Restructuring

9 Months Ended

Sep. 30, 2023

Restructuring and Related Activities [Abstract]

Note 12 — Restructuring

During the third quarter of 2023, the Company implemented a Services segment optimization (the "optimization") to improve the functioning of the Services segment and profitability. The optimization included assessing the operational and financial performance of the Company's wellness centers since re-opening after the pandemic as well as the assessment of the veterinary labor market in each geographic market. The Company also evaluated its ability to potentially convert these locations to a more hygiene-focused offering and determined they would be unable to convert these locations in the future based on the aforementioned assessment and the available square footage within the respective wellness centers.

As a result of the optimization, the Company identified 149 underperforming wellness centers for closure. The Company closed 45 wellness centers during the three months ended September 30, 2023, and expects to close the remaining 104 wellness centers in the fourth quarter ending December 31, 2023. The Company ended the third quarter of 2023 with 237 wellness centers and expects to end 2023 with 133 wellness centers. Restructuring and related charges attributable to the optimization were $8.5 million recorded on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023. Total restructuring and related charges are expected to be approximately $14.6 million for the year ending December 31, 2023, including approximately $11.1 million of depreciation and amortization as well as $0.3 million inventory valuation adjustments.

Additionally, not included in restructuring and related costs are approximately $3.0 million of operating lease liabilities on the condensed consolidated balance sheet. Closure of the wellness centers will require the Company to terminate leases

early, which the Company anticipates paying off in the fourth quarter of 2023. In addition to the lease payoff, the Company also expects to pay severance and other termination costs of approximately $3.3 million.

Restructuring charges include accelerated depreciation and amortization, variable lease expenses, and other miscellaneous costs. The remaining costs pertain to variable lease expenses, lease termination costs, severance, and other miscellaneous costs.

Restructuring expenses for the three and nine months ended September 30, 2023 are as follows:


	For the three months ended				For the nine months ended
$'s in 000's	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Included in Cost of services
Inventory reserve	$	250	$	—	$	250	$	—
Total in Cost of services	250		—		250		—

Included in Restructuring
Accelerated depreciation - property, plant and equipment	$	5,580	$	—	$	5,580	$	—
Accelerated amortization - operating lease right of use assets	1,755		—		1,755		$	—
Other	900		—		900		$	—
Total in Restructuring	8,235		—		8,235		—
Total Restructuring Expenses	$	8,485	$	—	$	8,485	$	—

A roll forward of our liability related to the optimization, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):


$'s in 000's	Expenses		Cash Payments		Non-Cash Amounts		Liability at September 30, 2023

Accelerated depreciation - property, plant and equipment	$	5,580	$	—	$	(5,580)	$	—
Accelerated amortization - operating lease right of use assets	1,755		—		(1,755)		—
Inventory reserve	250		—		(250)		—

Other	900		—		—		900
Total Restructuring Expenses	$	8,485	$	—	$	(7,585)	$	900