There should be time at the end for Q&A, so if you have a question, you can type it into the Q&A tab at the bottom of your screen. So now we have that out of the way. It's all yours, Kent.
Thanks, Jim. Good morning, everyone. I appreciate you tuning in. As Jim mentioned, I'm Kent Cunningham. I'm the CEO of Better Choice Company. I've been in this seat for about 18 months now. I'll kick things off and give you an overview of the Halo business, but also talk to you about why we are so excited about SRx Health. Then I'll turn it over to Nina Martinez, as Jim mentioned, our CFO. She'll share with you some of the financial highlights for the business as well. First, just wanted to share with you, look, our vision is to become a global health and wellness company and one that serves people and pets, providing better products, better solutions. If you take a look at the left side of the screen, the pet health element of that is really anchored by Halo today.
Halo is a premium pet food that's got three product lines. It's roughly $45 million in top line, with significant growth happening internationally in China and elsewhere, but also double-digit growth beginning to happen here in the US, particularly on our digital platforms. One of the things we'd like to do as we move forward is expand into veterinary medicine in FY25. Our plan there is to leverage SRx capabilities that they already have, so both expertise, relationships with Big Pharma, as well as their distribution network, and just infrastructure and know-how in being able to move prescriptions and pharmaceuticals around in an efficient manner. If you look at the right side of the screen, today, SRx is specialty pharmacy.
And that differs pretty fundamentally from, say, what you might think of as a Walgreens or a CVS, and we'll get into that in a little bit, but greater than 30 locations spanning Canada today, $180 million, and again, really significant growth, 25% year over year, and planned double-digit going forward. One of the components that I wanted to highlight, but we'll talk about the broader ecosystem as we go forward, are the patient support programs that SRx engages in as well. And these are really key in that they provide new access and a lot of times exclusivity to new drugs and new therapies for chronic disease for support for patients. And they're kind of home run hits for the business. These are typically contracts that are in the tens of millions of dollars.
And a couple of them that SRx has just recently been awarded that are coming online end of year and into Q1 of 2025. So we'll talk a bit more about those, but it's a really critical component, I think, of the SRx model. Next slide. If I give you a little bit more on Halo itself, again, I mentioned this is really premium pet nutrition that's rooted in natural and human-grade ingredients. And it really targets the consumers that have the highest household incomes, the lowest sensitivity to price, and typically the greatest level of engagement with their pets. These are the people that really think of their dog or their cat as a baby or a child within their household. And so they're very attractive consumer segments to go after.
I mentioned we've got rapidly growing international sales, really anchored by Asia-Pac, but we're also looking to extend and expand into Latin America. We've got significant online recurring revenue across both Amazon and Chewy. And what that does is it helps us smooth out our revenue base. But these are two big platforms that represent about $12 billion annually in pet food just in the U.S. that we've really started to focus in and double down on. And we're seeing the benefit of that and the marketing shifts we're making even in our most recent Q3 that we just put out yesterday. And then we're an asset-light business today. So we've got strategic co-manufacturing partners that allow us to come to market with speed, but also with high efficiency.
It also enables us to shift our investment focus where we need it, which is around brand building as we go forward, and I mentioned three product lines: Halo, Halo Holistic, and Halo Elevate, really spanning the spectrum of premium natural nutrition from freeze-dried raw to high digestibility to serving the key health concerns that we know pet parents have. Next slide. I've operated in a number of markets in my career, but pets are certainly one of my favorites. I spent significant time at Mars Petcare, and one of the things I still love about this category, it's big at $130 billion plus. It's growing, and it's got great fundamentals in terms of two key macro trends that help to propel the category forward. The first is, and I mentioned it, humanization, this idea of your dog or cat as a baby or a child.
That sort of naturally dovetails into premiumization. If you think about it, what people that are highly engaged with their pets want to do is typically feed them the best thing possible, and that typically is feeding them like they feed themselves or like they might feed their human kids, right, so that's a great place for us to be as a brand, and Halo really ticks that box for them in that it's natural, it's human-grade, and it's holistic in terms of how it approaches health, and it delivers on the brand promise by providing better nutrition for their pet. Next slide. Here's where I want to give you a bit more detail on SRx and why we're so excited about this opportunity. SRx, again, is focused on specialty care and is a specialty pharmacy operation in Canada.
