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FOR IMMEDIATE RELEASE: November 18, 2021

Petco Health + Wellness Company, Inc. announces record revenue and earnings with 15 percent comp growth and a 32 percent two-year comp

   

Rapidly expanding vet business, digital growth, recurring revenue programs and strong consumables sales drove six consecutive quarters of double-digit comparable sales growth with twelve consecutive quarters of comparable sales growth

   

Net revenue of $1.4 billion grew 15 percent year over year with strong profit flow through

   

Earnings per share of $0.20; Adjusted Earnings Per Share1 of $0.20

   

Raised full year 2021 guidance on top- and bottom-line

San Diego, November 18, 2021 – Petco Health and Wellness Company, Inc. (Nasdaq: WOOF), a complete partner in pet health and wellness, today released its financial results for its third quarter ended October 30, 2021.

In the third quarter of 2021, Petco delivered net revenue of $1.4 billion, up 15 percent versus prior year. Net income improved by $49.3 million from prior year to $52.8 million or $0.20 per share. Trailing twelve-month net income improved by $156.8 million from prior year to $129.3 million. Adjusted Net Income1 for the third quarter increased $40.4 million from prior year to $54.0 million or $0.20 per share, while Adjusted EBITDA1 increased by 17 percent from prior year to $138.5 million.

“Q3 marked our sixth consecutive quarter of double-digit growth with a 15 percent Q3 comp, lapping 17 percent a year ago, giving us confidence to raise guidance for Full Year 2021,” said Ron Coughlin, Chairman and CEO of Petco. “Our focus on long-term, sustainable growth is powered by continued execution against our transformation, with one of the fastest veterinary expansions in history, further enhancement of our digital competitive advantages, expansion of our merchandise differentiation through powerful owned and exclusive brands, and our incredible Petco Partners who are improving more and more pet lives every single day in a challenging environment.”

Additionally, through the first thirty-nine weeks of 2021, total debt remained roughly flat at $1.7 billion with Net Debt1 improving $94.8 million to $1.5 billion driven by net cash flow from operations of $288.4 million and Free Cash Flow1 of $124.1 million, up 43 percent and 18 percent, respectively, from the first thirty-nine weeks of 2020. Also, in the first thirty-nine weeks of 2021, Net Debt1 / Trailing Twelve Month Adjusted EBITDA1 decreased 19 percent or 0.6x to 2.6x driven by Free Cash Flow1 generation and growth in Adjusted EBITDA1.

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Fiscal Q3 2021 Highlights:

Comparisons are third quarter of 2021 ended October 30, 2021 versus third quarter of 2020 ended October 31, 2020 unless otherwise noted

   

Net revenue increased 15 percent to $1.4 billion driven by comp sales growth of 15 percent

   

Net income increased $49.3 million to $52.8 million or $0.20 per share

   

Adjusted Net Income1 increased $40.4 million to $54.0 million or $0.20 per share

   

Adjusted EBITDA1 increased 17 percent to $138.5 million 3

   

Trailing twelve-month net income increased $156.8 million to $129.3 million

   

Trailing Twelve Month Adjusted EBITDA1 increased $100.3 million to $567.9 million

   

Net cash provided by operating activities increased $87.0 million to $288.4 million in the first thirty-nine weeks of 2021

   

Free Cash Flow1 increased $18.9 million to $124.1 million in the first thirty-nine weeks of 2021

   

Total debt decreased $1.6 billion, or 48%, to $1.7 billion driven by the proceeds generated from the company’s initial public offering, related recapitalization, and Free Cash Flow1 generation

   

Net Debt1 decreased $1.6 billion or 52% to $1.5 billion

   

Net Debt1 / Trailing Twelve Month Adjusted EBITDA1 improved 60 percent to 2.6x

   

Liquidity of $662.6 million as of October 30, 2021 inclusive of $221.5 million of cash and cash equivalents and $441.1 million of availability on revolving credit facility

   

Ended the quarter with 1,449 Pet Care Centers in the U.S. and Puerto Rico, 172 full-service Vet Hospitals within Pet Care Centers, and 108 Pet Care Centers in Mexico

Fiscal 2021 Guidance:

The following guidance as of November 18, 2021 reflects the company’s expectations for fiscal year 2021.

