May 4, 2022
Operator
Greetings and welcome to PetIQ Incorporated, First Quarter 2022, earnings conference call and webcast. At this time, all participants are in a listen-only mode, question-and-answer session will follow the formal presentation.
If any much require operator assistance during the conference, please press star 0 on your telephone keypad as a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Katie Turner, Investor Relations.
Thank you. You may begin.
Katie Turner
Good afternoon. Thank you for joining us on PetIQ's First Quarter 2022 earnings conference call and webcast.
On today's call are Cord Christensen, Chairman and Chief Executive Officer, and Zvi Glasman, Chief Financial Officer. Susan Sholtis, President and Michael Smith, Executive Vice President of the Products Division, will also be available for Q&A.
Before we begin, please remember that during the course of this call management may make forward-looking statements within the meaning of the federal securities laws. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could differ materially from actual events or those described in these forward-looking statements.
Please refer to the company's annual report on Form 10-K and other reports filed from time-to-time with the Securities and Exchange Commission and the company's press release issued today for a detailed discussion of the risks that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. Please note on today's call, management will refer to certain non-GAAP financial measures, including adjusted gross profit, adjusted SG&A, adjusted net income, and adjusted EBITDA.
While the company believes these non-GAAP financial measures will provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the information presented in accordance with GAAP. Please refer to today's release for a reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP.
In addition, PetIQ has posted a supplemental presentation on its website for reference. And with that, I'd like to turn the call over to Cord Christensen.
Cord Christensen
Thank you, Katie. And good afternoon, everyone.
We appreciate you joining us today to discuss our first-quarter financial results. I'll begin with an overview of our strategic business and financial highlights then Zvi will review our financial results and outlook.
Finally, Zvi, Susan, Michael, and I will be available to answer your questions. We're very pleased with our start to 2022.
We reported first-quarter net sales ahead of our expectations at $275.7 million representing an increase of 17.8% on a pro - forma basis. We also generated another quarter of solid gross margin improvements.
Adjusted EBITDA was $31.6 million was also had of our guidance resulting in adjusted EBITDA margin increase of 90 basis points year-over-year to 11.5%. The strength of our diversified pet products and services offering fueled these results.
The products segment posted record results which were stronger than we expected, as we benefited from broad-based growth across categories and sales channels with continued strength in our manufactured products and new product innovation. We also had $5 million of fill orders to support the start of the flea and tick season, in first quarter of 2022, that was anticipated to happen in second quarter of 2022.
Today, Zvi will discuss more what we're seeing in the second quarter to date in the Product segment and highlight the consistent growth trajectory of our products business in the context of our reiterated 2022 outlook and our view of our first and second half growth for the year. Our Services segments reported its best quarter since the onset of COVID in 2020, posting its fifth consecutive quarter of positive adjusted EBITDA on net revenue of $27.9 million.
We remain pleased with the Services segments improvement, although we still have a lot of room for growth in future quarters for Services to get back to pre -pandemic profitability. This year we've made modest assumptions for the Services segment as we work towards recovery in the segment's growth and profitability over these next several quarters.
We've created a unique business model committed to convenient and affordable pet health and wellness care. At PetIQ, we're a purpose-built company addressing the large multibillion -dollar Animal Health market through our retail and e-commerce partners.
We continue to be wherever pet parents choose to purchase their products with our Animal Health product portfolio and Clinics including Mass, Grocery, Club, Pet Specialty, Pharmacy, and Online Sales channels. Focusing on our segment results in more detail, the Product segment generated a solid start to the year with year-over-year net sales growth of 18.1% on a proforma basis to $247.8 million.
We generated double-digit sales growth across five of our top seven manufactured product categories during the quarter. We continue to have the largest over-the-counter Animal Health brand portfolio with over 1,000 skews and a dominant market share in pet prescription products sold to retail and online.
In addition, both our distributed and manufactured segments also saw a double-digit growth despite a softer than normal start to the flea and tick season in the first quarter. Our manufactured OTC flea and tick growth rates continued for strong momentum into the new year, growing 24% compared to Q1 last year.
This growth was fueled by strong supportive NEXSTAR, our new premium flea and tick topical product launch, as well as strong contribution from the oral segment, which increased 37% compared to Q1 last year. Our Health and Wellness portfolio also contributed another exceptional quarter as it continued to sustain strong year-over-year growth up 36% compared to the prior year period.
