All right, let's get started. I'm Hale Holden, Head of U.S. Credit Fundamental Research at Barclays. It's my pleasure to welcome back Central Garden & Pet to the Staples Conference. Joining me today is Brad Smith, Central's Chief Financial Officer. Since you were here a year ago, Brad, Central comes back with a more simple portfolio, better margins. Your cash flow is near record highs. You just raised 2026 guidance. At the same time, you exited pet distribution, and you announced the acquisition of an 80% interest in TRIXIE, which for those of you that don't know, is a German pet, not U.S. cereal. Thank you for being here. I would say that this is a better pitch than our neighbors at Procter & Gamble next door, I think, are given. Let's start at a high level. You spent the last several years simplifying the business, improving execution, and strengthening cash generation. How has that changed the cash profile of the company and the consistency of the business? I would say if we look at simplification, over the past three years or so, we've taken huge steps to remove cost and complexity from the business. We've consolidated our network to improve efficiencies in both segments, taking out, I would say, between Pet and Garden, roughly 20 facilities, which was some very heavy lifting. We've also exited less profitable businesses, many of which also tended to carry higher levels of inventory. Our durable businesses in Pet, which we've rationalized, and then obviously the exit of our pet distribution business. These efforts have both improved our cash earnings and significantly reduced our working capital requirements. Execution is another thing that's been, I think, a big lever for us in the past couple of years. Our leadership team has significantly improved its level of collaboration across our business units and its ability to control what we can control as a company, and that's really resulted in the predictability of our results improving. As a result, if we look at our free cash flow, and I exclude the impact of M&A, over the last 10 years, you can really see the impact. The past three years, free cash flow has consistently been in the $300 million-$350 million a year range. If you go back to the previous seven years in comparison, I think we only had one year where we eclipsed $200 million. So it's really been a quantum shift in terms of free cash flow generation, and that's really reflective of the combined efforts around simplification and just improved execution. Where do you think the biggest gaps are now between where you want to be and where your potential is? You are not allowed to tell me that it is a good garden weather season. Sorry, Jason. M&A, clearly the biggest gap in priority we have. We have aspirations. We talk about it publicly every quarter to significantly increase the size of Central, and that does not happen without aggressive M&A. That has been a key part of our financial algorithm historically. But the deal environment has just been really tepid, as you know, Hale, up until recently. As a result, now we are sitting on over $1 billion in cash. We are aggressively on the hunt for deals, and deal flow is fortunately finally starting to improve. We obviously announced the acquisition in Europe, which you mentioned a few minutes ago. I do feel good that we are finally going to be seeing more deals get done in the coming quarters. Organic innovation would probably be the second opportunity. Niko and I have been talking about this as a strategic initiative over the past year. It is the most effective way to create a moat around your brands, command strong margins, and gain additional placements on shelf. I would say we are hitting singles and doubles in that area, but we can do much, much better. Improving innovation, that a major initiative started this year. We are in early innings on that. It is a difficult muscle to develop into a strength, but I have been very encouraged by progress to date. I am encouraged by where we are heading. Lastly, I would be remiss if I did not mention cat. We have talked about this as well publicly. We are under-indexed in cat. That is the one species that continues to grow in terms of new animal ownership each year. Between M&A and innovation, we have really got a full court press on growing our cat products portfolio. Because I sit in front of Excel all day and hit Shift F9. With the 10-year almost 5% and the rate move, I just assume when you think about M&A deals that you look through this and plug in an average rate, or does that change your metrics as you're thinking on a live basis? What's that? Come again? The question is, with the current rate environment and the increase in rate- Yeah Does that change your view of how you want to fund M&A, or do you just put an average rate in and hope for the best in the future? No, if we look at our cash flow generation, we are in a position where we are really able to fund deals through existing cash flow. If we ever did a significant deal, we would be willing to lever up more than we are right now and then take it down relatively quickly. But