Metric

   Current Guidance    Prior Guidance

Net Revenue

   $5.725 - $5.775 billion    $5.6 - $5.7 billion

Adjusted EBITDA2

   $577 - $582   million    $565 - $575 million

Adjusted EPS2

   $0.86 - $0.88      $0.81 - $0.85

Capital Expenditures

   $220 - $235 million      Near top of $185 - $235 million range

Assumptions in the guidance include that economic conditions, currency rates and the tax and regulatory landscape remain generally consistent. Adjusted EPS guidance assumes approximately $80 million of interest expense, a 26 percent tax rate and a 266 million weighted average diluted share count.

(1)

Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, Free Cash Flow, Net Debt, and Trailing Twelve Month Adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

(2)

We have not reconciled Adjusted EBITDA and Adjusted EPS outlook to the most comparable GAAP outlook because it is not possible to do so without unreasonable efforts due to the uncertainty and potential variability of reconciling items, which are dependent on future events and often outside of management’s control and which could be significant. Because such items cannot be reasonably predicted with the level of precision required, we are unable to provide outlook for the comparable GAAP measures. Forward- looking estimates of Adjusted EBITDA and Adjusted EPS are made in a manner consistent with the relevant definitions and assumptions noted herein.

(3)

Adjusted EBITDA excludes a $19.8 million gain from (i) mark to market accounting on our investment in A Place for Rover, Inc. (“Rover”) and (ii) the value of earn-out shares issued by Rover to the company pursuant to terms of Rover’s business combination with Nebula Caravel Acquisition, Corp.

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Earnings Conference Call Webcast Information:

The company will host an earnings conference call on November 18, 2021 at 8:30 AM Eastern Time to discuss Petco’s financial results. The conference call will be accessible through live webcast. Interested investors and other individuals can access the webcast, earnings release, earnings presentation, and infographic via the company’s investor relations page at ir.petco.com. A replay of the webcast will be archived on the company’s investor relations page through December 2, 2021 at approximately 5:00 PM Eastern Time.

About Petco, The Health + Wellness Co.:

Petco is a category-defining health and wellness company focused on improving the lives of pets, pet parents and our own Petco partners. Since our founding in 1965, we’ve been striving to set new standards in pet care, delivering comprehensive wellness solutions through our products and services, and creating communities that deepen the pet-pet parent bond. We operate more than 1,500 Petco locations across the U.S., Mexico and Puerto Rico, including a growing network of more than 150 in-store veterinary hospitals, and offer a complete online resource for pet health and wellness at petco.com and on the Petco app. 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’ve helped find homes for more than 6.5 million animals.

Forward-Looking Statements:

This earnings release 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 fiscal year 2021 guidance, our growth plans, and execution on our transformation initiatives. 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 Petco believes 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 earnings release is, or should be relied upon as, a promise or representation or warranty as to any future matter, including any matter in respect of the operations or business or financial condition of Petco. All forward-looking statements are based on 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 the control of Petco. Forward-

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looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results or events to differ materially from the potential results or events discussed in the forward-looking statements, including, without limitation, those identified in this earnings release 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; (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 privacy or security breach; (x) our ability to effectively manage strategic ventures, alliances or acquisitions; (xi) economic or regulatory developments that might affect our ability to provide attractive promotional financing; (xii) interruptions and other supply chain issues; (xiii) catastrophic events, health crises, and pandemics, including the potential effects that the ongoing COVID-19 pandemic and/or corresponding macroeconomic uncertainty could have on our financial position, results of operations and cash flows; (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 identified under “Risk Factors” and elsewhere in Petco’s Securities and Exchange Commission filings. The occurrence of any such factors could significantly alter the results set forth in these statements.

Petco cautions 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. Petco undertakes 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.