From a mix standpoint, our business in the quarter consisted of 73% distributed and 27% manufactured sales. As we look ahead, we believe PetIQ's manufactured items can reach greater than 31% of the products segment sales for 2022.
We continue to participate in several of the largest and fastest-growing categories within the pet industry, such as flea and tick solutions along with health and wellness, focusing on the [Indiscernible] growth in more detail. For the 12 weeks ended March 26, 2022, the PetIQ portfolio gained 130 basis points of share within the over-the-counter Flea and Tick category and now commands the Number 2 market share position at a 19.7% total share of the market.
This share gain was led by both PetArmor and Capstar, which both gained significant share over this time frame. As for Health and Wellness, we continued our momentum in this high-growth segment as we picked up 32 basis points of share.
The segment increased 7% across the market, while our portfolio grew 9% for the 12 weeks ended March 26th. From an R&D perspective, we had strong sell-through in the first quarter of a super premium Health and Wellness line we launched for a large club store operator during the fourth quarter.
We expect an even greater benefit from this item in full year 2022 as our activation and support plans continue to play out in the second and third quarters. We have also a successfully launched Foster brand, super premium Health and Wellness line this week.
You can find it online at Fosterpethealth.com And as we discussed on our Q4 earnings call, we continue to be on track to introduce a direct-to-consumer initiative in the second half of 2022 as we continue to provide smarter options for pet parents to help enrich their pet's lives through convenient and affordable access to veterinarian-formulated products and services. In terms of inflation, we have continued to experience cost inflation headwinds particularly in labor, freight, raw materials, and packaging.
As a result, we implemented a price increase in Q4 across our manufactured product segment to offset most of these inflationary pressures. While these cost pressures have begun to stabilize, we are still evaluating if any further price action is required to offset in the balance of the year.
Now focusing on the services segments, we generated another quarter of net revenue growth and positive adjusted EBITDA. We believe our Services segments will make sequential and year-over-year improvement as we progress through 2022.
In the quarter, we continued to optimize the services segment to maximize the results and minimize disappointing our pet parents. First, we continue to adjust our clinic schedules to reduce labor hours and cancellations when labor is unreliable.
Second, we enhanced our retention recruiting programs which will support an increase in new wellness center openings in Q2 and for the balance of 2022. During the quarter, our recruiting team hired 17 veterinarians.
These new hires allowed us to open four new wellness centers and replace unreliable temporary veterinary and labor in 13 existing wellness centers. We will continue to reduce the risk of deploying capital on new wellness centers until we have all the necessary labor in place and optimize our existing centers to gain efficiencies and improved total performance of the segment.
We remain prudent with our services growth near term, given the challenges in the vet labor market, but have visibility to a large number of openings in the second quarter, 2022 versus first-quarter 2022. Before I turn the call over to Zvi, on behalf of our board of directors and management team.
And especially myself. I'd like to thank our president, Susan Sholtis, is decidedly PetIQ later this month has been more time with our family in Indiana.
Susan has been a tremendous assets and partner at helping to develop the strategies and operating procedures that help us build PetIQ. Over the last four years, her contributions have been valuable, including our leadership, guidance, and support of our team throughout the pandemic.
As we continue to grow our business, we will leverage the one IQ, smarter together culture Susan helped us to create. Susan will continue to be available as needed to ensure a smooth transition through September.
Beginning June 1st, Michael Smith, our EVP of the products division, will assume the newly created role of President and Chief Operating Officer. I'm excited for Michael to take on this new role.
He is a talented, collaborative leader with deep operational experience across pet and consumer packaged goods. Under his leadership since 2019, we have successfully delivered consistent growth in the Products segment.
His team has added $200 million of incremental products growth with a three-year CAGR of greater of 17%. He has helped us successfully increase our manufacturing scale, expand our product and brand diversity, as well as customer reach while capturing greater sales and profitability.
In closing, we believe our differentiated position in the Animal Health industry will continue to fuel our long-term growth, along with robust industry tailwinds, including increasing household penetration for pets. The humanization of pets, an increasing pet population, and more pet parents looking for convenient and affordable pet health and wellness.