the current interest rate environment is not factoring into our decisions on M&A. Yep. The current story, at least on your last quarter, was sort of driven by more margin improvement and cash flow than broad-based volume growth. You had some puts and takes in some of the asset divestitures there. But in the third quarter, organic sales increased 2% for both Pet and Garden. What needs to happen for Central to be sort of a more balanced algorithm between organic growth and margin expansion? I would say, we have talked about our long-term algorithm around the goal is to grow organic top line at or above the category rate in the categories we compete in, which is low single digits, and continuing to expand our operating margin. I would say, post-COVID, the big challenge for us has been top-line growth. We are finally turning the corner on that this year organically. We are seeing growth in both segments, and that is really happened by focusing on the channels and customers where we are winning, particularly the Costcos of the world, Walmart, and e-commerce, and gaining distribution in those channels, which has really been helped through gains that we have had in new products and innovation. Within e-commerce, to continue and expand beyond 1P into 3P, and really also doing more direct fulfillment on behalf of retailers. We have had a fair amount of success the past few years in expanding margin. I think we expect that to continue, and that is really been a function of continued mix shift to consumables as well as branded product, taking cost out of the business, and then really being disciplined on pricing. Going forward, all the ingredients to continue to grow in line with our algorithm is it is going to be M&A, which I have mentioned, innovation, which I have mentioned, continued advances in the use of AI, continued discipline in pricing and cost as well. What are some of the AI advances that help you do that? Some of the what? AI advances that would help you do that? Well, I would say, clearly, and we've already started with this on the commercial front, really looking at ways to stay on top of making sure that no matter what AI agent the consumer is using to do their searches, our products are showing up at the top of the Buy Box, if you will. Ratings and reviews are accurate, product descriptions are accurate, pricing is accurate. I would say, operationally, as another example, starting to introduce the use of AI in manufacturing processes. There's just a host of opportunities to use AI to grow top line as well as to improve operating margins. I would say we're well on our way on the commercial side already in many of the things we're doing on the operational side a bit earlier on. But I think we're expecting significant benefits in the next several years there. You mentioned this just previously, but when you think about the channels that you guys sell into, it is different, I guess, for Garden and Pet. Yeah. Where are you seeing the strongest growth? Where are you seeing the most pressure? Maybe just talk about what channel opportunities you have in both of those businesses. I would say clearly the strongest has been club, particularly Costco and Walmart. They are gaining share as people increasingly look for value in their purchases, including middle to upper income consumers. They are migrating their shopping there. E-commerce also continues to grow significantly, particularly Amazon, where we had a record Prime Day in Q3, both on the Garden and Pet side, and Chewy and Walmart as well. Walmart has done an exceptional job with growing their online business. On the pressure side, I would clearly say independent pet specialty and then independent garden as well continue to be challenged. That is the lay of the land as I see it right now, and I think probably the opportunity that I see beyond what I have discussed is probably in dollar. We under-indexed fairly significantly there, and that is a channel that we are taking a hard look at in terms of how we penetrate it. Would that be for both pet specialty? Both, yeah. Yeah. All right. Let's turn to TRIXIE. I've known you and Niko for a while. You guys have been visibly vibrating on the phone as you talk about this transaction. Yeah. Very exciting. Maybe just talk about why we can sense your excitement on it. It's the largest European pet supplies and snacks company, by far. There is no close second. The combination of Central and TRIXIE gives us a rare and powerful opportunity to expand our access into over 100 million pet-owning households across Europe, which is huge, and that literally is flicking the switch overnight that we get that access. The market, the demographics in Europe, the spending trends around pet ownership very closely mirror what we have in the U.S. So a huge opportunity for us. When we look at the other strengths with TRIXIE as a company and a brand, over 90% of the portfolio is branded product. They have a significant cat portfolio. It's 20%-25% of their business, which is well beyond what we have in pet in the U.S., and I think a huge lever for us. Fast-growing consumables