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PETCO HEALTH AND WELLNESS COMPANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

     13 Weeks Ended  
     October 30,
2021
    October 31,
2020
    Percent
Change
 

Net sales

   $ 1,443,264     $ 1,259,997       15

Cost of sales

     848,555       718,559       18
            

Gross profit

     594,709       541,438       10

Selling, general and administrative expenses

     532,760       495,401       8
            

Operating income

     61,949       46,037       35

Interest income

     (18     (49     (63 %) 

Interest expense

     18,769       53,795       (65 %) 

Other non-operating income

     (19,773     —         N/M  
            

Income (loss) before income taxes and income from equity method investees

     62,971       (7,709     N/M  

Income tax expense (benefit)

     14,095       (7,940     N/M  

Income from equity method investees

     (2,637     (1,875     41
            

Net income

     51,513       2,106       2,346

Net loss attributable to noncontrolling interest

     (1,239     (1,297     (4 %) 
            

Net income attributable to Class A and B-1 common stockholders

   $ 52,752     $ 3,403       1,450

Net income per Class A and B-1 common share:

      

Basic

   $ 0.20     $ 0.02       1,126

Diluted

   $ 0.20     $ 0.02       1,121

Weighted average shares used in computing net income per Class A and B-1 common share:

      

Basic

     264,228       209,015       26

Diluted

     265,322       209,015       27

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CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited and subject to reclassification)

     October 30,
2021
    January 30,
2021
 

ASSETS

    

Current assets:

    

Cash and cash equivalents

   $ 221,484     $ 111,402  

Receivables, less allowance for credit losses1

     45,478       41,827  

Merchandise inventories, net

     644,389       538,675  

Prepaid expenses

     37,762       40,032  

Other current assets

     40,761       45,613  
        

Total current assets

     989,874       777,549  
        

Fixed assets

     1,657,876       1,487,987  

Less accumulated depreciation

     (975,456     (860,440
        

Fixed assets, net

     682,420       627,547  

Operating lease right-of-use assets

     1,369,231       1,328,108  

Goodwill

     2,183,202       2,179,310  

Trade name

     1,025,000       1,025,000  

Other intangible assets

     4,793       4,793  

Less accumulated amortization

     (4,336     (4,079
        

Other intangible assets, net

     457       714  

Other long-term assets

     219,362       137,474  
        

Total assets

   $ 6,469,546     $ 6,075,702  
        

LIABILITIES AND EQUITY

    

Current liabilities:

    

Accounts payable and book overdrafts

   $ 380,174     $ 339,485  

Accrued salaries and employee benefits

     159,705       129,484  

Accrued expenses and other liabilities

     214,525       145,846  

Current portion of operating lease liabilities

     256,831       258,289  

Current portion of long-term debt and other lease liabilities

     20,303       2,203  
        

Total current liabilities

     1,031,538       875,307  
        

Senior secured credit facilities, net, excluding current portion

     1,643,423       1,646,281  

Operating lease liabilities, excluding current portion

     1,128,201       1,083,575  

Deferred taxes, net

     309,072       280,920  

Other long-term liabilities

     136,399       134,354  
        

Total liabilities

     4,248,633       4,020,437  
        

Commitments and contingencies

    

Stockholders’ equity:

    

Class A common stock2

     226       226  

Class B-1 common stock3

     38       38  

Class B-2 common stock4

     —         —    

Preferred stock5

     —         —    

Additional paid-in-capital

     2,126,294       2,092,110  

Retained earnings (accumulated deficit)

     113,172       (22,251

Accumulated other comprehensive loss

     (2,328     (1,275
        

Total stockholders’ equity

     2,237,402       2,068,848  
        

Noncontrolling interest

     (16,489     (13,583
        

Total equity

     2,220,913       2,055,265  
        

Total liabilities and equity

   $ 6,469,546     $ 6,075,702  
        
(1)

Allowances for credit losses are $1,617 as of October 30, 2021 and $3,267 as of January 30, 2021

(2)

Class A common stock, par value $0.001 per share (1.0 billion shares authorized and 226.5 million shares issued and outstanding as of October 30, 2021 and 226.4 million shares issued and outstanding as of January 30, 2021)

(3)

Class B-1 common stock, par value $0.001 per share (75.0 million shares authorized and 37.8 million shares issued and outstanding)

(4)

Class B-2 common stock, par value $0.000001 per share (75.0 million shares authorized and 37.8 million shares issued and outstanding)

(5)

Preferred stock, par value $0.001 per share (25.0 million shares authorized and no shares issued or outstanding)

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PETCO HEALTH AND WELLNESS COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited and subject to reclassification)

     39 Weeks Ended  
     October 30,     October 31,  
     2021     2020  

Cash flows from operating activities:

    

Net income (loss)