Our product and service teams executed well on our mission and we believe PetIQ is well-positioned to continue delivering increases in our net sales and profitability, as well as generate solid cash flow. With that overview, I would like to now turn the call over to Zvi.
Zvi Glasman
Thank you, Cord. We started off 2022 with strong and better-than-expected results compared to our Q1 guidance.
And we're pleased with our team's execution of our growth and efficiency initiatives. We generated solid growth from both the Products and Services segments, helping us generate record net sales of $275.7 million.
an increase of 17.8% on a proforma basis. As Cord mentioned, we also experienced stronger-than-normal fill orders for the start of the flea and tick season that resulted in a shift of timing of approximately $5 million of sales to Q1 which were expected to occur in Q2 of this year.
First quarter gross profit increased 20.6% to $57.6 million, resulting in a gross margin of 20.9%, an increase of 210 basis points from the first quarter of last year. Adjusted gross profit was $63.3 million and adjusted gross margin was 23.6% for the first quarter of 2022, representing an improvement of 270 basis points year-over-year.
This margin expansion reflects favorable product mix driven by the growth in sales of the company's branded product portfolio including our newly launched NEXSTAR product. We also benefited from Services segment optimization.
SG&A expenses for the first quarter of 2022 were $48.2 million compared to $40.7 million in the first quarter of the prior year. Adjusted SGA was $38.9 million for the first quarter of 2022 compared to $36.7 million in Q1 of last year.
As a percentage of net sales adjusted SG&A was 14.5%, a decrease of 20 basis points compared to the prior year period. We're pleased with a leverage of our operating expenses, which was better than expected.
We achieved this expense leverage even with a planned incremental $2.8 million, or 100 basis points of expense to support the launch of our two new brands and continued marketing investments to help accelerated growth of our manufactured brands product portfolio. Our Q1 net income was $3.2 million, an increase of 32.4% resulting in EPS of $0.11.
Adjusted net income was $18.3 million, an increase of 66% compared to the prior year period. This was up to the adjusted EPS of $0.62 compared to $0.41 in the first quarter of 2021.
Adjusted EBITDA was $31.6 million, an increase of 17.6% compared to $26.9 million in Q1 of last year. This was ahead of our guidance for Q1 of adjusted EBITDA of approximately $28 million.
Adjusted EBITDA margin of 11.5% was 90 basis points higher than Q1 of last year. This solid improvement reflects the operating leverage generated in the quarter as a result of stronger margin on higher sales and the incremental profit.
Turning to our balance sheet and liquidity as of March 31st, 2022, the company had cash and cash equivalent of approximately $51.1 million. During the first quarter, we generated approximately $16 million of operating cash flow, excluding working capital investments.
We expect 2022 to be the strongest cash generation year in the history of the company. Our long-term debt, which is comprised of our term loan, ABL, and convertible debt facilities was $472.9 million as of March 31st, 2022.
In addition to our cash on hand of $51.1 million, the company has $100 million of availability on its revolving credit facility, representing total liquidity, which we defined as cash on hand plus availability of $151 million as of March 31st, 2022. We continue to believe our available liquidity, consistent growth contribution from the product segment, and improvement in the services segment positions the company to drive free cash flow and build cash in the quarters ahead, as well as opportunistically pay down our debt.
Now, turning to our guidance, based on our start to the year, we're pleased to reiterate our annual outlook for 2022 that we previously provided on March 1st, 2022 and as we noted in today's press release. Keep in mind that our annual outlook also assumes very little incremental adjusted EBITDA contribution from the services segment.
The services segment has not returned to pre -pandemic levels when the business contributed approximately to $10 million to $15 million in additional adjusted EBITDA. While we do expect to eventually return to pre -pandemic levels based on what we are seeing in the veterinary labor markets we believe it is prudent to assume the return will not occur in 2022.
We continue to believe the services business will be a key driver of long-term EBITDA and sales growth. However, until pandemic-related dislocation in the labor markets normalizes, we plan on a slower ramp in clinics.
As we take a more disciplined approach to capital allocation. As demonstrated in 2021 and our 2022 guidance and our modeling for 2023 due to the strengthen our products business, we are confident that the company will continue achieve strong growth despite the labor headwinds in the services business.