business. Their innovation capabilities are exceptional. Lastly, they've really had a nice trajectory of profitable growth. So a lot to love there. I think you've also talked about TRIXIE as a beachhead, Indira, for other transactions, and maybe with a little bit of multiple arbitrage versus where Yeah things are in the U.S. Yeah. The European market is very interesting to us. It's highly fragmented, meaningful opportunity for additional acquisitions, both attractive in terms of the number of opportunity of quality assets that are either for sale or coming to market in the near future. The multiples, as you mentioned, are slightly lower than what we're seeing in the U.S. So definitely a beachhead for further M&A. Given they're the largest player in Europe, the footprint is also pan-European. I would say less than half of their business is actually in Germany, half of their sales mix. The leadership is very well-connected with other players in the market. So I think it's a perfect beachhead. Maybe talk about some of the synergies and how you capture them without screwing up TRIXIE's business and the current management team. With the overview that you're based in California, and they're based half a world away. Yeah. Definitely, the time zone difference is painful at times. I would say the most meaningful opportunity in the next few years is on the commercial front, both leveraging TRIXIE to sell Central products into Europe, and to a lesser extent, TRIXIE products into the U.S. I think also commercially cooperating on formulations such as TRIXIE's edibles and cooperating on innovation is going to be a really important synergy. Supply chain would be kind of number two on the list. I think we have a possibility to leverage their capabilities in logistics automation. They are state-of-the-art there, really beyond even some of the best e-com players in Europe from what we've seen. So we think there's a lot to learn from them there. When we look at our collective supplier base between the U.S. and who they're using in Europe, we're going to look for opportunities there that make sense. We talked about, lastly, leveraging TRIXIE as a platform for further European deals as well. I would say in terms of not screwing things up, it's very important to us. TRIXIE team as a team is as eager as we are to explore synergies, but we are absolutely going to approach opportunities in a very thoughtful manner, carefully, in order to avoid unnecessary disruption to that business or our Central business. And so you bought 80% of it. I think the Yeah founder keeping 20. Yeah. And there's an earn-out on it. Yep. So maybe talk through the earn-out, if there's a path to getting the remaining 20% or if you have a desire to do that, and what it does to your cash and leverage. The deal we struck for 80% is we are going to pay about $340 million at close, which we expect to be in our Q2 of fiscal 2027. Then we got the additional earn-out based on their calendar 2026 performance, which would be up to potentially another EUR 60 million, and that would get paid out in our Q3 or Q4. We do not know if and when we are going to acquire the additional 20%. The minority partners are very interested in participating in the upside over the next several years. They are very bullish, as are we, in terms of what we can do with the business together. I think at some point, should they decide to retire, then we are definitely going to take a look at it. We have first right of refusal on it. In terms of cash and leverage, as I mentioned earlier, we are sitting on over $1 billion. I think we are over $1.1 billion as I speak in cash, which is a record level. Our net leverage is approaching zero, which is an enviable position to be in. When we look forward, we are pretty bullish about our earnings and working cap trends going forward. As a result, we are very comfortable using existing cash on hand to pay for the transaction next year. Then when we consider not only our own base or what we project going forward for our organic business, but also the incremental EBITDA lift from having TRIXIE, we expect to stay below 1.5 x net leverage, and below 3 x gross leverage even after payment. When you think about the U.S. and Europe and how you balance where you see the better opportunity in terms of M&A, is it strictly sort of what comes across the desk and opportunistic, or is it more of a 10-year whiteboard plan? I would say we are actively looking at opportunities on both sides of the pond. Obviously, we need to get to close on TRIXIE before we pull the trigger on any of those. In Europe, it really comes down to where we are seeing the opportunities that will offer the best returns. I think we are agnostic on whether they are in Europe or in the U.S. right now. What we are targeting either way remains consistent and has not changed. We want high margin, fast-moving consumable businesses, brands with a clear right to win. We prefer larger deals. Smaller deals tend to take as much work as larger deals, but we are open to bolt-ons. TDBBS, which we did a few years ago, is a perfect example of