   $ 132,517     $ (24,826

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     125,637       128,961  

Amortization of debt discounts and issuance costs

     4,579       18,291  

Provision for deferred taxes

     28,523       6,889  

Equity-based compensation

     36,491       7,464  

Impairments, write-offs and losses on sale of fixed and other assets

     5,918       7,651  

Loss on extinguishment and modification of debt

     20,838       —    

Income from equity method investees

     (7,490     (2,952

Amounts reclassified out of accumulated other comprehensive income

     —         7,898  

Change in contingent consideration obligation

     —         (425

Non-cash operating lease costs

     315,930       324,477  

Other non-operating income

     (64,934     —    

Changes in assets and liabilities:

    

Receivables

     (3,652     (8,938

Merchandise inventories

     (105,682     (63,313

Prepaid expenses and other assets

     (8,053     (18,651

Accounts payable and book overdrafts

     47,973       54,523  

Accrued salaries and employee benefits

     27,673       34,100  

Accrued expenses and other liabilities

     45,437       7,654  

Operating lease liabilities

     (314,620     (304,426

Other long-term liabilities

     1,359       27,103  
        

Net cash provided by operating activities

     288,444       201,480  
        

Cash flows from investing activities:

    

Cash paid for fixed assets

     (164,330     (96,289

Cash paid for acquisitions, net of cash acquired

     (3,545     —    

Cash paid for investments

     —         (1,000

Distributions from equity investees

     —         73  

Proceeds from sale of assets

     105       1,296  
        

Net cash used in investing activities

     (167,770     (95,920
        

Cash flows from financing activities:

    

Borrowings under long-term debt agreements

     1,700,000       440,000  

Repayments of long-term debt

     (1,686,611     (487,938

Debt refinancing costs and original issue discount

     (24,665     —    

Payments for finance lease liabilities

     (2,650     (2,831

Proceeds from employee stock purchase plan

     2,920       —    

Tax withholdings on stock-based awards

     (13     —    

Repurchase of equity

     —         (105

Payment of contingent consideration

     —         (250

Payment of offering costs

     (3,844     —    
        

Net cash used in financing activities

     (14,863     (51,124
        

Net increase in cash, cash equivalents and restricted cash

     105,811       54,436  

Cash, cash equivalents and restricted cash at beginning of period

     119,540       154,718  
        

Cash, cash equivalents and restricted cash at end of period

   $ 225,351     $ 209,154  
        

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NON-GAAP FINANCIAL MEASURES

The following information provides definitions and reconciliations of the non-GAAP financial measures presented in this earnings release to the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles (GAAP). The company has provided this non-GAAP financial information, which is not calculated or presented in accordance with GAAP, as information supplemental and in addition to the financial measures presented in this earnings release that are calculated and presented in accordance with GAAP. Such non-GAAP financial measures should not be considered superior to, as a substitute for or alternative to, and should be considered in conjunction with, the GAAP financial measures presented in this earnings release. The non-GAAP financial measures in this earnings release may differ from similarly titled measures used by other companies.

Adjusted EBITDA and Trailing Twelve Month Adjusted EBITDA

Adjusted EBITDA, including Trailing Twelve Month Adjusted EBITDA, is considered a non-GAAP financial measure under the Securities and Exchange Commission’s (“SEC”) rules because it excludes certain amounts included in net income (loss) calculated in accordance with GAAP. Management believes that Adjusted EBITDA is a meaningful measure to share with investors because it facilitates comparison of the current period performance with that of the comparable prior period. In addition, Adjusted EBITDA affords investors a view of what management considers to be Petco’s core operating performance as well as the ability to make a more informed assessment of such operating performance as compared with that of the prior period.

Please see the company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2021 filed with the SEC on April 5, 2021 for additional information on Adjusted EBITDA. The tables below reflect the calculation of Adjusted EBITDA for the thirteen weeks and trailing twelve months ended October 30, 2021 compared to the prior year quarter and twelve-month period ended October 31, 2020, respectively, as well as the twelve-month period ended January 30, 2021.