And that differs fairly fundamentally, again, from a CVS or a Walgreens, where SRx really focuses on unique specialty drugs. These drugs require typically distribution rights, significantly more training and infrastructure with their staff and personnel. And frankly, that starts to create more barriers to entry. So whether that be through regulatory or, again, the relationships that are required that Adesh and his team have built up over the past decade, all of that has enabled that business to extend and expand across Canada with a network of pharmacies today that are in the specialty space. They've also got infusion clinics where people may need to go in for infusion or injection therapy for oncology or derma or other types of chronic diseases. And they've got clinical trial sites and one distribution facility that effectively services Canada.
So with that, they've been able to build a CAD 200 million business and, again, with still expected growth coming at the 20% or better rate going forward. Next slide. And a little bit on this model as well in terms of the category. And the unfortunate reality is on the left side of the page here is that there's a growing prevalence of chronic disease. And while these are Canadian-based statistics, that it's true whether you're Canadian or U.S. or Europe or living in Asia, that the reality is that three out of four folks aged 65 and above are going to develop at least one chronic disease in their lifetime.
As that goes forward, one of the things where consumers place their most trust is in pharmacies, particularly specialty pharmacies, to treat those chronic diseases because they require much more interaction and much more significant care from the specialty pharmacy team. When you look at what's going on within the pharmacy arena in general, down on the bottom left, about 40% of drug use today is specialty, and that's only expected to increase as we go forward. If you take a look at the right side of the page, again, the pharmacy is really the heart and prescription of this model, but there's an ecosystem that the SRx Health team have built that really services that model in a very unique way.
So I mentioned the patient support programs prior, but again, this generally focuses on exclusive distribution of new therapies, high drug cost navigation, and there's a lot of support and help that goes along the way for these patients as they go through this process of dealing with these chronic types of diseases that they need to manage going forward. In the bottom left, the specialty clinics, again, really help to provide that service, again, whether it's infusion or other. And these are operated, again, by highly specialized and trained nurses that administer this medication. I mentioned also the wholesale distribution. That's great in terms of, one, it's accredited by Health Canada, and two, the ability to distribute those drugs and get them where they're needed, when they're needed, is critical.
And then last, I think what's a key component of the ecosystem is the clinical research sites and the relationships that SRx Health is able to build with Big Pharma. This gives them access and relationship to new therapies, new treatments early that generally comes back around into patient support programs. So you can see there's sort of a virtual cycle here. And again, I mentioned, I think the relationships that Adesh and his team have built over a decade plus with Big Pharma are really critical. And then they also have a proprietary tech stack that services all of these patients, as well as the patient data and the medical elements that are really critical and really valuable, not only to SRx Health, but certainly to the big pharmacy companies and how they might be able to utilize that.
It's a really interesting and unique ecosystem that is difficult and timely to build and to execute well. Next slide. So let me turn it over to Nina now, and she'll take you through some of the financial highlights of the combined company.
Sure. Thank you, Kent. Hello, everybody. Good morning, and thanks for being with us today. Just a few highlights here. The combined company on a pro forma basis for six months of this year generated $95 million of net sales and positive EBITDA of $100,000. An update to this, since this was as of 6/30, we just published our Q3 earnings yesterday. The Better Choice and Halo businesses today increased revenue growth about 33% since the second quarter, $11.5 million of net sales. The quarter also brought in a 40% gross margin. Both net income and EPS increased year over year and also adjusted EBITDA.
We generated about a 2% EBITDA for the quarter and expect to continue that trajectory through the end of the year. Apologies here. Our cap table on a pro forma basis going forward, so we expect to issue around $20 million in shares to SRx as part of the merger. It will be an all-stock transaction. It'll be about $23 million in fully diluted shares outstanding. The float will be very tightly held at 25% free float with about three-quarters of the company continuing to be owned by insiders. Then just to summarize this here, to touch on a couple of things that Kent said as well, the highlight is, of course, the organic revenue growth that both businesses are seeing. TTM sales at just around $235 million with a very, very promising combined total addressable market.
So immense growth opportunities on both sides of the business. We're planning to expand our footprint in Asia-Pacific on the pet food side and really capitalizing on the growth that region is experiencing. Also accelerating organic growth in Canada on the pharmacy business with immense opportunity to capitalize on the US specialty pharmacy market. Also industry tailwinds on both ends. As Kent mentioned, there really is a growing prevalence, unfortunately, of chronic disease in seniors, and that's the space in which SRx plays today. CAGRs on both sides of the business, upwards of 5%-6.5%, both when you look at annual prescription sales growth and also just the trending CAGR in pet care. And then, of course, the leadership team brings immense experience on both the pharmaceuticals and CPG side. So I will pause there and happy to answer any questions anyone may have.