that in our dog and cat business. There are white spaces that are very important for us to get into. I mentioned cat earlier. Pet supplements is another space that we are really interested in. I would say also, and I know I have brought this up publicly a number of times over the last couple of years, tucked within our Pet segment, we have a really lucrative business that manufactures professional and consumer insect control brands for the agriculture, animal health, specialty pest control, and public health vector control markets. We are very, very interested in deals within that space and are actively on the hunt there. We have talked about the horse pill before. Yeah. I hate to talk about the Pet cycle. Every time I talk about the Pet cycle, the woman who runs my business makes me put money basically in a swear jar. Yeah. COVID feels like a fever dream a long time ago, but where do we think we are in the normalization process? Where do you see in pet-owning households, either in the U.S. or Europe, and where do you think we get to in the next couple of years? Cat, as I mentioned earlier, continues to grow. It never stopped after COVID, and we expect that to continue for a number of reasons. It is an easier pet to own, lower cost of ownership versus dog, suitable to small living spaces. Horse ownership is stable, and we expect that to continue for a number of reasons. Horses are very expensive to own. They are pretty much members of the family, and we do not expect that to go either up or down in the future. I would say, when I look at the latest data, small dog, freshwater fish, pet bird, and reptile ownership appear to be stable at this point, finally, and we could potentially start to see some, I think, solid evidence of growth in 2027. Interestingly, with reptile, it has always been kind of an edgy, niche-y sort of a pet that is really appealing to younger kids, and there is an emerging school of thought that that actually may be taking over as a child's first pet. We will see how that plays out, but that is kind of a new trend that we are starting to see. If I look at large dogs, saltwater fish, and small animals such as guinea pigs, unfortunately, that has not stabilized. We still see some further downward trends there, particularly in large dog, and it could take a bit longer. People fortunately continue to spend on their pets. Their pets are living longer as well. People view them as family members, and so it has been really surprising to us in the pet industry how resilient that category has been around consumer spending. People will spend on their pets and make trade-offs in grocery and other essentials to do that, which has been encouraging. Given the younger owners, ongoing pet humanization, premiumization, we expect that to continue. Trying to imagine my wife's face if I brought home a reptile. It would not We can help you out. I don't think that actually helps me, but thank you. Let's talk a little bit about the last quarter and the exit of pet distribution. Reported third quarter sales were down 8%, but organic sales grew 2%. Gross margins expanded about 130 basis points. How much of that mixed benefit was the distribution exit? How should investors think about the exit in terms of improving the go-forward quality of the revenue and margins, working capital intensity, and cash conversion? We exited the pet distribution business, given it was high cost, high complexity, and low margin. For that business to be healthy, it really needs to have national scale and be super lean and efficient, and we felt having Phillips take that over really gave it the best chance for success. Now that that's out of our portfolio, what investors should expect over the next few quarters is a lower revenue base, maybe down around 20%, roughly in Pet, or 10% total company, but with a structurally meaningfully higher operating margin and lower working capital requirements. Distribution was very inventory intensive. Very little impact on operating income dollars, though, given the distribution business had such low margins and was in decline. Very important to underscore, though, once we close TRIXIE in Q2 of next year, we will have replaced most of that lost distribution sales with branded sales, delivering a much higher gross and operating margin. So there are other parts of the portfolio that would be potentially pruned like that? Over the years, you guys have done a lot of portfolio optimization. Yeah. And you continue to exit these businesses that I think the world doesn't realize that you own. Yeah. I would say we continue to look at our portfolio. The vast majority of the opportunities have been taken advantage of around pruning. There's a few areas that we continue to look at in terms of further optimization. Live plants is probably at the top of the list on the Garden side. It's very volatile, very dependent upon weather. A high portion of that business is consignment, and it's highly concentrated in a single customer. So it's challenging in a number of ways. When weather's great, it prints money. When weather's suboptimal, which seems to