From a seasonality perspective, we are updating our 2022 net sales outlook to reflect the shift in timing of $5 million in orders and sales, which occurred in the first quarter of 2022 from the second quarter of 2022, and a slower than normal start in the month of April of the Flea and Tick season, causing our customers to have inflated inventory levels at the start of the second quarter. However, beginning on the last week of April, we experienced a more normalized trend to our seasonal Flea and Tick sales, and our second-quarter guidance assume this trend will continue.
With this in mind, we expect second quarter net sales of approximately $260 million. We expect Q2 adjusted EBITDA of approximately $28 million.
Q2 adjusted EBITDA assumes adjusted SG&A as a percentage of net sales to be 340 basis points higher than the second quarter of 2021 at 17.5% due to an incremental $7 million with approximately 260 basis points of expense to support our two new manufacturing brand introductions and continued marketing investments to help accelerated growth of our manufactured brands. For the first half of 2022, we expect performing net sales to increase approximately 9% compared to the first half of 2021.
We continue to expect most of the net sales growth in the second half of 2022 will be weighted towards the third quarter. In closing, we are pleased with our start to the year and remain optimistic about our growth in 2022 and beyond.
We believe we have good visibility into our opportunities for growth and efficiency as our team continues to execute on our mission of delivering smarter options for pet parents. With that Cord, Susan, Michael, and I are available for your questions.
Operator.
Operator
At this time, we'll be conducting a question-and-answer session. [Operator Instructions] A confirmation tone to indicate your line is in the question queue.
[Operator Instructions] For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we hold for questions.
Our first question comes from Steph Wissink with Jefferies, please proceed with your question.
Stephanie Schiller Wissink
Thank you. Good afternoon, everyone.
We wanted to start with a question on bricks-and-mortar versus online for your manufacturer brand specifically. But if you want to talk about in your portfolio in total, that would be helpful as well just wanting to understand a little bit of about any change in business mix by channel.
Cord Christensen
Thanks, Steph. Good to hear your voice.
I've got Michael Smith with us today. Michael, would you like to address that?
Zvi Glasman
Hey, Steph, can you hear me?
Stephanie Schiller Wissink
Yes. I can hear you just fine.
Zvi Glasman
Great. Yes.
So I would say that we continue to see strong results in both our brick-and-mortars -- brick-and-mortar partners business and our e-commerce channel. The one thing that will be unique in Q1 is that we did have a much stronger ship out percentage to our brick-and-mortar partners because the way that a pipeline for a strong support of a launch like NEXSTAR works and a brick-and-mortar channel versus an e-com where there's not quite as much of a load.
So probably better to look at consumption trends versus shipments. And when we look at shipments, we see -- I'm sorry, when we look at consumption, we see healthy share gain in both channels but we're seeing a greater share gain for our portfolio in the e-commerce customers versus the brick-and-mortar customers.
Stephanie Schiller Wissink
That's helpful and it actually goes to my second question, Zvi, you talked about a step-up in marketing in the second quarter, I know you've got some innovation. But is there any way to think about marketing mix or how are you thinking generally about your go-to-market strategy for some of your own innovation where you're really driving category awareness and uptake?
Zvi Glasman
Well, let's start with -- sorry, Cord.
Cord Christensen
I think Steph, I will take a first-half out at the typically at historically programs that we've matured and guidance that we are seeing consistent performance. And they're doing the workforce.
We're spending about 15% of sales to support those brands, and we've had very good results. We've we've modified our efforts to continue quarter-over-quarter to gain share across all of those brands and couldn't be happier at their performance.
[Indiscernible] has an adequate spend in something you should consider as normal for our existing portfolio that's in place. And when our blended margins at 55%, it gives us ample room to have contribution margin back the company and generate, leverage an accretive EBITDA margin going forward in those brands as they grow.
When we launched brands like NEXSTAR or Foster or a new DTC initiative, and depending on the support we get from our customers and a bunch of different variables, we make decisions on leaner and heavier the first year, and then started to pull that back over the out years as we see the performance at the idea, we hope to stabilize into the similar rate. This year, we specifically had incredible support for NEXSTAR with virtually all of our customers taking the item and getting significant distribution.
