.
2021 EQUITY INCENTIVE PLAN
STANDARD TERMS AND CONDITIONS FOR
PERFORMANCE STOCK UNITS
These Standard Terms and Conditions apply to the Award of performance stock units granted pursuant to the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan (the “Plan”), which are evidenced by a Grant Notice or an action of the Committee that specifically refers to these Standard Terms and Conditions. In addition to these Standard Terms and Conditions, the performance stock units shall be subject to the terms of the Plan, which are incorporated into these Standard Terms and Conditions by this reference. Capitalized terms not otherwise defined herein shall have the meaning set forth in the Plan.
Petco Health and Wellness Company, Inc. (the “Company”) has granted to the Participant named in the Grant Notice provided to said Participant herewith (the “Grant Notice”) an award of performance stock units (the “Award” or “PSUs”) specified in the Grant Notice, with each Earned PSU representing the right to receive one share of Common Stock. The Award is subject to the conditions set forth in the Grant Notice, these Standard Terms and Conditions and the Plan. For purposes of these Standard Terms and Conditions and the Grant Notice, any reference to the Company shall include a reference to any Subsidiary.
Exhibit A
Standard Terms and Conditions for
Performance Stock Units
A-2
The Company may impose such restrictions, conditions or limitations as it determines appropriate as to the timing and manner of any resales by the Participant or other subsequent transfers by the Participant of any shares of Common Stock issued pursuant to Earned PSUs, including (a) restrictions under an insider trading policy, (b) restrictions designed to delay and/or coordinate the timing and manner of sales by Participant and other holders and (c) restrictions as to the use of a specified brokerage firm for such resales or other transfers.
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To the extent required by applicable federal, state, local or foreign law, the Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise by reason of the grant or vesting of the PSUs. The Company shall not be required to issue shares or to recognize the disposition of such shares until such obligations are satisfied.
The Participant understands, acknowledges and agrees that, except as otherwise provided in the Plan or as permitted by the Committee, the Award may not be sold, assigned, transferred, pledged or otherwise directly or indirectly encumbered or disposed of other than by will or the laws of descent and distribution. Notwithstanding the foregoing, (a) the Participant shall be permitted to transfer the Award as a gift to an Assignee Entity in accordance with and subject to the limits of Section 17 of the Plan and (b) if not previously so transferred, any shares of Common Stock that become issuable hereunder but which otherwise remain unissued at the time of the Participant’s death shall be transferred to the Participant’s designated beneficiary or, if none, to the Participant’s estate.
The Grant Notice, these Standard Terms and Conditions, the Confidentiality and Inventions Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the Award. Any prior agreements, commitments or negotiations concerning the Award are superseded; provided, however, that the terms of the Confidentiality and Inventions Agreement are in addition to and complement (and do not replace or supersede) all other agreements and obligations between the Company and any of its affiliates and the Participant with respect to confidentiality and intellectual property.
Neither the Participant (individually or as a member of a group) nor any beneficiary or other person claiming under or through the Participant shall have any right, title, interest, or privilege in or to any shares of Common Stock allocated or reserved for the purpose of the Plan or subject to the Grant Notice or these Standard Terms and Conditions except as to such shares of Common Stock, if any, as shall have been issued to such person in connection with the Award. Nothing in the Plan, in the Grant Notice, these Standard Terms and Conditions or any other instrument executed pursuant to the Plan shall confer upon the Participant any right to continue in the Company’s employ or service nor limit in any way the Company’s right to terminate the Participant’s employment at any time for any reason.
A-4
The PSUs and any shares of Common Stock issued pursuant to the Earned PSUs will be subject to recoupment in accordance with any clawback policy adopted by the Company. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive termination” (or similar term) under any agreement with the Company. By accepting the Award, the Participant is agreeing to be bound by any such clawback policy, as in effect or as may be adopted and/or modified from time to time by the Company in its discretion.
By executing the Grant Notice, the Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, and the PSUs via Company web site or other electronic delivery.
