PetIQ, Inc.

Good day and welcome to the PetIQ Incorporated third quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Katie Turner of Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us on PetIQ's third quarter 2022 earnings conference call and webcast. On today's call are Cord Christensen, Chairman and Chief Executive Officer, and Z Glassman, Chief Financial Officer. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Federal Security's 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. 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 reconciliation of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP. In addition, PetIQ's 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 third 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, Michael Smith, John Pearson, and I will be available to answer your questions. We are very pleased to deliver and exceed on our stated objectives for the third quarter. Net sales were approximately 210 million. We're at the high end of our guidance of 200 to 210 million. Gross margin increased 420 basis points and we achieved adjusted EBITDA of 19.2 million ahead of our expectations of 16.5 to 17.5 million. Importantly, we had a record cash generation quarter with 64.5 million in cash from operations generated in Q3. Consumption of our higher margin pedicure manufactured brands fueled our results and we benefited from our strategic investments behind new products. returned to our core flea and tick and health and wellness product categories, and we benefited from consumers trading down for more expensive treatments into our PetIQ manufactured brands. And while the total flea and tick category is down year to date, PetIQ has captured a disproportionate amount of market share, and we are positive, far better than the total category. Multiple consumer trends continue to support the long-term growth of the pet industry, and PetIQ's unique position in the market offering convenient and affordable veterinarian products and services has never been more valuable and needed. Turning to our product segment in more detail, our PetIQ manufactured products outperformed the broader category in Q3. We generated sales growth across five of our top seven manufactured product categories during the quarter. When looking at our growth in all sales channels, a few of the highlights from the quarter include Double digit growth from our four categories outside of flea and tick. Pet supplements grew 41% compared to third quarter last year, driven by the club channel. Dental treats were up 25% versus the prior year. Cat treats increased 19% year over year. And dewormers increased 11% from Q3 last year. We continue to participate and be a leader in several of the largest growing categories within the pet industry, such as flea and tick solutions and health and wellness. Our manufactured over-the-counter flea and tick results continue to outperform soft category conditions in Q3. For the 12-week period ended October 8, 2022, consumption for our brands was up 4.1% compared to the total category that was down 4.3% when compared to the same period last year. Shipments were down 2.2% due to the inventory drawdown we discussed would take place during the first six weeks of the quarter as retailers balanced their inventory levels from the slow start to the season. This above category growth led to 77 basis points of share gain driven by our outperformance within e-commerce where we posted growth of 18.8% and picked up 122 basis points of share within the channel. Our new flea and tick brand, Nexstar, continues to be a driver of our share growth. Nexstar represented 1.2% of the category for the same 12-week period. The successful growth of Nexstar represents the largest brand launch into the over-the-counter flea and tick category over the past five years. We are pleased with our ability to grow our flea and tick offering across all sales channels for the quarter. E-commerce continues to play an important role for us as consumers choose where and when they want to shop for their pet products through both our retail partner offerings online and our e-commerce partners. In Q3, over 42% of the over-the-counter flea and tick category sales were generated online, and at PetIQ, we have grown to generate a similar amount of our product segment sales via e-commerce. We expect this to represent an even larger percentage at year end. This means Nielsen data is often not a good representation of how our products business is performing, especially when you consider we also have a strong presence in the club channel, which like e-commerce is not measured by Nielsen. Our manufactured over-the-counter health and wellness products also delivered great results. Q3, our manufactured health and wellness brands increased 12.9% compared to Q3 last year, We experienced strong consumption trends of 17.3%, which fueled our results, and we also outperformed the health and wellness category growth of 9.5% as compared to the prior year period. This led to 113 basis points of share growth for this portion of our portfolio. For the third quarter, our manufacturer brands outperformed the brands that we distribute. In fact, Pedicure manufactured products represented 32.3% of product sales in Q3, This is a record percentage contribution and compares to 31% in the year ago period. We also had nice sequential growth from the 28.9% that we reported in the second quarter of this year. 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 prescriptions and over-the-counter products sold through retail and online. Now focusing on our services segment, Our services segment reported its seventh consecutive quarter of positive adjusted EBITDA since the onset of COVID on net revenues of $33.5 million, an increase of 15.6%. This was in line with what we expected for the quarter and relatively consistent with our revenue contribution in Q2. We opened six new wellness centers in the quarter and 16 new wellness centers year-to-date. Our team remains prudent with our services growth near-term given the continued challenges in the vet labor market We expect our services growth rate year over year to be the lowest in Q4 as we expect to open four wellness centers, and we are lapping certain price increases we took in the services segment during Q4 last year, but a strong finish for the total year in both sales and EBITDA contribution. We remain committed to the growth of our services business, and John Pearson, Senior Vice President, Head of Services, is making tremendous strides as we access the best way to generate value within the four walls of both new and existing wellness centers. We look forward to providing you with more detail on our fourth quarter earnings call. That said, as we discussed on our earnings call this year, we evaluated our use of capital and made adjustments to our wellness center openings as a result of the vet labor market and to be more prudent and efficient with our capital. I would now like to discuss the change we'll be making on how we report adjusted EBITDA. Such that beginning the fourth quarter of 2022, we will no longer add back non-same store adjustments in our calculation of adjusted EBITDA. This is a straightforward change we think investors will appreciate, and going forward, we expect EBITDA and adjusted EBITDA to be more closely aligned to one another. We will report Q4 adjusted EBITDA without the non-same store adjustment, and when we provide our 2023 guidance, it will reflect the new definition. However, we will provide investors all the necessary information in Q4 to understand the delta between our new definition and how we would have reported under our current adjusted EBITDA definition. We believe this calculation change will help better demonstrate the company's total performance. However, we do believe it's important to still track our new openings for the first 18 months to see how the base business is performing to understand how we would perform if we chose not to invest in new stores, which requires significant capital and operating losses for the first 18 months. As a result, we will continue to report same-source sales for our servicing segment on a go-forward basis. It is important to note that our leverage ratios and covenants as calculated under our credit agreements adjust for the impact of new openings. Accordingly, we will continue to provide the leverage calculations under the lender definition EBITDA as we report going forward, given that it is an important measure of our ability to service our debt. Finally, I would like to spend a moment on our 2022 outlook. We are reiterating our net sales outlook for the year and raising our adjusted EBITDA guidance. Zee will discuss the numbers in detail. While we only have about a month and a half left in the year, We are maintaining our net sales range to reflect the potential of retailer year-end inventory variability. As you know from time to time, and especially at year-end, manufacturers can experience shifts in timing of sales based on retail inventory levels. It is no different for us at PetIQ. So we want to maintain some flexibility should we experience it this year in light of how fluid the operating environment has been. From an adjusted EBITDA perspective, we are raising our outlook to reflect the strength of PetIQ's manufactured brands, and the resulting flow through in the P&L from higher gross profit and margin expansion it provides us. In closing, we are pleased with our third quarter results. Our product and service teams continue to execute well on our mission, and we believe PetIQ remains well positioned for growth long term. We expect PetIQ to continue to benefit from favorable pet industry tailwinds, including increasing household penetration for pets, dehumanization of pets, and increasing pet population and more pet parents looking for convenient and affordable pet health and wellness. I'd like to thank all of our dedicated employees for their hard work and contributions. We couldn't provide the access to affordable pet healthcare without you, and pet parents everywhere are grateful too. With that overview, I would like to now turn the call over to Zvi.