All right. We are going to go ahead and get started. I'm Doug Anmuth, JP Morgan's Internet Analyst. We're pleased to have with us Chewy's CFO, David Reeder. Chewy is the largest pure-play online pet retailer in the U.S., with more than 20 million active customers. We estimate more than $1.2 billion in net sales in fiscal 2025. More than 80% of revenue is generated by subscription-based Autoship customers, and about 85% comes from non-discretionary categories. Chewy's profitability continues to improve. We expect almost 5.5% adjusted EBITDA margins and about $525 million in free cash flow this year. David joined Chewy as CFO in February of 2024. He previously was CFO of GlobalFoundries and, prior to that, CEO at Tower Hill Insurance and President and CEO of Lexmark, among various other roles. Welcome, David. Thanks for having me. Great conference. All right. Kicking off, Chewy announced this week that you will be departing in several months to return to the semiconductor industry as a Chief Executive Officer. The company also reaffirmed 1Q guidance. Maybe you can talk about the rationale around your departure after just over a year as CFO, and then what are some of your key observations about the business during that time? Sure. I grew up in semi more than 30 years ago as a chemical engineer. While I love Chewy, it's a great platform. It's a platform that has continued growth in active customers, as well as net SPAC growth, high predictability with respect to more than 80% of the revenue coming through subscription, and then increasingly profitable as we continue to build out the pet ecosystem. It has been a pleasure and a privilege to be a part of Chewy. Being able to take a CEO role back in kind of my old stomping grounds of semi was too good to pass up. In terms of key observations since I've been at Chewy, I think there are two really big observations that stand out to me. If you were to cast your lens kind of back in time, you would have seen a company that grew to more than 20 million active customers. As those active customers continued to grow and Chewy continued to build out its pet ecosystem, you saw the company begin to continue to become more profitable, as well as generate more free cash flow. I think the two biggest observations I would make are, number one, the leverage that is built into the topology of the Fulfillment Center footprint. Most investors and most customers do not know this, but Chewy is the third largest direct-to-consumer shipper in the United States. Our topology in Fulfillment Centers, we have the ability to deliver to pet parents and customers all over the United States. in a very, very efficient way from both a first-mile as well as a last-mile basis. The second thing that I would highlight is I would highlight the nature of the pet industry and the category itself. Pet is an emotive category. It's one of the few categories in which you talk about your pets and yourself as a pet parent. There is a large and very loyal following for companies that are trusted in this space. Chewy has built that trust. We have built that trust across the entire ecosystem. It's everything from being able to provide health and wellness to the largest pet pharmacy in the United States, to now providing veterinary services, and then, of course, to provide all of those things where we started, which was in consumables and hard goods. Those would be the two big observations: the very efficient fulfillment center network that allows us to grow at scale and get leverage, and then the ecosystem that allows us to capture more share of wallet and continue to build that trust with customers. OK, great. Maybe you can help us understand the overall state of pet spending. Package Facts estimates about 38% of Pet Food and Treats spend in the U.S. occurs online. What do you think drives that next leg of digital penetration gains across the industry? I'll remind you that the U.S. pet industry is about a $150 billion industry here in the United States. If you go back to our Capital Markets Day in December of 2023, we articulated that about 30% of that market was online. The rate and pace of the market continuing to move online is continuing. We do not believe that you are going to get 100% of this market online. I think you are always going to have some of this market that is satisfied through brick and mortar. We do think that there is a lot of room to grow from 30% up to whatever that ultimate number is at the top end of that range. As that market moves online, Chewy is disproportionately a winner of every dollar that moves online. Whether that's in the pharmacy space, whether that's in the health and wellness category, or the 85% of our total revenue that's consumables, we continue to pick up share of dollars as it moves online. OK, great. All right. In terms of macro, the pet industry was pretty resilient in 2008, 2009. I mentioned earlier about 80% of net sales coming from Autoship customers, 85% from non-discretionary categories. How do you think Chewy is exposed in terms of macro softness? The pet industry is incredibly recession resilient. I do not think any industry is recession proof. If there is an industry that is recession resilient, it is pet. I have two dogs and a cat. I do not feed them any more or any less, depending on what is happening in the macroeconomic economy. Most pet parents think of themselves in the same way, in the same vein of there is a trend towards humanization