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EXHIBIT B
CONFIDENTIALITY AND INVENTIONS AGREEMENT
As a condition to the receipt of the Award granted pursuant to the Grant Notice to which this Confidentiality and Inventions Agreement is attached and in consideration of the Participant’s continued employment with the Company, the Participant hereby confirms the Participant’s agreement as follows:
The Participant’s employment by the Company is in a capacity in which he or she may have access to, or contribute to the production of, Confidential Information and the Company Work Product (both as defined below). The Participant’s employment creates a relationship of confidence and trust between the Company and the Participant with respect to the Confidential Information and the Company Work Product as set forth herein. This Confidentiality and Inventions Agreement are subject to the terms of the Standard Terms and Conditions attached as Exhibit A to the Grant Notice to which this Confidentiality and Inventions Agreement is attached; provided however, that in the event of any conflict between the Standard Terms and Conditions and this Confidentiality and Inventions Agreement, this Confidentiality and Inventions Agreement shall control.
Capitalized terms not otherwise defined herein shall have the meaning set forth in the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan, as amended from time to time. For purposes of this Confidentiality and Inventions Agreement:
Exhibit B
Confidentiality and Inventions Agreement
B-2
All apparatus, computers, computer files and media, notes, data, documents, reference materials, sketches, memoranda, records, drawings, engineering log books, equipment, lab/inventor notebooks, programs, prototypes, samples, equipment, tangible embodiments of information, and other physical property, whether or not pertaining to Confidential Information, furnished to the Participant or produced by the Participant or others in connection with the Participant’s employment, shall be and remain the sole property of the Company and any such property actually in the Participant’s possession or control shall be returned promptly to the Company as and when requested in writing by the Company. Should the Company not so request, the Participant shall return and deliver all such property to the Company upon termination of the Participant’s employment. The Participant may not retain any such property or any reproduction of such property upon such termination. The Participant further agrees that any property situated on the Company’s premises and owned, leased, maintained or otherwise contracted for by the Company, including, but not limited to, computers, computer files, e-mail, voicemail, disks and other electronic storage media, filing cabinets, desks or other work areas, are subject to inspection by the Company’s representatives at any time with or without notice.
Subject to Section 6 and 7 below, the Participant agrees that any Work Product, in whole or in part, conceived, developed, made or reduced to practice by the Participant (either solely or in conjunction with others) during the term of his or her employment with the Company (collectively, the “Company Work Product”) shall be owned exclusively by the Company (or, to the extent applicable, a Purchaser pursuant to an Acquisition). Without limiting the foregoing, the Participant agrees that any of the Company Work Product shall be deemed to be “works made for hire” as defined in U.S. Copyright Act §101, and all right, title, and interest therein shall vest solely in the Company from conception. The Participant hereby irrevocably assigns and transfers, and agrees to assign and transfer in the future on the Company’s request, to the Company all right, title and interest in and to any Company Work Product, including, but not limited to, patents, copyrights and other intellectual property rights therein. The Participant shall treat any such Company Work
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Product as Confidential Information. The Participant will execute all applications, assignments, instruments and other documents and perform all acts consistent herewith as the Company or its counsel may deem necessary or desirable to obtain, perfect or enforce any patents, copyright registrations or other protections on such Company Work Product and to otherwise protect the interests of the Company therein. The Participant’s obligation to reasonably assist the Company in obtaining and enforcing the intellectual property and other rights in the Company Work Product in any and all jurisdictions shall continue beyond the termination of the Participant’s employment. The Participant acknowledges that the Company may need to secure the Participant’s signature for lawful and necessary documents required to apply for, maintain or enforce intellectual property and other rights with respect to the Company Work Product (including, but not limited to, renewals, extensions, continuations, divisions or continuations in part of patent applications). The Participant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents, as the Participant’s agents and attorneys-in-fact, to act for and on the Participant’s behalf and instead of the Participant, to execute and file any such document(s) and to do all other lawfully permitted acts to further the prosecution, issuance and enforcement of patents, copyright registrations and other protections on the Company Work Product with the same legal force and effect as if executed by the Participant. The Participant further hereby waives and relinquishes any and all moral rights that the Participant may have in the Company Work Product.