(dollars in thousands)    13 Weeks Ended  

Reconciliation of Net Income Attributable to Class A and B-1

Common Stockholders to Adjusted EBITDA

   October 30,
2021
    October 31,
2020
 

Net income attributable to Class A and B-1 common stockholders

   $ 52,752     $ 3,403  

Add (deduct):

    

Interest expense, net

     18,751       53,746  

Income tax expense (benefit)

     14,095       (7,940

Depreciation and amortization

     42,792       42,923  

Income from equity method investees

     (2,637     (1,875

Asset impairments and write offs

     3,228       1,390  

Equity-based compensation

     13,381       2,847  

Other non-operating income

     (19,773     —    

Mexico joint venture EBITDA (1)

     6,661       4,917  

Store pre-opening expenses

     4,222       3,625  

Store closing expenses

     1,264       2,311  

Non-cash occupancy-related costs (2)

     1,540       3,920  

Non-recurring costs (3)

     2,233       8,834  
        

Adjusted EBITDA

   $ 138,509     $ 118,101  
        

Net sales

   $ 1,443,264     $ 1,259,997  

Net margin (4)

     3.7     0.3

Adjusted EBITDA Margin

     9.6     9.4

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(dollars in thousands)    Trailing Twelve Months  

Reconciliation of Net Income (Loss) Attributable to Class A and B-1

Common Stockholders to Adjusted EBITDA

   October 30,
2021
    January 30,
2021
    October 31,
2020
 

Net income (loss) attributable to Class A and B-1 common stockholders

   $ 129,264     $ (26,483   $ (27,495

Add (deduct):

      

Interest expense, net

     108,117       218,430       229,426  

Income tax expense (benefit)

     53,984       (3,337     (20,932

Depreciation and amortization

     171,512       174,836       172,905  

Income from equity method investees

     (11,020     (6,482     (5,067

Loss on debt extinguishment and modification

     38,387       17,549       —    

Goodwill & indefinite-lived intangible impairment

     —         —         19,000  

Asset impairments and write offs

     13,873       15,606       10,266  

Equity-based compensation

     41,942       12,915       9,951  

Other non-operating income

     (64,934     —         —    

Mexico joint venture EBITDA (1)

     25,178       19,074       17,206  

Store pre-opening expenses

     13,957       9,228       9,290  

Store closing expenses

     5,164       7,782       8,487  

Non-cash occupancy-related costs (2)

     7,715       19,240       23,846  

Non-recurring costs (3)

     34,788       25,990       20,785  
            

Adjusted EBITDA

   $ 567,927     $ 484,348     $ 467,668  
            

Net sales

   $ 5,630,505     $ 4,920,202     $ 4,731,145  

Net margin (4)

     2.3     (0.5 %)      (0.6 %) 

Adjusted EBITDA Margin

     10.1     9.8     9.9  %  

Adjusted Net Income and Adjusted EPS

Adjusted Net Income and Adjusted diluted earnings per share attributable to Petco common stockholders (Adjusted EPS) are considered non-GAAP financial measures under the SEC’s rules because they exclude certain amounts included in the net income (loss) attributable to Petco common stockholders and diluted earnings per share attributable to Petco common stockholders calculated in accordance with GAAP. Management believes that Adjusted Net Income and Adjusted EPS are meaningful measures to share with investors because they facilitate comparison of the current period performance with that of the comparable prior period. In addition, Adjusted Net Income and Adjusted EPS afford investors a view of what management considers to be Petco’s core earnings performance as well as the ability to make a more informed assessment of such earnings performance with that of the prior period.

The tables below reflect the calculation of Adjusted Net Income (Loss) and Adjusted EPS for the thirteen weeks ended October 30, 2021 compared to the prior year quarter ended October 31, 2020.

(in thousands, except per share amounts)    13 Weeks Ended  
Reconciliation of Diluted EPS to Adjusted EPS    October 30, 2021      October 31, 2020  
     Amount      Per share      Amount      Per share  

Net income attributable to common stockholders / diluted EPS

   $ 52,752      $ 0.20      $ 3,403      $ 0.02  

Add (deduct):

           

Income tax expense (benefit)

     14,095        0.05        (7,940      (0.04

Asset impairments and write offs

     3,228        0.01        1,390        0.01  

Equity-based compensation

     13,381        0.05        2,847        0.01  

Other non-operating income

     (19,773      (0.08      —          —    

Store pre-opening expenses

     4,222        0.02        3,625        0.02  

Store closing expenses

     1,264        0.00        2,311        0.01  

Non-cash occupancy-related costs (2)