And we see because of the margin profile of the item and the amount of placement we got, that it was important for us to make sure we did the consumer awareness at a very significant level. So the $15 million we talked about, specifically $7 million in the second quarter, that's really incremental marketing.
We're putting into new product launches. That's money that was generated out of our existing portfolio sales that in otherwise could have been brought to the profit or EBITDA line of the company to guarantee the success of those brands and it's an investment for the out years as we think those brands will perform well, become very stable in the categories and then eventually get aware there back in nine without kind of 15% marketing spend and be very accretive in out years for the company.
I hope that's what you were asking about.
Stephanie Schiller Wissink
Yes, that's very helpful. Thank you very much.
Cord Christensen
Thanks Steph.
Operator
Our next question is from Elliot Wilbur with Raymond James. Please proceed with your question.
Elliot Wilbur
Thanks. First question for Cord.
Just want to ask you about price inflation trends in the distributed business. I know you've previously mentioned that you hadn't seen price increases from some distributors along the lines, or some of the manufacturers along the line that you had expected which seems a little bit surprising in the context of the current environment.
Wondering if that has changed it all over the past quarter?
Cord Christensen
Yes, we did have some of that changed over the past quarter and we have had some price increases come through from them, but which we've now delivered those price increases onto our customers, than they are timed to be in effect at the same time they take effect for us. And so we've always had the philosophy to pass through those increases.
I will tell you they have taken a more conservative approach to price increases than I would say is normal across the market, we've seen. And again, some of it's -- the brands are more mature, they have much higher margin profiles, where some of these pharmaceutical brands are carrying 85% to 90% margin based on them reading some of the economics situations gone in the economy and the price points of their items.
They opted to take some margin compression during this time versus taking increases. So I would say we've seen about half of their portfolio receive pretty healthy price increases.
And the other half, which is in that category I just described, stay consistent with our current price structures. So no risk to us from a portfolio perspective, from a pricing or inflation standpoint.
Again, those are passed right through and we've been doing that now for over 10 years, and so it's just part of natural and normal operating procedure.
Elliot Wilbur
Okay. And then I want to shift gears and ask a couple of questions on the services segment as well.
Maybe if you could just provide some general color commentary in terms of KPI performance in the quarter spec to dollars per clinic and pets per clinic metrics. And then just thinking about the bigger picture here in terms of vet clinic trends, obviously, lot of data sources reporting has been a fairly significant slowdown in growth year-on-year, at least within sort of fixed site locations.
And the same time we're looking at near record levels of vet services inflation, and just how should or how do you think about and how should we think about perhaps those dynamics impacting your business model, which is a little bit more flexible, a little bit more value oriented, I guess, thinking that are you starting to see at the margin what you call sort of a net benefit, maybe picking up share relative to traditional vet clinics based on some of these trends, or do you think there's the factors still most it play with respect to your business, just trends in the overall labor market?
Cord Christensen
I appreciate the question. It's a great question, Elliot.
I think [Indiscernible] says we told you guys along the way through 2021, we saw cancellation rates around 25% for the full year due to labor issues that we're going on. We had budgeted that same cancellation rate as 2022 and we're fortunate to report that in Q1 of this year, we saw about a 20% improvement from where we had budgeted or more like a 20% cancellation rate versus 25%.
So the work we're doing is getting better. From a KPI perspective, our pets per clinic on our wellness centers are up 23% year-over-year from last year and running two full pets more this year than we were running last year.
Our community clinics are also running two full pets more, which is a 15% increase over last year. And I think what we've seen is we have had to take price and our average ticket is also up about 10% most that is in line with what the pricing actually we had to take to cover our cost increases with labor.
And so tickets up, pet count's up, all that's up. [Indiscernible] down I think what it really tells you is we have a very narrow focus that of services that we do.
We're very easy people in and out of there where the lot of you read the commentary in the vet channel issue is they have a lot of complicated things they are doing. The procedures they are taken are taking longer it's slowing down the time it's taking and it's pushing people away so I think where we have labor, we have clinics open.
People are figuring out and understanding that we're the option of choice for their basic preventative care vaccinations and minor emergency-type stuff. So we feel very good, we're in the right place, right time with our model.
And the only really negative report is because of what went up, went down to the pre -pandemic level. Even though we're 30% more clinics run in the wellness centers this year versus last year and that being a positive number, we're still gaining where we had our core base business running, and we're still negative to what we were in 2019 from a number of clinics run.
