Better Choice Company Inc.

Good morning. My name is Daryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Better Choice Company fourth quarter and full year 2021 earnings conference call. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Rob Sauerman, Executive Vice President of Strategy. Thank you. You may begin.

Thank you, Operator. Welcome, everyone, to Better Choice's fourth quarter and full year earnings conference call. This morning, we issued our fourth quarter and full year 2021 financial results press release and posted our updated earnings presentation under the IR section of our website, which we'll be discussing today. I'm joined by Scott Lerner, our CEO, Charlotte Cook, our CFO, and Donald Young, our Executive Vice President of Sales. Before we begin, please remember that during the course of this call, we 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 cause actual results to differ materially from those described in these forward-looking statements. Please refer to the company's annual report on Form 10-K filed with the Securities and Exchange Commission and the company's press release issued on Tuesday, March 29th. 2022 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 that on today's call, management will refer to certain non-GAAP financial measures such as gross revenue, EBITDA, and adjusted EBITDA. Although the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation. or the substitute for the financial information presented in accordance with GAAP. Please refer to our press release and presentation issued on March 29, 2022, for reconciliation with the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. With that, let me hand it over to Scott.

2021 was my first full year as CEO of Better Choice, and I'm incredibly proud of the progress we have made. This past year, our focus was all about positioning us for a breakout year in 2022, and we set three goals to get there. Building a best-in-class team, creating an industry-leading innovation pipeline, and developing a go-to-market approach anchored by leading channel partnerships. Since I joined, we've brought Halo Elevate from initial concept to the store shelf in under 12 months. developed a robust three-year innovation pipeline, which includes the rebranding of our existing Halo holistic products and the integration of the TrueDog brand underneath the Halo umbrella, onboarded two new co-manufacturing partners, secure significant incremental production capacity, and raised $40 million of proceeds with the goal of achieving $100 million of gross sales in 2023. On the sales side, we secured anchor partnerships with Petco, Pet Supplies Plus, and Philips for the national launch of Halo Elevate, which gives us distribution in more than 2,000 pet specialty stores by mid-2022. In addition, Halo Holistic has continued to see strong growth in Amazon point of sales, up 15% in Q4 2021 for reference. and we're very excited to expand our partnership with Chewy this year in a big way. Internationally, we continue to over-deliver against $100 million in contracted minimum revenues from 2021 to 2025 and expect rapid growth in this channel to continue. I am also proud to announce the official launch of our new Halo direct-to-consumer website, which went live last Tuesday and showcases the new look and feel of the Halo brand. The fourth quarter of 2021 was strong for Better Choice and represents the last quarter before launch of Halo Elevate. Despite unprecedented supply chain disruptions felt across the consumer packaged goods industry, we were able to deliver 18% quarterly net sales growth, driven by record international sales and continued growth in our e-commerce channel. For the full year 2021, we generated approximately 56 million in gross sales, an increase of roughly 7% relative to 2020. That said, we estimate supply constraints and out-of-stocks negatively impacted our full-year sales figure by about 6 million, predominantly felt in e-commerce. Even with the out of stocks in mind, our supply chain and logistics team did a fantastic job navigating macroeconomic pressures to satisfy our growing customer demand and pivoted when needed with one goal in mind to keep our product on the shelf for our loyal and growing and consumer base. Although safety stocks held by our customers, particularly Amazon and Chewy, were reduced in Q4 2021, and our reflected internet sales, we were still able to satisfy most of the end consumer demand, which we view as critical to maintaining repeat purchase behavior and driving sales in 2022. All of these achievements wouldn't be possible without our incredible team. This year, we added nearly 20 new team members with a wealth of experience from both inside and outside the pet food industry. With individuals from Amazon, Crate and Barrel, Mars Pet Care, Nestle Purina, Clif Bar, and Solid Gold joining our team. Not only is this evidence that our win from anywhere culture is working, but I also think serves as validation that we're building something special at Better Choice. With every day that passes, I grow even more excited about the opportunity we have to become the most innovative premium pet food company in the world. with high-quality brands poised for rapid growth, led by subject matter experts who can deliver results. Our business is rooted in the Halo brand, where we plan to leverage our global omnichannel strategy to achieve rapid growth and exceed $100 million of gross sales by 2023. Our target consumer is the millennial pet parent, and our goal is enabling the purchase of Halo products wherever, whenever, and however they choose. This is how many consumers now shop, and it doesn't matter if they're in the United States, Asia, or any other part of the world. One day they might be in a Petco, the next day on Chewy, and the next day browsing our website. So we really have to have a strong presence in our four main channels, pet specialty, e-commerce, direct-to-consumer, and international shopping. to drive customer loyalty. On the flip side, our omnichannel strategy turns every consumer touchpoint into a dynamic opportunity to connect, convert, and retain customers with a consistent and immersive brand experience, which we believe is a key to increasing the lifetime value of our customers. This strategy also lets us develop and sell channel-specific products designed to maximize conversion and gross margin to avoid channel conflict. One of the issues you'll find in the pet category if you try to play in every channel at once is that you see a lot of pricing competition. It can really affect both the brand as well as the retailer, so we're avoiding that and looking to launch products built to succeed in specific channels to prevent margin erosion across our portfolio and, most importantly, speed up growth. For example, Halo Elevate is sold exclusively within the pet specialty channel. While you won't find Elevate on Chewy or Amazon, Halo Holistic will continue to drive growth on these third-party e-commerce sites while maintaining an existing foothold in pet specialty, particularly in the cat category. Our DTC site will carry all our Halo products from Elevate and Holistic kibble and wet food, as well as a complete line of freeze-dried raw offerings that were historically sold under the True Dog brand. Today, our international sales are driven by Halo Holistic, but we are excited to begin to introduce Halo Elevate to new geographies later this year. Last week, our sales team spent three days at Global Pet, one of the largest annual pet industry trade shows, and officially unveiled the new look and feel of the Halo brand to the industry. Although it is still early, the response from customers, distributors, and suppliers have been overwhelming positive, which is great momentum for us as our key launch partners made significant initial purchases of Halo Elevate in Q1 2022 and are currently in the process of stocking their shelves. While these positive developments were not reflected in our 2021 financials, we've already begun to see their impact in the first quarter of 2022. We estimate that Q1 2022 growth sales will exceed 40% growth relative to Q1 2021, where we delivered $13.4 million of growth sales. To date, our growth in 2022 has been driven by initial sales of Halo Elevate, as well as strong Halo Holistic sales in our e-commerce international channels. I'll let Donald, Sharla, and Rob provide a bit more information regarding the initial progress we've made, but we've certainly come out the gates strong this year. For those of you that have been following our story since our uplift to the New York Stock Exchange back in June, I recommend you check out some of the new social and digital content now available on the Better Choice and Halo websites, as those will be dynamic sources of information as our launch progresses this year. In addition, I'd also encourage you to visit your local pet specialty store to see Halo Elevate on shelf and hear directly from a store associate about the brand we are building. So far, my golden doodle Leo has only told me good things about his lunch and dinner. Please visit our store locator on halopets.com to find a location near you.