of pets. There is a continued trend towards the health of pets. Even though there may be pressures economically depending on the environment that you are in, this is usually one of the last categories to get hit. I would also say that with about 85% of your business in consumables, like at Chewy, that's a category that, because it's recession resilient and because it's recurring, tends to create some level of predictability around the company's revenue. OK, great. You sized tariff exposures in the high single-digit to low double-digit millions. Yeah, low. Earnings? High single-digit millions or low double-digit, that's right. OK. Has this evolved at all, just with ongoing shifts in tariff narrative, implementation, any change? We still feel the same way that we felt when we made that guidance. Again, the majority of the business being consumables means that you have domestic and local sources for the majority of those consumables. We do have some small exposure to China, primarily on Private brands for Hardg oods. It is very small exposure. We have an incredible supply chain team that has built that Fulfillment Center network that I spoke about earlier. We have, through the course of time, strategically placed inventory to even help mitigate that very small portion of exposure. OK, great. Let's shift gears a little bit, talk about active customers and NSPAC. So Chewy has returned Active Customer Growth, albeit still at low levels. What drives your low single-digit year-over-year growth across active customers in fiscal 2025? How should we think about that interplay between gross ads and reactivations and churn? Sure. Great question. First, our return to Active Customer Growth, I would say, is a result of Chewy's efforts. The market itself is still flat-ish in terms of pet household growth. Maybe it is slightly up. Maybe it is slightly down. There are a lot of data points in the market. Let's characterize pet household growth, at least at this point in time, as being flattish. The growth that you have seen at Chewy in Active Customer Growth has really been on the back of the good work that the team at Chewy has done. Specifically, it has been across multiple categories. When you think about Active Customer Growth, you have three elements. You have gross ads, you have reactivations, and you have churn. We have actually made progress across all three of those categories over the last year. We have increased gross ads. We've increased reactivations of lapsed customers for whatever reason. We've reduced churn. How have we done that? One of the ways in which we were able to do that is we kind of rebuilt some of our foundational systems so that we can now target customers much more directly and uniquely to that customer. It's no longer we're identifying a reactivated customer as a customer that's a new customer. We're treating you very different. We're looking at your buying patterns. We're looking at any information that you've uploaded into your pet portal about your pet. We're now able to tailor offerings specific to you. It's not a blanket offer to perhaps a category of people. We are able to tailor offerings directly to you as a consumer, as a parent of a pet. What's driving that? It's really a re so Chewy is firmly in the tech space from a tech stack perspective. Most of our software is first-party. A large majority of the population of corporate overhead is actually engineering. And it's software engineering. It's the ability to write our own systems, to control our own data structures, to be able to take those data structures and be able to then use that data in ways that perhaps if you were on a third-party system, you would be unable to do. That's where we've put a lot of work in. We've put a lot of work in our ability to speak to customers wherever they are. We've put a lot of work in our digital storefront, which has been updated. We've put a lot of work. We've talked about it more recently in our app. If we can convert you to our app, now that engagement has no layer of interference in between. It's more of a direct one-to-one conversation through the app and not through some third-party layer. That becomes even more powerful. Of course, we've gotten very sharp on customer conversion. We've connected kind of the top part of the funnel to the conversion part of the funnel. All those things have come together in Active Customer Growth. To the extent that the pet industry returns to pet household growth of kind of the low single digits, which is what it's been for the last 50, 60 years, that's just additional tailwind to the trends we're already seeing internally. OK. Any differences to call out just in terms of trends by cohort that you've seen more recently? Cohort trends remain very good. To remind everyone, the average pet parent will spend somewhere between, let's call it, $1,200 and $2,500, depending on the size and type of pet that you have. We reported that our NSPAC at the end of fiscal year 2024 was about $578. We have about, rough and tough numbers, about a third of that wallet share. With our oldest cohorts, those cohorts are spending well over $1,000. With our newest cohorts, those cohorts are spending, obviously, at the very low end of the range. You have the NSPAC number kind of there in the middle. Those cohorts have been very consistent. The maturation and the profiles have been consistent. Over time, we have been able to consolidate wallet share. OK, great. Just