Chewy, Inc.

Good day and welcome to the TUI third quarter 2020 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, please press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Robert LaFleur, Vice President of Investor Relations and Capital Markets. Please go ahead, sir.

Thank you for joining us on the call today to discuss our third quarter fiscal 2020 results. Joining me today are Chewy CEO Sumit Singh and CFO Mario Marte. Our earnings release and letter to shareholders, which were filed with the SEC on Form 8K earlier today, have been posted to the investor relations section of our website, investor.chewy.com. A link to the webcast of today's conference call is also available on our site. On our call today, we will be making forward-looking statements, including statements concerning Chewy's future prospects, financial results, business strategies, industry trends, and our ability to successfully respond to business risks, including those related to the spread of COVID-19, including any adverse impacts on our supply chain, workforce, fulfillment centers, other facilities, customer service operations, and future plans. Such statements are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties which could cause actual results to differ materially from those contemplated by our forward-looking statements. Reported results should not be considered an indication of future performance. Also note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements except as required by law. For further information, please refer to the risk factors and other information in CHIE's 10-Q and 8-K filed earlier today and in our other filings with the SEC. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures are provided on our investor relations website. in our earnings release and letter to shareholders, which were filed with the SEC on Form 8K earlier today, and in our 10-Q. These non-GAAP measures are not intended as a substitute for GAAP results. Finally, this call in its entirety is being webcast on our Investor Relations website. A replay of this call will also be available on our IR website shortly. I'd now like to turn the call over to Sumit.