Pursuant to Section 2870 of the California Labor Code, the requirements set forth in Section 5 of this Agreement shall not apply to an invention that the Participant develops entirely on his or her own time without using the Company’s equipment, supplies, facilities, or trade secret information except for those inventions that either: (i) relate at the time of conception or reduction to practice of the invention to the Company’s business, or actual or demonstrably anticipated research or development of the Company; or (ii) result from any work performed by the Participant for the Company.
B-4
The Participant agrees that he or he or she will keep and maintain adequate and current written records (in the form of notes, sketches, drawings or such other form(s) as may be specified by the Company) of all the Company Work Product made by the Participant during the term of his or his or her employment with the Company, which records shall be available at all times to the Company and shall remain the sole property of the Company.
If any application for any United States or foreign patent related to or useful in the business of the Company or any customer of the Company shall be filed by or for the Participant during the period of one year after the Participant’s employment is terminated, the subject matter covered by such application shall be presumed to have been conceived during the Participant’s employment with the Company.
The Participant acknowledges that the Company from time to time may have agreements with other persons or entities, or with the U.S. Government or agencies thereof, which impose obligations or restrictions on the Company regarding inventions made during the course of work thereunder or regarding the confidential nature of such work. The Participant agrees to be bound by all such obligations and restrictions of which the Participant has been made aware of by the Company and to take all action necessary to discharge the obligations of the Company thereunder.
Because of the unique nature of the Confidential Information and the Company Work Product, the Participant understands and agrees that the Company may suffer immediate and irreparable harm if the Participant fails to comply with any of his or her obligations under this Confidentiality and Inventions Agreement and that monetary damages may be inadequate to compensate the Company for such breach. Accordingly, the Participant agrees that in the event of a breach or threatened breach of this Confidentiality and Inventions Agreement, in addition to any other remedies available to it at law or in equity, the Company will be entitled, without posting bond or other security, to seek injunctive relief to enforce the terms of this Confidentiality and Inventions Agreement, including, but not limited to, restraining the Participant from violating this Confidentiality and Inventions Agreement or compelling the Participant to cease and desist all unauthorized use and disclosure of the Confidential Information and the Company Work Product. The Participant will indemnify the Company against any costs, including, but not limited to, reasonable outside legal fees and costs, incurred in obtaining relief against the Participant’s breach of this Confidentiality and Inventions Agreement. Nothing in this Section 11 shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including, but not limited to, recovery of damages.
The Participant is hereby permitted and the Participant authorizes the Company to provide a copy of this Confidentiality and Inventions Agreement and any exhibits hereto to any of the Participant’s
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future employers, and to notify any such future employers of the Participant’s obligations and the Company’s rights hereunder, provided that neither party is under any obligation to do so.
This Confidentiality and Inventions Agreement will be governed by the laws of the State of California without regard to any conflicts-of-law rules. To the extent that any lawsuit is permitted under this Confidentiality and Inventions Agreement, the Participant hereby expressly consents to the personal and exclusive jurisdiction and venue of the state and federal courts located in San Diego, California for any lawsuit filed against the Participant by the Company. Nothing herein shall limit the right of the Company to seek and obtain injunctive relief in any jurisdiction for violation of the portions of this Confidentiality and Inventions Agreement dealing with protection of Confidential Information or the Company Work Product.
Neither this Confidentiality and Inventions Agreement nor any duties or obligations under this Confidentiality and Inventions Agreement may be assigned by the Participant without the prior written consent of the Company. The Participant understands and agrees that the Company may freely assign this Confidentiality and Inventions Agreement. This Agreement shall inure to the benefit of, and shall be binding upon, the permitted assigns, successors in interest (including any Purchaser upon consummation of an Acquisition), personal representatives, estates, heirs, and legatees of each of the parties hereto. Any assignment in violation of this Section 14 shall be null and void.
The rights and obligations of the parties to this Confidentiality and Inventions Agreement will survive termination of my employment with the Company.