So we had a better quarter than we expected, made $1 million more than we expected in that business for the quarter. And I think all indications are we're in the right place.
We just need to continue to hire more vets, and get more clinics out there, and get more recovery because the model's right for what the consumer needs at the right time.
Elliot Wilbur
Okay. And then one last question for Zvi Glasman.
Just wanted to go back to your comments last call with respect to the outlook for cash flow from operations. I think you had indicated you had expected a record year.
Just wondering how things stand after first quarter? And maybe some specific commentary on just receivable and inventory trends in the quarter versus your original expectations?
Thanks.
Zvi Glasman
Yeah, we're on track. We were about negative $11 million of cash flow last year.
We project, we're going to have $40 million to $50 million of positive cash flow this year. First-quarter, we were up around $12 million cash flow year-over-year and all-around working capital.
So as we sit here today, we still expect to be $40 million to $50 million as cash flow. Now, the big variable is of course, as if you have any shifts in working capital, but we feel really good about the current year cash-generation.
And moreover, as we think about the cash flow generation of the business potential longer term, we would note that there's a fair bit of investment in there, but eventually in newer to the benefit of cash flow. For example, we're adding back 20-some what million dollars of wellness centers.
So eventually when we get the wellness centers stabilized, that's cash flow to the bottom line. The EBITDA for the community community clinics, we returned to pre -pandemic levels, that's another $10 million to $15 million.
And as a couple other knits as well so we're really pleased with the cash flow generation potential for this year, and more over longer term.
Operator
Our next question comes from Jon Andersen with William Blair, please proceed with your question.
Jon Andersen
Good afternoon. Everybody.
I wanted to ask first the comments on the seasonality or the change in seasonality for the year. Could you talk a little bit more about what caused the late start to the season in April?
We've heard some similar commentary from let's say, a lawn and garden product manufactured that we we cover. What drove that?
And when the season starts later than it typically does, do you lose that business or is it typically shifted? How you're thinking about the implications of that late start.
Cord Christensen
Thanks for question, Jon. And again, I think we watch a lot of key categories: Suntan Lotion, Charcoal, Lawn and Garden.
And in general, I think all of us had a slower start to the season and what would be expected. And it's really just tied to the weather that we saw across the country and the weather patterns.
And if I was going to recall you in Chicago, or other people in New York, we were seeing snow even at our offices through the month of April -- up even in the third week of April, we were seeing three and four inches of snow in a matter of a couple of days. Just didn't get that spring weather we typically get.
And this is the category that the spring sun kicks off the season. And so this is one of those years that the weather was a little bit rougher in April.
We did see a seasonal shift and saw an uptick at that last week of April, and these last few days of May, that's more in line with what would be typical to the season. We've been in this business over the last 12 years and we've found that the number of doses sold and the number boxes sold is very consistent year-over-year.
And if someone doesn't treat themselves in April, it may happen in June, it may happen in July. A lot of the customers -- there's a regimented person that's using the product every single month for the year.
And then there's that person that just opportunistically use it as they need it for the season, they're going out on the mountains, and they end up buying one to 1.5 boxes a year on average. And so when they buy, they typically recover those sales.
So I think as we said in our guidance, we need this trend to continue to meet the guidance that we put out there, and we believe it should be based on past years history. And we believe that our full-year guidance is intact because that we do believe we will recover those sales over the season, but it'll be more weighted to the middle of to end of the season, based on what we've seen at the start of the season.
Jon Andersen
Okay that's helpful I wanted to ask about new products because it seems like it's a big focus this year. From the super premium supplement at the club store, which has already launched to a couple of the other things you've mentioned and E-commerce initiative in the second half of the year I guess NEXSTAR.
Could you I guess thinking about each of these. Could you talk first about the kind of sell-through you're seeing with premium supplement at club because I think that's important you've talked about that being I think that's $15 million revenue contributor this year.
So initial sell-through in reorders and and could you provide a little bit more detail on these other two items? And what you're seeing in terms of we're expecting in terms of distribution.
And whether there's any kind of early evidence of progress. Obviously, the second half initiative is something that we're going to have to wait and see.