be the case all the time these days, it's a lot more challenging. We have a fantastic team at the helm there, and they've done a really nice job of optimizing that business over the next few years. But we continue to look at store and SKU rationalization to try to reach a more predictable level of sales and profitability, and looking for ways to reduce customer concentration and moving more of the business gradually from consignment to PO. So more to come, but I would say that's really the biggest one that we're focused on. Got it. In the third quarter, the adjusted OpEx margin was up 90 basis points. You guys have made really steady step improvements over the last couple of years there. As you separate portfolio mix from productivity, how much of the improvement do you view as durable? Where do you think the next layer of margin opportunity is? Most of the operating margin gain in Q3 was definitely related to the distribution exit. As I mentioned earlier, that is going to be an ongoing benefit to us, having that outside of our portfolio. From an equity investment perspective, once they get their synergies in place a few years down the road, we could start to see some amount of income from that JV. However, aside from distribution, I also think our portfolio mix improvements we are seeing from the continued growth in some of our higher margin businesses, such as professional and equine and the Pet side, are going to help our overall profitability going forward. I think the mix benefits are durable, and I think we have got a bit more to come in the coming years there. On the productivity side, cost savings has been a meaningful driver of both gross and operating margin expansion this year. I would say we still have some opportunity for structural cost savings in our base business over the next few years. Really the next big frontier in productivity savings is going to be AI-related productivity improvements, which I mentioned earlier. Yep. You just finished or are at the end of Project Horizon, which was the consolidation of the Garden distribution footprint into four major hubs. Maybe talk about some of the benefits from that and what those hubs look like. Since 2022, we have closed in that initiative 13 facilities that opened two. We have transformed what had been a separate business unit distribution networks into a unified four-node national network, which we call the Central Logistics Network. We have definitely seen cost savings from this initiative. We do not quantify it publicly, but it was meaningful. Equally important, as our throughput continues to increase through this network, we are seeing some really nice improvements in productivity, service levels, and customer responsiveness. If we look at this network, we now are at a point where we are able to offer two-day e-com fulfillment to over 90% of the U.S. population, which for us was a huge win. We are not done in this area. The next step of the journey is really to evaluate opportunities to leverage AI, robotics, and process automation to further gain efficiencies there. On robotics, and I apologize for this question in advance, but the Barclays team is very bullish on the outlook for humanoid robots in distribution centers. I was wondering if you guys had thought about that or had any thoughts on it, or if you were trialing it. We are not that far along. We have thought about humanoid robots, but I would say that most of our reinvestment these days is into our brands, innovation, e-commerce, data, AI, and other automation. Humanoid robots are probably a step beyond. Okay. We will keep the Terminator off to the side there. As you realize these savings, where are you deliberately investing? Brand innovation, e-commerce, data, you mentioned AI, automation. Thoughts on that? Yeah. What we've shared publicly in past discussions, we've invested in direct-to-consumer e-commerce capabilities in our businesses from the West Coast to the East Coast, and that's enabling what I mentioned earlier in terms of our two-day e-com fulfillment capabilities to substantially all of the U.S. population. Innovation, we're investing an increasing amount of money there around capabilities, both commercially as well as in product development. Another thing we've talked about, and as an example, is data and AI. We are investing a significant amount in our data warehouse to make it AI-ready by the end of next fiscal year, and that's really going to unlock enormous sales and profitability opportunities. I'm excited in particular about that one because when we look at our competitors, by and large, they are smaller than us. They don't necessarily have the financial wherewithal to develop the same level of capabilities around use of AI that we can, and I think that's going to create an increasing competitive advantage for us. You mentioned AI with internal efficiencies, distribution center efficiencies, marketing ready, I guess, is the way I would phrase the way you put it. Yeah. Or like LLM ready for when- Yeah people purchase there. I think broadly the market is trying to struggle with what AI does for