In the event that any provision hereof or any obligation or grant of rights by the Participant hereunder is found invalid or unenforceable pursuant to judicial decree or decision, any such provision, obligation or grant of rights shall be deemed and construed to extend only to the maximum permitted by law, the invalid or unenforceable portions shall be severed, and the remainder of this Confidentiality and Inventions Agreement shall remain valid and enforceable according to its terms. This Confidentiality and Inventions Agreement may not be amended, waived or modified, except by an instrument in writing executed by the Participant and a duly authorized representative of the Company.
EMPLOYEE ACKNOWLEDGES THAT, IN EXECUTING THE GRANT NOTICE TO WHICH THIS CONFIDENTIALITY AND INVENTIONS AGREEMENT IS ATTACHED, EMPLOYEE HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND EMPLOYEE HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS CONFIDENTIALITY AND INVENTIONS AGREEMENT. THIS
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CONFIDENTIALITY AND INVENTIONS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
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EXHIBIT C
PERFORMANCE GOALS AND SERVICE REQUIREMENT
Exhibit C
Performance Goals
Exhibit 10.3
February 16, 2022
Dear Amy,
I am delighted to invite you to join the Petco leadership team and am pleased to extend an offer to you to become the Chief Merchandising Officer, reporting directly to the Chief Executive Officer ("CEO"). This letter will supersede and replace the offer letter dated February 11, 2022. Your official first day in your new role will be February 13, 2022. Please take a moment to review the details of your offer below:
Base Salary - Your annual base salary will be $575,000 per year, prorated and paid on a bi-weekly basis.
Annual Incentive - Provided the Board approves an incentive payment for the applicable fiscal year, you will be eligible for an incentive opportunity with a target of 80% of your annual base earnings, prorated from your start date to the end of the fiscal year. Incentive payments are awarded based on company and individual performance assessed during the annual review cycle. You must be employed at Petco at the time the incentive is paid. The Company reserves the right to modify or terminate the incentive plan at its sole discretion.
Long Term Incentive - You will be eligible to receive an equity award under the Petco Health and Wellness Company, Inc. 2021 Equity Incentive Plan (the "Equity Plan") with an expected grant value equal to $1,000,000, to be calculated immediately prior to such grant. Each award under the Equity Plan will be subject to the terms of the Equity Plan and your award agreement. It is expected that your grant will vest over a three-year period following the date of grant. Since your award is subject to approval by the Board, you may not receive your award for several months after your promotion. Following approval of your award, you will receive communications informing you of your award and containing important details, including your award agreement. The amount of the award may vary from year-to-year based on internal and external factors as determined by the Board.
One-Time Bonus Payment - You will receive a one-time cash bonus of $100,000, which is intended to cover any additional costs associated with moving/setting up a local residence. The payment will be taxed according to IRS guidelines.
Location - Your location will be based at the National Support Center (NSC) in San Diego. You will be able to remote work while the NSC is closed due to COVID-19, but once Petco begins its return to office protocol and the CEO requests that you be available on a regular basis in the NSC, you will be expected to be in San Diego.
Housing Assistance - In lieu of relocating your primary residence to San Diego, Petco will provide you with monthly housing assistance payments of the net amount of $7,700 per month for a period of two years from the date you start working at the NSC, as long as you are employed with Petco during that time. If you are terminated without Cause, as defined below, Petco will continue such payments until the end of the lease term, provided the remaining lease term is no longer than one year and the remaining lease term would not exceed the 2-year approved housing assistance. At the end of the two-year period, you and the CEO will discuss and re-evaluate the possible continuation of this benefit.
Company Car – Petco will reimburse you for the cost to ship your car, to rent a car, or will provide you with a company-leased car, for up to two years or until your residence is permanently established in California. At the end of the two-year period, you and the CEO will discuss and re-evaluate the possible continuation of this benefit.
Travel Assistance - In lieu of relocating your primary residence to San Diego, Petco will provide you with additional travel support of $20,000 per year, for two years from the effective date of this agreement. Travel Assistance will be taxed according to IRS guidelines. At the end of the two-year period, you and the CEO will
discuss and re-evaluate the possible continuation of this benefit.
