PetIQ, Inc.

Good day and welcome to the Pet IQ, Inc. first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event 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 2023 earnings conference call and webcast. On today's call are Cord Christensen, Chairman and Chief Executive Officer, and Zvi 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 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. 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 release for a reconciliation of non-GAAP financial measures, the most comparable measures prepared in accordance with GAAP. In addition, PetIQ 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 key highlights, then Zvi will review our financial results for the quarter and outlook. Finally, Zvi, Michael, and I will be available to answer your questions. We are very pleased with our start to 2023. Our team delivered first quarter net sales and adjusted even above our guidance for the quarter. Net sales of $290.5 million topped our outlook of $270 million to $290 million. This helped us achieve solid gross margin expansion and SG&A leverage, resulting in record quarterly net income and adjusted EBITDA. Both our products and services businesses performed well in the first quarter, and we completed the complimentary strategic acquisition of Rocco & Roxy on January 13th for $26.5 million in cash. As we discussed on our call last quarter, Rocco and Roxy is a super premium brand with a strong and growing presence, particularly in the e-commerce sales channel with their pet product offerings, which today primarily includes stain and odor products. This acquisition also expands PetIQ's offering into premium dog supplements and jerky treats. We believe we have a tremendous opportunity to grow Rocco and Roxy's distribution beyond e-commerce to brick and mortar retail to accelerate growth of their existing business and e-commerce, and to introduce new SKUs in 2023 and beyond for all sales channels. The product segment's net sales of $259 million increased 4.5% compared to the prior year period, reflecting broad-based growth across all product categories and sales channels. When you look at all sales channels combined, year-over-year consumption growth in the over-the-counter flea and tick category was the strongest that we've seen in the last 18 to 24 months, during the first quarter of 2023. In Q1 of this year, over 50% of the over-the-counter flea and tick category sales were generated online, and importantly, PetIQ's portfolio brands continued to capture a disproportionate amount of this growth and dramatically outperformed the broader category as evidenced by our Q1 results. As we've consistently said, if you only look at the Nielsen measured sales channel for flea and tick, it's just a portion of the total category as a result Nielsen data does not tell the complete story for the category results and now represents less than 25% of the market volume for the OTC flea and tick categories in which PetIQ competes. We continue to believe PetIQ's unique position in the market, offering convenient and affordable veterinary products and services, has never been more valuable and needed by pet parents. Turning to our product segment in more detail, as I mentioned, our PetIQ manufactured products outperformed the broader category in Q1. The largest and most critical category to enabling our financial results is PetIQ's manufactured flea and tick business, which saw its best quarter of winning over pet parents since our acquisition of Parago Animal Health in 2019. When looking at our OTC flea and tick brands growth in all sales channels for the 12 weeks ended March 25th, 2023, a few of the highlights from the quarter include our portfolio of OTC flea and tick brands grew 6.3% versus the market's growth of 4.1%, leading to a gain of 31 basis points of share. Included in last year's base for consumption is a low margin skew within the dollar channel that we strategically chose to discontinue. If you remove sales of this product from the base, our consumption for our portfolio of OTC flea and tick brands would be up over 12% and well ahead of the total category consumption. Our pet supplement segment continues to see healthy consumption growth the first quarter of 6.5%, as compared to the prior year period. This slower growth in our pet supplements business versus the total category was expected, and due to the planned transition of a significant pedicure skew in brick and mortar during the first quarter of 2023. As a result, approximately eight weeks of sales were missed in Q1 this year than we had in Q1 last year. When you take this into account, our pedicure supplement brands would have been up over 12%, and better than the broader category consumption of 10.9%, for the period ended March 25th, 2023. Importantly, we completed the skew transition in Q1 and the early read across retailers is an acceleration in consumption. In addition, our dental treats brand mentees grew plus 22% and gave 36 basis points of share within the category. Dog treats increased 157% driven by our PureLove brand and overall consumption across all of PetIQ branded offerings and across all retail channels grew plus 10.4% for the 12 weeks ended March 25th, 2023. PetIQ manufactured products represented 26.2% of our product segment net sales in Q1 2023 compared to 28.4% in Q1 of 2022 pro forma for the acquisition of Rocco and Roxy. This mix was slightly below our expectations for the quarter as our distributed business had a more aggressive inventory build with our top e-commerce partners late in the quarter. However, for 2023, we continue to expect to achieve our stated objective of having greater than 32% of product segment net sales from PetIQ manufactured products. Now focusing on the services segment. Our services segment reported first quarter 2023 net revenue of 31.5 million, an increase of 12.6% as compared to the prior year period and in line with our expectations. We experienced improved cancellation rates, increased pet counts, and increased average dollar per pet served as compared to the first quarter of 2022. Improved operating efficiencies and maturation of wellness centers helped the services segment achieve its best profit contribution quarter since fourth quarter of 2019. We opened four wellness centers in the quarter and will continue to remain prudent with our services segment growth in 2023. We believe we are well positioned across our product and services segments to attract more pet parents to our health and wellness offerings and are very pleased with our team's execution and ability to generate strong results for the first quarter of 2023. We remain optimistic about our opportunities for growth in 2023 and our data across all sales channels in the product segment for Q2 to date continues to show that PediQ is performing well across all categories. That said, we are still early in the year and our teams consistently focus on the control aspects of our business, we are being prudent in reiterating our annual 2023 guidance, given certain variables outside of our control, like weather and timing of shipments. For example, that can lead to fluctuations quarter to quarter. In closing, we appreciate the hard work and dedication of our employees in our manufacturing distribution facilities, as well as our corporate offices. for the commitment to our mission and core values in helping us to achieve these financial results. With that overview, I'd like to now turn the call over to Z. Thank you, Cord.