PetIQ, Inc.

at IQ Inc. first quarter 2021 earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star and zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to Katie Turner, Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us on PetIQ's first quarter 2021 earnings conference call. On today's call are Cord Christensen, Chairman and Chief Executive Officer, Susan Schultes, President, and John Newland, Chief Financial Officer. Michael Smith, EVP of the product segment, 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 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, among others. 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 financial information presented in accordance with GAAP. Please refer to today's press release for a reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. In addition, Patek has posted a supplemental presentation on his website for reference. And now I'd like to turn the call over to Corey Christensen.

Thank you, Katie, and good afternoon, everyone. We appreciate you joining us today to discuss our first quarter financial results. Today, I'll begin with an overview of our strategic business and financial highlights. Then Susan will provide greater detail on our services segment, and John will discuss our financial results. Finally, Susan, John, Michael, and I will be available to answer your questions. We are very pleased with our strong start to 2021. We generated record results driven by growth in both our product and services segments. Our team has done well to execute on our strategic objectives, serving our retail and e-commerce partners, to ensure we are serving pet parents and their pets where and when they needed to fulfill their pet health and wellness needs. Net sales increased 36.2% to 254.3 million. Adjusted gross margin expanded 130 basis points and adjusted EBITDA of 26.9 million increased approximately 86% year over year. This demonstrates the strength and momentum across our pet health and wellness business. During the first quarter, we continue to experience robust velocity growth from both our manufactured and distributed pet products across all sales channels. Product segment net sales increased 38.3% to 230 million, and product segment adjusted EBITDA increased approximately 60% to 38.8 million, representing an adjusted EBITDA margin of 16.9%, an increase of 230 basis points compared to Q1 last year. Our services business reached a very important inflection point where we saw headwinds from the pandemic starting to abate. For Q1, services segment net revenues were $24.3 million, an increase of 18.6% compared to the same period last year, an increase 26.6% from Q4. Adjusted EBITDA of $2.1 million for the services segment was up 5% from Q1 last year, and increased 10.5% compared to Q4. We estimate that the services segment would have contributed an additional 3.9 million of net revenue and 2.6 million of adjusted EBITDA, and the total for the quarter would have been approximately 28.4 million of net revenue and adjusted EBITDA of 4.7 million if the service segment did not have COVID-19 related impacts. Through the first half of Q1, our services segment rate of absenteeism was still elevated as we discussed on our earnings call last quarter. However, as we progressed through the first quarter, we started to experience a welcomed improvement in COVID-19-related impacts. As a result, we ended the quarter with single-digit temporary closures week-to-week based on COVID-19-related illnesses compared to 12% to 16% in Q4. The health and safety of our employees remains our top priority, and I want to thank all the members on our team for their hard work and dedication as they continue to be on the front lines helping pet parents and their pets. We are pleased that our service organization improvements we experienced in Q1 have continued into Q2. We believe Pet IQ's mission of delivering smarter options for pet parents to help enrich their pets' lives through convenient and affordable access to veterinarian products and services is increasingly resonating with pet parents. What remains consistent for our business are the robust industry tailwinds, including the humanization of pets and continued significant growth in pet health and wellness categories as pet parents are taking better care of their pets and looking for ways to save money doing it. Taking a closer look at our product segment for the first quarter, sales were led by our e-commerce business that was up over 40% versus Q1 last year. These gains were driven by our manufactured portfolio as our business was up 115%, including Capstar, or up 63%, excluding Capstar for the quarter. Our team's emphasis on winning in both brick and mortar retail and e-commerce continues to pay off, as we also saw strength in our traditional retail partners, largely driven by the pet specialty channel, which was up 48% for the first quarter. From a mix standpoint, Our business in the quarter consisted of 77% distributed and 23% manufactured based on the timing of product shipments to one of our largest retail partners in the quarter. Our distributed sales mix was slightly higher than our anticipated full year mix. We expect our manufactured mix to increase for the full year to approximately 26% of sales. PetIQ participates in several of the largest, fastest growing categories within