Great. Thank you.
The first one for me is, I'm just trying to understand. So you have a vet business that's doing about $45 million in revenue, and you're combining it with a human medical business almost four times as large. What's the synergies that you get from that?
Yeah. Maybe I can give you the overview, and then Nina can talk about the specific synergies. I think for us, Jim, the connective tissue between the two companies is really around an anchoring in better health. Again, whether that's better health for pets or better health for humans, we do see, again, the opportunity to leverage as we go forward the SRx expertise on the medical side and the distribution of pharmaceuticals into pet. That would be highly incremental and a new vertical for us, where today 100% of our Halo revenue is based upon food and treats, right, into dogs and cats.
So the opportunity to not just play in the massive pet food market, but to tap into another $15 billion category that's 100% incremental, but synergistic to us when you think about dog and cat and relationships and brand synergies, we think that's critical. And then we also think that there are some immediate synergies that we can drive through the business. And I can let Nina talk to you about those a little bit more.
Right. So from an operational cost synergy perspective, about $1.7 million we've identified thus far, and then also the opportunity for the revenue synergies as we look into new verticals, as Kent mentioned, expanding potentially into the vet health space.
It's really about bringing expertise that SRx has in Canada from a distribution perspective and the pharma relationships and putting it together with our presence here in the U.S. and also globally and potentially partnering with our global distribution partners that we have in place today.
And can you break out the geographic revenue distribution for the two businesses? I assume that SRx is primarily Canadian-based. And then what's the breakout for the core business, the Better Choice business?
70% domestic, 30% international today.
And is that international U.S., or is that primarily Asia?
That international is primarily Asia-Pac today with a little bit of LATAM.
Okay. And then was I correct? Is SRx primarily Canadian?
Yes.
That's correct.
And what are the plans going forward? Do you plan to expand internationally for Better Choice? And are there any expansion plans for SRx? .
Yeah. I can maybe hit the Halo one and then let Adesh, the founder CEO of SRx Health, talk to you about the opportunities internationally for the human side expansion. So for us, absolutely. I mean, look, we've got a top 25 brand today in China with Halo, but feel like we're just scratching the surface there. That's one of the fastest growing and the largest pet food market outside of the U.S. And so we think there's significant opportunity for us just within China alone, but also more broadly across Asia-Pacific. We've got a strong business today in Taiwan that's also growing double digits with more to come there. But we see real opportunity in other markets across Asia-Pac, South Korea, Japan, Australia. And then I mentioned Latin America.
We've got business there today and feel like there is really significant opportunity for us to extend and expand that both through TDP, total distribution point expansion, household penetration, and just a greater focus of the brand into Latin America, whether that's Mexico, Brazil, Argentina, or Central America. So those are kind of the way we look at the globe today. And then we do look at the EU as well. That one has some more complexity as it relates to markets, regulations, as well as competitive entrenchment. But that's another one that's on our radar. It's probably realistically third in terms of our international priority. And then Adesh, do you want to talk about SRx and opportunities?
Yes. So with regards to SRx, we are 100% Canadian-based currently. Our growth strategy is to expand, number one, into the U.S. markets for specialty pharmacies.
I think there's a huge opportunity. Last year's numbers were $65 billion in sales in specialty, trending towards $1.5 trillion in the next nine years. So that would be number one. And also along the lines, when we look at clinical trials, I think there's a huge opportunity to synergize and expand that also into the U.S. So definitely our next strategy would be pivot and look at M&A and activity in the U.S.
And I know from I used to cover a couple of vet diagnostic businesses. I mean, those markets, you have two dynamics you really benefit from. You have the aging or you have the baby boomers whose kids have moved out and their pets have basically replaced their kids. And then you have the younger generation who haven't had kids yet who treat their pets like kids.
I know that was a big boost for diagnostics. I assume those dynamics are similar for Halo.
Yeah, absolutely. Again, I mentioned one of the prevailing macro trends that was true when I was at Mars Petcare about a decade ago and is still a driver today is humanization, to your point. And you get that both at both ends of the consumer spectrum from an age standpoint, as you referenced, right? The boomers that have kids that are out of the house now and the younger consumers that haven't yet started a family in a lot of instances. And as a result, both of those cohorts really dote upon their furry kids, right? So that humanization component lends itself to premiumization because they want to do the best thing they can for their dog or their cat.
And that typically takes the form of, how do I feed them in the best way possible? And when you've got a brand like Halo that comes in with natural credentials, whole food ingredients, and external certifications around non-GMO, sustainably sourced, these are the kinds of proof points that these consumers are looking for, especially when they're spending in a premium nature.