Thanks, Bob, and thanks to all of you for joining us on the call. Our Q3 results reflect Shui's relentless focus on execution and customer experience, coupled with the positive macro trends of accelerated e-commerce migration and increased pet ownership. These forces came together yet again to produce another quarter of strong net sales growth. Volume in the back half of the quarter outperformed our expectations as traffic, conversion, orders, and customer retention all strengthened from September into October as customers shifted their shopping behavior this year to shopping earlier, responding favorably to thoughtful additions in our assortment and innovative product and service launches such as personalization and gifting. Coming into the third quarter, we expected an early kickoff to the holiday season, and the Chewy team was prepared and ready to shift into high gear when it came. This summer, we began optimizing our inventory and preparing our fulfillment centers, knowing that the holiday spike would add to the elevated demand tempo that has been in place since March. The teams responded and executed to plan. Over the next few minutes, I will discuss our Q3 results and share some insights as to how the quarter unfolded. I will then use the balance of my remarks to talk through our exciting new healthcare launches and how those fit into the broader CHUI story as we prepare to celebrate our 10th anniversary next year and carry our mission into the second decade just as eagerly and enthusiastically as we approached its first. After that, I will turn the call over to Mario to discuss our third quarter results and guidance in more details. Q3 net sales increased 45% year-over-year to $1.78 billion, with auto-ship net sales representing 69.2% of total net sales. We added 1.2 million net active customers in the quarter, ending Q3 with 17.8 million active customers. Q3 net sales per active customers, or NESPAC, was $363, an increase of 2.8% year-over-year when adjusting for the extra week in 2018. We delivered Q3 gross margins of 25.5%, 180 basis point increase year-over-year, and consistent with our gross margin last quarter. The promotional environment was muted throughout most of the quarter before picking up in mid-October with the early launch of the holiday season. As such, promotional discounts were less of a gross margin headwind than forecasted. Shipping costs were also in line as we worked closely with our freight partners to uphold customer delivery experience. Private label remained a strong contributor this quarter, with Q3 private label hard goods penetration reaching 16%. Our seasonal businesses, such as Halloween, were also strong in the quarter. And here, we improved our private label merchandise mix by 20 points to over 70%, showcasing the quality and appeal of our newly launched proprietary assortment. This helped grow total Q3 hard good sales, including third party and private label, by more than 70% year over year. Over the past few quarters, our team has been hard at work to reformat our proprietary brand strategy by introducing compelling merchandise, many at expanded price points, improving discoverability, and delivering an overall tremendous value proposition for our customers. This strategy is creating a positive, consistent, and sustainable momentum and driving incremental profitability in our portfolio. Moving on to Q3 adjusted EBITDA, we produced another positive quarter, generating $5.5 million of adjusted EBITDA at a margin rate of 0.3%, representing 280 basis points of improvement year over year. While gross margins were strong in the quarter, several of the short-term operating cost headwinds we detailed on our last call materialized as anticipated and impacted our ability to translate our top-line momentum into bottom-line results as efficiently as we did in the first and the second quarters. These elevated costs were related to investments in labor and benefits as we ramped up our fulfillment centers and customer service sites to deliver a successful holiday amidst increasingly constrained labor markets and residual COVID-19 costs. Additionally, as anticipated, we saw marketing costs increase in Q3, normalizing from the hyper-efficient run rates we saw in Q1 and Q2. Mario will provide more details on these components in just a moment. We continue to be laser-focused on executing against our commitment to pets and pet parents to deliver exceptional customer experiences by offering a broad assortment of brands and products with the convenience of e-commerce. That commitment extends to pet health and wellness. As part of our goal to make pet health care more affordable and accessible, we recently launched medication compounding and Connect with a Vet, our proprietary telehealth platform. These two innovative businesses are valuable additions to the growing healthcare business and represent our first service-based offerings for pet parents. But before I discuss these new businesses in greater detail, I would like to share some insight into our pharmacy Rx business, which anchors our broader healthcare strategy. For clarity, when I refer to Chewy Pharmacy, I am referring to the business that we own and operate under our own licenses. Total Pharmacy includes Chewy Pharmacy plus the pharmacy that we operate that generates third-party management fees. Total Pharmacy operations are expected to generate over $500 million of gross revenue this year, which we believe makes us the largest e-commerce pet pharmacy in the U.S. To achieve this milestone just over two years after our launch is a remarkable achievement for which we, as a team, are proud. Chewy Pharmacy, on a reported basis, is expected to generate over $350 million of net sales this year, which would equate to 5% of total net sales based on our current guidance. Given this scale, pharmacy is now contributing positively to the year-over-year expansion in Chewy's total gross margins. As we have noted on previous earnings calls, we believe that we are still in the early innings regarding our pharmacy business, and we remain focused on growing this vertical in a disciplined manner. Now let me tell you a little bit more about our recent compounding and telehealth launches. Let's start with compounding. Compounding is a service offered through our pharmacy where we customize medications to the specific needs of individual pets, as some pets can't take medications in their commercially available forms. They may need a liquid instead of a tablet or a specialized dosage or formula. To enable these requirements, our licensed pharmacists use ingredients sourced from FDA-registered manufacturers to custom-prepare medications in our labs to the specifications provided by the veterinarians. Today, we offer this service exclusively to pets and pet parents. In the future, we plan to extend this service to the vets so vets can offer compounded medications directly to their in-clinic patients. In both these use cases, we seek to pioneer bar-raising customer experiences across this billion-dollar fragmented market. We are just as excited about our new telehealth service, Connect with a Vet, which connects chewy pet parents directly to a contracted licensed veterinarian using our proprietary teletriage platform, where vets answer questions, offer advice, and discuss pet health concerns without diagnosing medical conditions or recommending treatments. Instead, they make referrals to local vets or emergency clinics if needed, which drives customer traffic back into these veterinarian clinics for medical diagnosis and treatment. We offer this service free of charge to auto-ship customers from 8 a.m. to 8 p.m. Eastern Time, Monday through Friday. We launched the program in 35 states in October, and starting today, I am happy to announce that we are rolling it out to another 12, which brings our total coverage up to 47 states. Program utilization rates to date are encouraging, as is the customer feedback we are receiving. Connect with Event is clearly a first-of-its-kind service. We are still in early days and have a lot more to learn. At the same time, we have taken an important first step towards building a telehealth platform that can evolve and expand over time as our culture of innovation advances the technology platform and as the regulatory environments modernize to meet the needs of today's pet patients and providers. 2020 has been an unbelievably busy year so far, and I'm proud of the way every member of the Chewy team across our fulfillment centers, customer service sites, and corporate offices has stepped up to meet both the challenge and the opportunity. Not only do we continue to optimize our day-to-day operations, we are always looking for ways to enhance customer assortment, service, and experience as we welcome a record number of new customers and offer current customers a safe and reliable way to care for their pets. The bond between pets and their pet parents has never been stronger, and we look forward to a robust holiday season and close to the year. I will now turn the call over to Mario, who will provide the details on our third quarter results and financial outlook. Mario?