Severance - If the Company terminates your employment for any reason other than “for Cause,” the Company will continue to pay your base salary (not including any bonuses or incentive pay) for a period of twelve (12) months thereafter in accordance with the Company’s regular payroll practices, provide COBRA coverage for twelve (12) months (if you are a participant in our health plans), and outplacement services for six (6) months, provided that you sign a complete waiver and release of any and all claims you may have against the Company and/or its parents, subsidiaries and affiliates, in a form acceptable to the Company. The severance payments referenced above will begin promptly after the effective date of such release. For purposes of this agreement, “for Cause” shall mean the occurrence of any one or more of the following events: (i) your (a) failure to perform your job duties to standards acceptable to the Company, in its discretion, or (b) gross negligence in performing, or unfitness or unavailability to perform, your job duties, in each case, after receiving written notice from the Company of the specific performance issues/negligence and receiving a fifteen-day period to cure such issues, if curable; (ii) your commission of an act of theft, fraud or dishonesty in the performance of your duties or breach of your duty of care or loyalty to Company or any of its parents, subsidiaries or affiliates; (iii) your conviction of, or entry of a guilty or no-contest plea to, any misdemeanor involving dishonesty, fraud or moral turpitude, or a felony; (iv) your material breach of any of the provisions of the Company's Code of Conduct or any other company policy, after receiving written notice from the Company of the breach and receiving a fifteen-day period to cure such breach, if curable; or (v) your acting in bad faith or engaging in willful misconduct. If the Company terminates you “for Cause,” if you resign or if the Company accelerates the effective date of your resignation, the Company shall only be obligated to pay your compensation through the last day of your employment and it shall have no obligation to pay you any additional monies.
Financial and Tax Preparation Services - As a senior officer, you are eligible for financial planning and tax preparation services through AYCO Financial Services, a Goldman Sachs Company. This service is paid for by the Company and treated as income to you for tax purposes. Such benefits are subject to the applicable plan documents, and as may be amended or terminated by Petco from time to time.
Executive Physical - As a senior officer, you are eligible to receive an annual comprehensive wellness exam provided through the Scripps Center for Executive Health. This service is paid for by the Company and treated as income to you for tax purposes. Such benefits are subject to the applicable plan documents, and as may be amended or terminated by Petco from time to time.
This offer supersedes and replaces your previous offer to assume the role of the Chief Supply Chain Officer. Petco is an "at will" employer and as such, employment with Petco is not for a fixed term or definite period and may be terminated at the will of either party, with or without cause, and without prior notice. No supervisor or other representative of the Company (except the Chief Executive Officer) has the authority to enter into any agreement for employment for any specified period of time, or to make any agreement contrary to the above. Except as set forth herein, all other terms and condition of your employment remain in effect.
We look forward to having you on the Petco leadership team and to the contributions you'll make to our overall success. To acknowledge and accept the above-described offer, please sign and return to John Brockman, Vice President of Total Rewards.
Sincerely, |
Signed,
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/s/ Ilene Eskenazi |
/s/ Amy College |
Ilene Eskenazi |
Amy College |
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Date: 2/18/22 |
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ronald Coughlin, Jr., certify that:
Date: June 7, 2023 |
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By: |
/s/ Ronald Coughlin, Jr. |
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Ronald Coughlin, Jr. |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian LaRose, certify that:
Date: June 7, 2023 |
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By: |
/s/ Brian LaRose |
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Brian LaRose |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of Petco Health and Wellness Company, Inc. (the “Company”) for the quarter ended April 29, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald Coughlin, Jr., Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: June 7, 2023 |
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By: |
/s/ Ronald Coughlin, Jr. |
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Ronald Coughlin, Jr. |
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Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q of Petco Health and Wellness Company, Inc. (the “Company”) for the quarter ended April 29, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian LaRose, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: June 7, 2023 |
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By: |
/s/ Brian LaRose |
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Brian LaRose |
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Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |