PetIQ, Inc.

Greetings and welcome to PetIQ Incorporated first quarter 2022 earnings conference call and webcast. At this time, all participants are on a listen-only mode. A 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, this conference is being recorded. I would now like to turn the conference over to your host, Katie Turner, Investor Relations. Thank you. You may begin.

Good afternoon. Thank you for joining us on PetIQ's first quarter 2022 earnings conference call and webcast. On today's call are Cord Christensen, Chairman and Chief Executive Officer, and Zvi Glassman, Chief Financial Officer. Susan Schultz is President, and Michael Smith, Executive Vice President of the Product Division, 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 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 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. 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 information presented in accordance with GAAP. Please refer to today's release for reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. In addition, PetIQ has posted a supplemental presentation on its website for reference. And with that, I'd like to turn the call over to Cord Christensen.

Thank you, Katie, and good afternoon, everyone. We appreciate you joining us today to discuss our first quarter financial results. I'll begin with an overview of our strategic business and financial highlights, then Zvi will review our financial results and outlook. Finally, Zvi, Susan, Michael, and I will be available to answer your questions. We are very pleased with our start to 2022. We reported first quarter net sales ahead of our expectations at $275.7 million, representing an increase of 17.8% on a pro forma basis. We also generated another quarter of solid gross margin improvements. Adjusted EBITDA was $31.6 million and was also ahead of our guidance, resulting in an adjusted EBITDA margin increase of 90 basis points year over year to 11.5%. The strength of our diversified pet products and services offering fueled these results. The product segment posted record results which were stronger than we expected as we benefited from broad-based growth across categories and sales channels with continued strength in our manufactured products and new product innovation. We also had $5 million of fill orders to support the start of the flea and tick season in first quarter of 2022 that was anticipated to happen in the second quarter of 2022. Today, Z will discuss more of what we are seeing in the second quarter to date in the product segment and highlight the consistent growth trajectory of our products business in the context of our reiterated 2022 outlook and our view of our first and second half growth for the year. Our services segment reported its best quarter since the onset of COVID in 2020, posting its fifth consecutive quarter positive adjusted EBITDA on net revenue of $27.9 million. We remain pleased with the services segment's improvement, although we still have a lot of room for growth in future quarters for services to get back to pre-pandemic profitability. This year, we've made modest assumptions for the services segment as we work towards recovery in the segment's growth and profitability over these next several quarters. We've created a unique business model committed to convenient and affordable pet health and wellness care At PetIQ, we're a purpose-built company addressing the large, multibillion-dollar animal health market through our retail and e-commerce partners. We continue to be wherever pet parents choose to purchase their products with our animal health product portfolio and clinics, including mass, grocery, club, pet specialty, pharmacy, and online sales channels. Focusing on our segment results in more detail, the product segment generated a solid start to the year with year-over-year net sales growth of 18.1% on a pro forma basis to 247.8 million. We generated double-digit sales growth across five of our top seven manufactured product categories during the quarter. We continue to have the largest over-the-counter animal health brand portfolio with over 1,000 SKUs and a dominant market share in pet prescription products sold to retail and online. In addition, Both our distributed and manufactured segments also saw double-digit growth despite a softer than normal start to the flea and tick season in the first quarter. Our manufactured OTC flea and tick growth rates continued their strong momentum into the new year, growing 24% compared to Q1 last year. This growth was fueled by strong support of Nexstar, our new premium flea and tick topical product launch, as well as strong contribution from the oral segment, which increased 37% compared to Q1 last year. Our health and wellness portfolio also contributed another exceptional quarter as it continued to sustain strong year-over-year growth, up 36% compared to the prior year period. From a mixed standpoint, our business in the quarter consisted of 73% distributed and 27% manufactured sales. As we look ahead, we believe PetIQ's manufactured items can reach greater than 31% of the product segment sales for 2022. We continue to participate in several of the largest and fastest-growing categories within the pet industry, such as flea