But even what that is and a little bit more color because again, it seems like a real exciting year in terms of innovation.
Cord Christensen
I think we're always pushing to innovate and some years you just have all the right ideas hit the right time and you get significant support from your customers and deal with that. The first commentary I would tell you as we budgeted from all the initiatives this year to see about $30 million of top line contribution to the company.
In that $30 million we believe we will source about $10 million of that volume from ourselves. And we'll see a true net gain or about $20 million for the year, which is not insignificant, but in line with our total growth, about 25% of the new growth, what will deliver for the full year.
As far as performance, I'll let Michael Smith comment. He has been the person that has been dealing with the customers is closer to the way to measure that performance, so I'll let Michael comment on that part of that.
Michael Smith
Yeah. Happy to chime in, I think to the first one that you mentioned in terms of the super premium product with one of our large warehouse club retailers.
That item has been out for a period of time now where we've not only had the chance to read the merchants excitement from the proposition that we built together. But now we've also had a chance to see how they're member perceived the item and happy to announce that that item is doing as expected, if not slightly better on the run rate that we've already established and we still have what I'd say is our largest push of activation or trial driving efforts yet to come.
That program will have its biggest event in the back half of Q2. So the early read, very strong yet still have some big activation plans yet to impact it.
On NEXSTAR, I would say the same thing in terms of the feedback and engagement and then the ultimate support that we got from our retail partners in the merchants that we engage in. They love the quality of the proposition, they're hungry for innovation.
We compete in a couple of categories Flea and Tick being one that's been pretty stellar in terms of new news and meaningful innovation to the customer. So they've really jumped and hopped on board to support this initiative now, it's technically been out in the market for four to six weeks.
Our large ACV and store count customers have just probably then over the last two to three weeks, we have our first major promotional push coming at the end of this month along with our big investments in AMP hitting in May. So I would say it's still too early to get a great read on what the customer things of that proposition, but we have an immense favorable support from our retail partners.
Jon Andersen
Great that's really helpful. I guess one for Zvi.
This was asked earlier I maybe I will ask you in different way. It's been I guess a few years since you -- couple of years since you've been free cash flow positive on a full-year basis.
And to the extent that you can address this do you expect or planned to be free cash flow positive in 2022 or is that something we should think about is a little bit longer-term, longer out.
Zvi Glasman
Yes, this is -- that was the numbers I would speaking to. I was speaking to being $40 million to $50 million of free cash flow positive in '22 with the longer-term potential significantly higher than that as we build out our wellness centers and returned to pre -pandemic levels and so forth.
Jon Andersen
Great. I just want to be sure I heard that correctly.
Thanks so much and good luck, everybody. Oh, and Susan, it's been great conversing with you and spending time with you and good luck in the future.
Katie Turner
Thank you, Jon.
Operator
Our next question comes from Bill Chappell with Truist Securities. Please proceed with your question.
Bill Chappell
Yes. Thanks.
Good afternoon.
Zvi Glasman
Hey, Bill.
Bill Chappell
Just a -- and this might've been covered. But on the $5 million pull-forward, maybe some more color of why that happened.
Was that a distributor business? Is it your own product?
And then how much EBITDA went with that business in terms of the quarter-to-quarter move?
Cord Christensen
Yes. So thanks, Bill.
The -- [Indiscernible] [Indiscernible] is, we're negotiating when retailers are going to bring in the products and do their resets back in the fall. And typically, it's accurate, and for the size of business we are, it's $5 million, the biggest inter-company change, then we count ourselves lucky.
But literally it's a order we expected to ship in April that ended up shipping in March. I came across the quarters because of that reset is tied to the seasonality of when we load in the source that their inventory levels brought up to meet the seasonal needs.
The mix on that product was heavier towards our own products. Again, part of that is the NEXSTAR launch, having significant fill order implications as well.
And the EBITDA margin that we estimate that came forward into Q1 was $2 million.
Bill Chappell
Great. And then the -- just on John's question on seasonality.
So can you give us an update? I mean, have you seen sell-through pickup in the month of April, early May as the weather has improved, and so I'm just trying to understand like from your commentary or do you expect the overall consumer takeaway to be a little bit lower just because you've missed a month of March per se or is it too -- I mean, it wasn't that bad?