     1,540        0.01        3,920        0.02  

Non-recurring costs (3)

     2,233        0.01        8,834        0.04  
                   

Adjusted pre-tax income / diluted earnings per share

   $ 72,942      $ 0.27      $  18,390      $ 0.09  

Income tax expense at 26% normalized tax rate

     18,965        0.07        4,781        0.02  
                   

Adjusted Net Income / Adjusted EPS

   $ 53,977      $ 0.20      $ 13,609      $ 0.07  
                   

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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 the ability to generate additional cash from 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 thirteen and thirty- nine weeks ended October 31, 2021 compared to the thirteen and thirty-nine weeks ended October 31, 2020.

(in thousands)    13 Weeks Ended      39 Weeks Ended  
   October 30,
2021
     October 31,
2020
     October 30,
2021
     October 31,
2020
 

Net cash provided by operating activities

   $ 86,040      $ 109,091      $ 288,444      $ 201,480  

Cash paid for fixed assets

     (64,447      (46,246      (164,330      (96,289
                   

Free Cash Flow

   $ 21,593      $ 62,845      $ 124,114      $ 105,191  

Net Debt

Net Debt is a non-GAAP financial measure that is calculated as the sum of current and non-current debt, less cash and cash equivalents. Management considers this adjustment useful because it reduces the volatility of total debt caused by fluctuations between cash paid against the company’s revolving credit facility and cash held on hand in cash and cash equivalents.

The table below reflects the calculation of Net Debt as of October 30, 2021 compared to the prior quarters ended January 30, 2021 and October 31, 2020.

(dollars in thousands)    October 30,
2021
     January 30,
2021
     October 31,
2020
 

Total debt:

        

Senior secured credit facilities, net, including current portion

   $ 1,660,423      $ 1,646,281      $ 2,355,426  

Senior notes, net

     —          —          868,624  

Finance leases, including current portion

     14,828        13,639        13,615  
              

Total debt

     1,675,251        1,659,920        3,237,665  

Less: cash and cash equivalents

     (221,484      (111,402      (195,832
              

Net Debt

   $ 1,453,767      $ 1,548,518      $ 3,041,833  
              

Adjusted EBITDA (TTM)

   $ 567,927      $ 484,348      $ 467,668  

Net Debt / Adjusted EBITDA ratio

     2.6x        3.2x        6.5x    

Adjusted EBITDA, Adjusted Net Income and Adjusted EPS Footnotes

(1)

Mexico Joint Venture EBITDA represents 50% of the entity’s operating results for all periods, as adjusted to reflect the results on a basis comparable to Adjusted EBITDA. In the financial statements, this joint venture is accounted for as an equity method investment and reported net of depreciation and income taxes. Because such a presentation would not reflect the adjustments made in the calculation of Adjusted EBITDA, we include the 50% interest in the company’s Mexico joint venture on an Adjusted EBITDA basis to ensure consistency. The table below presents a reconciliation of Mexico joint venture net income to Mexico joint venture EBITDA.

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     13 Weeks Ended  
(in thousands)    October 30,
2021
     October 31,
2020
 

Net income

   $ 5,274      $ 4,053  

Depreciation

     3,660        2,915  

Income tax expense

     3,277        2,103  

Foreign currency gain

     (60      (395

Interest expense, net

     1,171        1,158  
         

EBITDA

   $ 13,322      $ 9,834  
         

50% of EBITDA

   $ 6,661      $ 4,917  
         
(2)

Non-cash occupancy-related costs include the difference between cash and straight-line rent for all periods.

(3)

Non-recurring costs include: severance; legal reserves and related fees; one-time consulting and other costs associated with our strategic transformation initiatives; discontinuation and liquidation costs; and costs related to our initial public offering and refinancing. While we have incurred significant costs associated with the COVID-19 pandemic during fiscal 2020 and 2021, we have not classified any of these costs as non-recurring due to the uncertainty surrounding the pandemic’s length and long-term impact on the macroeconomic operating environment.

(4)

We define net margin as net income (loss) attributable to Class A and B-1 common stockholders divided by net sales and Adjusted EBITDA margin as Adjusted EBITDA divided by net sales.

WOOF-F

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