the pet industry, such as flea and tick solutions and health and wellness. As these categories have evolved both in size and sales channel, we are purchasing market data to better reflect our understanding of the categories we compete in. As I've noted previously, our e-commerce data comes from a broader Nielsen report and data from a partner of IRI known as 1010 Data. For the 12 weeks ended March 27, 2021, these data sets show the flea and tick category growing 14%, and is pacing to eclipse a $1.5 billion market across the retail channels we compete in. FedIQ's flea and tick manufacturer brand portfolio outpaced the category by growing 16%, while picking up 31 basis points of share in the first three months of 2021. These share gains were driven by the e-commerce channel, where our brands grew 41% year over year. Our performance in this fast-growing set of customers was fueled by the Capstar brand, which was up 49%, along with PetArmor Plus, which grew 44%. PetIQ continues to lead the fastest-growing form within the flea and tick category, oral treatments. In Q1, this segment grew 27%, with PetIQ's brands growing 33%, and continues to be a growth driver for our portfolio and also for the broader category. This momentum is expected to be maintained as we head into the peak selling season for the year. Q1 was our second full quarter of having Capstar in our portfolio, and once again delivered results that outperformed our expectations. For the first quarter of the year, the Capstar brand grew 35% in consumption across all measured markets, making it the fastest growing offering within the top 10 OTC brands in the industry and is now the number four brand in the flea and tick category. Even as we continue to make investments to strengthen the Capstar brand, we have a clear line of sight to conservatively achieve our stated goal of greater than $20 million of incremental EVA contribution from Capstar in 2021. This will further drive our product segment margin improvement based upon our QM results and full year 2021 projections on the brand. For the 12 weeks ended March 27, 2021, based on the same Nielsen plus 1010 data set, the pet health and wellness category grew 33%, and are now also on pace to eclipse a $1.5 billion market in the OTC product segment for 2021. PetIQ brands grew nicely at 29%, yet we trailed the category due to just beginning to build out our portfolio within the e-commerce segment where the category is growing 47%. We view this as a strong incremental opportunity as we move forward. As discussed in the last quarter's communication, we plan to launch an advanced product line in the back half of 2021, to better position us to compete within the e-commerce and direct-to-consumer channels for pet supplements. These types of premium offerings are what has led e-commerce to become dominant across the market within health and wellness. We are excited to begin participating in this segment and to provide our loyal consumers an even better option to meet the needs of their pets. From a balance sheet and cash perspective, we continue to have ample liquidity and financial flexibility with our cash on hand cash generation, and existing availability under the new credit facility we entered into in mid-April to support our future growth. And although we have suspended formal guidance due to uncertainty from potential COVID-19 related impacts to our business, we do want everyone to understand that, as I stated previously, we continue to maintain an internal budget of approximately $950 million in net sales and over $100 million in adjusted EBITDA, with the only significant variable to this plan being COVID-19 related impacts affecting our services segment results. As we look at the year in total, we expect to generate approximately 57% of our total net sales in the first half of 2021, and approximately 60% of our full year adjusted EBITDA. Similar to years prior, Q2 will continue to be our largest net sales and adjusted EBITDA quarter. The balance of our net sales and adjusted EBITDA will be weighed to the second half of the year, Keep in mind, we begin to lap the addition of Capstar in August of 2021. We maintain great visibility into our products segment and expect it to help us fuel another year of significant margin expansion and adjusted EBITDA margin expansion, demonstrating accelerating profit leverage of PetIQ. We expect to generate further improvements in our services segment as the year progresses, and we are optimistic that with lower or minimal rates of absenteeism, and other COVID-19-related impacts, we will then be in a better position to provide formal annual guidance. In summary, we are off to a strong start in 2021. We believe PetIQ's differentiated position in the animal health industry will continue to fuel our long-term growth. We expect to continue to benefit from rising pet adoption, increases in dollar spend per pet, and an emphasis on affordable, convenient pet health care. All great industry tailwinds for us. We believe PetIQ remains well positioned to capture a disproportionate amount of the industry growth as we move forward with our vertically integrated product manufacturing and distribution platform and a national footprint of convenient and accessible veterinarian services. With that overview, I would like to now turn the call over to Susan.