in terms of somewhat more stable industry trends, I know you talked about it a little bit, that more of the Active Customer Growth driven through Chewy's specific efforts. I guess, what other drivers do you see kind of on the company-specific side relative to more just pure macro execution? Sure. If you take a step back, if you look at Chewy's growth algorithm, there are three elements that drive revenue growth for Chewy. Number one would be pricing. We would characterize the pricing environment as relatively flat. We are not seeing the large inflation that was kind of passed through a few years ago that moderated throughout the course of last year. As we talked about in our guidance, it looks like at this point for fiscal year 2025 that inflationary pressure on pet is going to be relatively flat. Not a lot of pricing benefit flowing through the system. We have talked about Active Customer Growth growing in the low single digits. In 2025, that was the guidance that we provided in late March. We still believe that to be true. We think that's largely on the back of our own efforts, not a return to growth for the industry itself. Finally, NSPAC, this kind of consolidation of wallet. Irrespective of how customers come into Chewy, whether you're coming in and you're buying your consumable, your Pet Food, your Pet Supplies, your Hardgoods, perhaps, over time, we've been able to build trust with those customers. We've been able to consolidate their share of wallet. We continue to grow that NSPAC. Active Customer Growth, low single digits, pricing for this year relatively flat, very low single digits, if not zero. Of course, NSPAC kind of continuing to grow in that mid-ish single digits. That's where you get the guidance for the year that we provided. OK, great. Hardgoods, net sales, return to growth last year, fiscal 2024, after a couple of years of declines. What will it take to drive Hardgoods growth over time? Do you view that part of the market as any more sensitive to macro softness? That part of the market is a bit more sensitive to macro just because it is more of a discretionary purchase. We have seen, at least for Chewy through our own efforts, some green shoots in that part of our business. I think we would characterize this as brilliance in the basics. When you have a Hard good market and it is a discretionary purchase and you have customers that are already on the platform that are purchasing their consumable, you want to present to them a very fresh selection of Hard goods, again, uniquely tailored perhaps to that individual customer. Hard goods for us, at least the more recent term, kind of renaissance for us in Hard goods, has been about refreshing that portfolio of products and then making sure that we're able to present that portfolio of products to the customer at the time of purchase decision. We have been able to make some good headway there. I do not want to draw a line through just a couple of points of a couple of quarters of growth on a year-over-year basis. We are quite encouraged by the trends. OK. On NSPAC, I know you mentioned essentially flattish for this year. We're seeing inflation and then pricing tailwinds kind of. I would say inflation flat, low single digit Active Customer Growth, and then NSPAC kind of low to mid single digits. OK, sorry. Thank you for clarifying. Maybe just call out a little bit of the puts and takes on NSPAC when we think about kind of cohort maturation, cross-selling, new verticals, maybe some map dynamics. If you were to take down or if you were to take our roughly 20.5 million customers that we reported at the end of last year and you were to look at that subsegment of customers, the way you grow net SPAC is you start to introduce those customers to more categories. If that customer comes in as someone that's buying consumables, perhaps dog food, cat food, toppers, bird food, horse food, you want to introduce them perhaps to Hard goods. You also want to introduce them to pharmacy. Only about 20% of our active customers have been introduced to pharmacy. I don't believe we'll get 100% of our customers shopping pharmacy at Chewy. I think it could be a lot more than 20%. When you look at these cohorts and as we consolidate their share of wallet over time, again, the oldest cohorts are spending over $1,000 a year with Chewy. The newest cohorts are spending perhaps hundreds of dollars with Chewy. As customers come into Chewy, we want to make sure that we are presenting to them the full range of products and options that we can offer. Pharmacy is a big part of that. Hardgoods is increasingly a bigger part of that. Private Brands on a longer-term timeline arc becomes a bigger part of that. Of course, where we're very well known is on our consumable side, which is, as I mentioned, about 85% of our business. OK. Let's talk about health care and some of the newer verticals. You mentioned 20% of customers essentially buying on the health care side. Health care overall makes up about 30% of sales, has considerably higher gross margins than core retail. Maybe you can talk about what you're seeing in that business, kind of growth rates, where you think that can go over time. First, I'll start. Let me start at the highest level and kind of work my way down. The trend in wellness for people, that same macro trend is getting applied to pets. That is why you've seen a focus on better foods, healthier foods, fresher foods. You've seen a focus on health and