and tick solutions, along with health and wellness, focusing on the category growth in more detail. For the 12 weeks ended March 26, 2022, the PetIQ portfolio gained 130 basis points of share within the over-the-counter flea and tick category and now commands the number two market share position at a 19.7% total share of the market. This share gain was led by both PetArmor and Capstar, which both gained significant share over this timeframe. As for health and wellness, we continued our momentum in this high growth segment as we picked up 32 basis points of share. The segment increased 7% across the market while our portfolio grew 9% for the 12 weeks ended March 26. From an R&D perspective, we had strong sell through in the first quarter of a super premium health and wellness line we launched for a large club store operator during the fourth quarter. We expect an even greater benefit from this item in full year 2022 as our activation and support plans continue to play out in the second and third quarters. We have also successfully launched Foster brand super premium health and wellness line this week. You can find it online at fosterpethelp.com. And as we discussed on our Q4 earnings call, we continue to be on track to introduce a direct-to-consumer initiative in the second half of 2022 as we continue to provide smarter options for pet parents to help enrich their pets' lives through convenient and affordable access to veterinary and formulated products and services. In terms of inflation, we have continued to experience cost inflation headwinds, particularly in labor, freight, raw materials, and packaging. As a result, we implemented a price increase in Q4 across our manufactured product segment to offset most of these inflationary pressures While these cost pressures have begun to stabilize, we are still evaluating if any further price action is required to offset in the balance of the year. Now focusing on the services segments, we generated another quarter of net revenue growth and positive adjusted EBITDA. We believe our services segments will make sequential and year-over-year improvements as we progress through 2022. In the quarter, we continued to optimize the services segment to maximize the results and minimize disappointing our pet parents. First, we continue to adjust our clinic schedules to reduce labor hours and cancellations when labor is unreliable. Second, we enhance our retention and recruiting programs, which will support an increase in new wellness center openings in Q2 and for the balance of 2022. During the quarter, our recruiting team hired 17 veterinarians. These new hires allowed us to open four new wellness centers and replace unreliable temporary veterinarian labor in 13 existing wellness centers. We will continue to reduce the risk of deploying capital on new wellness centers until we have all the necessary labor in place and optimize our existing centers to gain efficiencies and improve total performance of the segment. We remain prudent with our services growth near term, given the challenges in the vet labor market, but have visibility to a large number of openings in the second quarter 2022 versus first quarter 2022. Before I turn the call over to Zvi, on behalf of our board of directors, and management team, and especially myself, I'd like to thank our president, Susan Schulz. She has decided to leave PetIQ later this month to spend more time with her family in Indiana. Susan has been a tremendous asset and partner in helping to develop the strategies and operating procedures that helped us build PetIQ. Over the last four years, her contributions have been invaluable, including her leadership, guidance, and support of our team throughout the pandemic. As we continue to grow our business, we will leverage the OneIQ Smarter Together culture Susan helped us to create. Susan will continue to be available as needed to ensure a smooth transition through September. Beginning June 1st, Michael Smith, our EVP of the Products Division, will assume the newly created role of President and Chief Operating Officer. I'm excited for Michael to take on this new role. He is a talented, collaborative leader with deep operational experience across pet and consumer packaged goods. Under his leadership since 2019, we have successfully delivered consistent growth in the product segment. His team has added 200 million of incremental products growth with a three-year CAGR of greater of 17%. He has helped us successfully increase our manufacturing scale, expand our product and brand diversity, as well as customer reach while capturing greater sales and profitability. In closing, we believe our differentiated position in the animal health industry will continue to fuel our long-term growth along with robust industry tailwinds including increasing household penetration for pets, dehumanization of pets, an increasing pet population, and more pet parents looking for convenient and affordable pet health and wellness. Our product and service teams executed well on our mission, and we believe PetIQ is well positioned to continue delivering increases in our net sales and profitability, as well as generate solid cash flow. With that overview, I would like to now turn the call over to Z. Thank you, Cord.