corporations like you. Do you think it ultimately reduces headcount over time, or it just increases sort of throughput and efficiency for you? If we sort of play forward a couple of years, not- Yes. Really tough to predict what it's going to look like because it's moving so quickly, as we all know. Right now, as I mentioned, we've already started using AI to support our commercial activities and are just starting to use it in operations. Our biggest area of focus now is on, as I mentioned, getting our data foundation in order and AI ready to leverage AI on a more comprehensive scale. I would say the opportunity now is to make our people more productive, automating repetitive work, improving decision making, allowing our teams to spend more time on high-value activities. The next stage is to be able to redesign processes around these capabilities rather than simply layering AI on top of what we already do. Could that ultimately affect headcount down the road? Yeah, for sure. But reducing headcount isn't the objective in and of itself for us. We would expect the gains in productivity to allow us to grow with fewer incremental resources, reduce the need to backfill certain positions, and in some areas operate with smaller teams. Our objective really is to build a simpler, faster, more productive Central and be able to grow earnings and absorb future acquisitions without adding overhead at the same rate of revenue. Where do you think we are in the core U.S. consumer today relative to the start of the year? Better, worse, largely unchanged, TBD? I would say that versus kind of where we were at the beginning of the year, for pet supplies and lawn and garden, the consumer remains resilient, but they are increasingly pressured for money in their purchase, to seek value for money in their purchases. In Pet, you have to really separate between existing pets and new pets. They continue, as I mentioned, to spend on the pets that they currently have, given that strong human-animal bond connection. They are sticking to the brands that they trust, but they are increasingly looking for ways to get what they want for less money. I mentioned earlier the channel shifting that we are seeing to Walmart, to Costco, and e-com as examples of that. However, given the financial pressures, they are continuing to hold off on getting new pets. I know the last few years we have always been asked when new animal ownership trends are going to revert back to normal, as I mentioned earlier. With the exception of cat, they have not. We are finally seeing some stabilization, but we are not yet fully back to growth there. With Garden, in the biggest categories we play in, fertilizer, grass seed, our branded controls business, wild bird. Fortunately, once the consumer is in these categories, there is some amount of recurring annual maintenance spend that is required, so they want to maintain their lawns and gardens, and they want to continue their birding hobby. So we are seeing resilience in the Garden space as well, but as I mentioned in Pet, a real focus on getting value for money. I would say with Garden in the categories we play in, consumers really recognize our products as offering really exceptional value for money in our branded offerings, as well as in our private label. If we look at fertilizer, which is really the one category in Garden where we have seen some trade down to private label, we really have gained share there. People really are happy with the quality of the product and the price points that we offer. I'm sort of in our last minute here. As I said in the overview, I'm the Credit Analyst, so I don't make the equity call. So I'm going to let you make your own equity call. But if you want to tell folks what you think the market most misunderstands about Central or why you think your equity is of compelling value right now. Frederic and I were actually talking about this on the taxi ride back home to the hotel from the airport last night. I don't think investors fully appreciate how much the underlying quality of Central has changed. Over the last few years, we have drastically simplified the portfolio. We've improved our margin structure. We've strengthened the balance sheet. We've continued to invest behind our brands and capabilities, and that's enabled Central to deliver record results these past few years without particularly strong consumer, without normal levels of new animal ownership, without a decent garden season, and without the benefit of M&A. So over the next year, I think the evidence will be fairly straightforward. Can we consistently generate organic growth, sustain, continue to improve margins, and convert earnings into free cash flow and deploy capital through M&A at attractive returns? If we do these things against a relatively modest category backdrop, I think it demonstrates that Central's become structurally just a better earnings compounder. On top of that, with significant additional upside once we have eventual normalization in new animal ownership, housing activity, and consumer purchasing power. Great. Thank you very much. Thank you.