And then COVID, I think, was a boost for most of the diagnostic companies as well as pet adoptions increased pretty significantly. Feels like that started to level off. I mean, do you think that the number of pets will continue to advance though going forward?
Yeah. We see that here at home domestically. There are still increases in household penetration for both dog and cat.
To your point, there was a spike in that during COVID as everyone was getting COVID cats and pandemic puppies and stuff like that. That came down slightly post-COVID, and now it's normalized again in the US market. So that's continuing to tick up. Where we see really explosive growth is in China. And what's happening there in terms of this almost once-in-a-generation shift, both in terms of disposable household income, but also where the Chinese consumers are typically putting off families, and they are developing more and more interest in cats in particular and dogs, particularly on the small breed side. So that's where we see really significant household penetration for pets going forward.
Right. Can you talk about what you expect for cash flow for the combined businesses? I'm looking at your nine-month results.
You were slightly cash flow negative for the Halo business, for the Better Choice business. What are the cash flow characteristics of the SRx business, and what happens going forward?
Yeah, absolutely, and I can also let the SRx team speak specifically on their side. Our cash flow at Better Choice today is obviously driven by Halo's ability to generate the free cash flow to essentially subsidize the parent company costs, right, so year-to-date on the business, the filing will be released today. We actually have generated cash in the business the first nine months of this year, about $200,000 or so, and so that's through retiring debt, refinancing credit facilities, and also doing an equity offering back at the end of July.
And then on the SRx side, the working capital position of the business is being maintained by its own and funded by its own growth, 25%-30% organic growth quarter over quarter. And I can let the team add to that as needed.
Yeah, for sure. Just David here from SRx side. So in Q1 2025, SRx will be generating free cash flow. And that includes servicing our debt and the working capital as well.
Okay. So it sounds like the combined company will be at least cash flow neutral starting 2025. Is that what I'm hearing?
Yes.
Yes.
Okay. Can you talk about the competitive landscape outside of Canada and the U.S., what it's like in China? On the pet food side? On the pet food, yeah. Obviously, right? Because you're not going to provide any medical services there, I assume. Yeah.
So I'd say that the U.S. market, along with the EU, is a more mature, more developed market with greater intensity of entrenched competitors and big players. So there's greater opportunity, we still believe, in China for challenger brands. But what you see going on, the dynamic today is that U.S.-based brands in particular are given a premium in the Chinese consumer's mind. They see them as better products, more premium, safer, more trustworthy than China-based homegrown brands. That gap is narrowing, I would say, in terms of both, excuse me, in terms of both product performance for China-based brands, as well as even to some degree, their branding is improving as well. But there's a definite edge to U.S. brands coming into that market relative to domestic. And again, while it's not a purely emerging market, it doesn't have the same sort of maturation, again, that the U.S. market does.
So it's much more fragmented from a landscape standpoint, which means there is greater opportunity for us to drive greater growth and higher share grab.
And I know you haven't even closed the SRx deal yet, but once that deal closes, you get the integration done, what do you think happens next? Do you think you continue to grow on both sides of the business, or do you think, as you look at more M&A and more investment, do you think that you'll be more geared towards the SRx side than the Halo side?
Yeah. I think both businesses have organic growth opportunities in front of them as we've been looking at it both from the pet lens as well as the human lens with SRx. I think we are currently today looking at inorganic M&A activity across both businesses as well.
And I think partly that's going to be dependent upon the opportunity itself that we see, particularly from an M&A lens, right? So does it make sense? Is it synergistic relative to one of the two pillars? And that'll help make our determination. But right now, we see double-digit growth for both entities going forward.
Okay. All right. Well, we are at our time up. Do you have any closing comments before we finish up today, Kent?
Yeah. I would just say, one, appreciate everyone's interest and time again. We're looking forward to some of the additional one-on-ones that are upcoming. And again, we're pleased, I would say, with the latest quarter results that we have on the Halo business.
We recognize there's still work to be done there, but we're moving again in that turnaround journey from what I would characterize as operational stabilization to a greater focus on growth. And that's where the SRx team helps really from a Better Choice level overall, really significantly step change that growth trajectory for us, as well as just market capitalization period. So the combination of the two entities and the vision we've got that we share to become a global health and wellness company is the one that we're incredibly excited about.
Okay. All right. Well, thank you again. Good luck with closing the deal. And hopefully, we get an update from you in a couple of months.
Sounds great. Appreciate it.
Thank you. Thank you.