Cord Christensen
Yes. So the month of April was also built historic efforts and we just did not see the consumer consumption that typically takes place.
And the direct reflection of not seeing that consumption means we have inventory levels that are higher out there and the reorders didn't come as quickly as expected. And so we believe that it was about a $20 million hit to the month of April and to the quarter.
When you look at our historical efforts, typically, once we see the season kickoff to return to normal efforts, orders pick up and we do see it usually accelerates. And you'll see those doses and units picked up across the season still and we recover fully.
We did see a change in the cadence of sales that took place the last week of April in the first few days of May. So our guidance reflects the impact that took place in April and the update that assuming that we're now back into season and we'll run the rest of season consistent with the normal normal budgets.
And that's what's involved in the guidance as we speak today. But we have again left ourselves the ability to still be at our full-year guidance based on past years and company history of recovery in those doses and those units and the during the total season.
Bill Chappell
Great, thanks for the color.
Cord Christensen
Thanks, Bill.
Operator
Our next question is from John Lawrence with The Benchmark. Please proceed with your question.
John Lawrence
Thanks. Good afternoon, guys.
Congratulations on the quarter.
Cord Christensen
Thanks, John.
John Lawrence
Cord, would you spend just a couple of minutes -- obviously, what's happening in the services business, the changes you made last fall to help that profitability a little bit, would you just dig into that a little bit? And Zvi, would you talk about maybe those line items and what's happening on that labor side that's generating a little better EBITDA performance there?
And do you expect that to continue through the year?
Cord Christensen
I think John, obviously we projected to have a summer performance full-year as last year with not having visibility, that performance would have had us essentially covering all of the bills and necessarily G&A to support the business, but having no positive EBITDA contribution to the company. First-quarter, the efforts we've taken has allowed us to optimize the schedule, optimize our workflow, and is allowed us to not have as many times where we have staff show up in the not have a veterinarian presence, so we just reduced wasting -- wasting money.
And ultimately, if we have Veterinarians and staff there, we're seeing more people when we do have it. So it's really about just getting it right in this environment.
I think the message we tried to let people know is when we tell people we hired 17 vets and we use 13 of them to optimize existing centers. That's at the core of it where we had unreliable temporary labor now, we get a W2 and it is reliable.
That's more of a permanent fix that lets us continue to close that gap in that main issue. And so in the quarter, the efforts we took and the things we're doing allowed us to reduce the cancellation rates from 25% to 20%, and when we run 80% of the stores versus 75%, and you hear the pet counts are up 20% of wellness centers up 15% on that and the average tickets up on average 10%, the ones we're running are doing well.
And so it's just about continued improvement getting back to pre -pandemic clinic counts and continuing to just execute our playbook but lots of positive going on.
John Lawrence
Great. Thanks.
Susan thanks for all the help and good luck going forward.
Susan Sholtis
Thank you.
Operator
We have reached the end of the question-and-answer session. I'd now like to turn the call back over to management for closing comments.
Cord Christensen
Appreciate everybody joining us today obviously, we had an exceptional first-quarter as we saw record sales and EBITDA, we're definitely better than what we had guided as our performance and expected performance for the quarter so we feel very fortunate to have a good start up to this year. Coupled with that, we saw rough April with the season starting late, which has allowed us to have time to reflect on how to get after the season in a more condensed effort and put plans in place to recapture those sales and margin, but feel very good about our full-year guidance and the company's performance on our positioning in the market place.
We have lots of exciting new items and new opportunities out in the marketplace with the right investments coming at the right time to help support their growth and feel great about PetIQ's position the marketplace, especially when you have economically strained times. Being a low-cost provider of health care for pets, we believe we're well-positioned for people looking to save money and our message should never be stronger than right now as we see an economy that's fighting inflation, which has the option to then make major steps in towards our model that provides the same valuable service, the same quality products at a much lower price.
And so we hope to reflect those numbers through the rest of the year in the performance in the consumer responding this great offer we have as a company here at PetIQ. And just thank our people, our employees, all of our partners that helped us deliver the results.
And thank all of you as our shareholders for supporting PetIQ time and time again. And we look forward to talking to you very soon.
Thank you.
Operator
This concludes today's conference. You may disconnect your line at this time and we thank you for your participation.