wellness and supplements. You've seen a focus on making sure that the pharmaceuticals that they're getting provided are the right pharmaceuticals for that specific thing for the pet and not like a generic pharmaceutical, so more tailoring for the pharmaceuticals. All the trends that you're seeing for health and wellness for people as you humanize pets gets applied concurrently to pets. This health and wellness category for us, which, as you described, was roughly 30% of revenue, this category for us, which carries roughly 1,000 basis points higher gross margin, is a category that is a long-term tailwind for us. We mentioned earlier that pharmacy, we were the largest pet pharmacy in the U.S. We disclosed that it was over $1 billion at capital markets in December of 2023. It is growing significantly faster than the core business. We continue to extend our offering in that category. We have invested in compounding. We do our own compounding of pharmaceuticals. We actually have these internal pharmacies either near or perhaps even in some of our distribution centers so that we can satisfy your pharmaceutical order as well as your food order or perhaps Hard good order as well. We have the ability to provide to you your pharmacy. We have the ability to provide to you your food. We have the ability now to provide veterinary services in select locations. We are continuing to build out this virtuous cycle of pet ecosystem. OK. Let's talk about vet clinics a little bit. You opened eight vet clinics, plan to add another eight to 10 this year. How is that driving Active Customer Growth? What are you seeing in terms of activity from those visitors to the clinics afterward? What do you see in terms of retention? Right. Obviously, when you look at the broader veterinary landscape, there are about 30,000, slightly more than 30,000 vet clinics in the United States. We have rolled out eight so far last year with plans to kind of roll out eight to 10 again for fiscal year 2025. Our engagement with vet clinics is not just what we are building internally. It is also this broad engagement that we have with vet clinics with our pharmacy offering. Through our Practice Hub platform, we are actually integrated with more than 15,000 of those vet clinics where essentially they can write and satisfy pharmacy orders digitally with a digital script to be able to satisfy those customers. Veterinary services do not just start with what we build. It also starts with those partnerships that we have throughout the entire veterinary services ecosystem. Getting back to the ones that we build, we've had a lot of requests over time to provide vet services to this very loyal customer base that we've spoken loosely about. We started building those clinics. We had some ideas. We thought that we would mostly satisfy only current Chewy customers. We are actually satisfying current Chewy customers as well as a much higher percentage of new customers that are coming into those clinics. Those clinics are satisfying our current loyal base as well as it's a funnel, a sales funnel, if you will, to then talk to pet parents we've never spoken to before. As we speak to those pet parents we've never spoken to before, more than half of them within 30 days go to chewy.com and place an order. Not only are we attracting new customers through our veterinary service offerings, but those new customers, the services and the level of care they were provided was high enough to where they've now developed a relationship with us. They're going back to the Chewy.com platform to order other services and products. OK. Maybe you can talk about unit economics a little bit. I know that was kind of a big discussion at the time that vet clinics were announced, but just in terms of kind of how long it takes to reach scale, some of the dynamics around cost to build. Right. We haven't disclosed exactly what our unit economics are. There are a lot of units in the market. I do think that we can speak broadly about the market, which is what we've done before. If you were to look at kind of the average vet clinic in the market that is mature, you would see revenues north of $2 million. You would see four-wall EBITDAs of around 20%. You would see CapEx investments required to build that clinic of somewhere between $1 million and $1.5 million. That is what you would see if you went to the general marketplace and you looked across veterinary clinics. Again, there are more than 30,000 veterinary clinics. That is what you would see in terms of unit economics. What I would say is that Chewy doesn't aspire to be average in anything that we do. While that's the average of the market, I think you can rest assured that we would not be happy to just be average with the market. OK, great. Chewy Plus membership program remains early. How do you think about it as a conversion funnel into Autoship over time? What should we expect in terms of broader rollout for Chewy Plus? Chewy Plus, for those of you that do not know, is an annual membership program. It is a little under $50 today. It provides the ability to get free shipping with your Chewy orders. There is no minimum value for that free shipping to occur. You also receive 5% back. Of course, you get special offers that come periodically that are kind of curated for Chewy Plus members as well as potentially specific to you. That is the Chewy Plus offering. Chewy is a very scientific method type culture. It is very much a, I observe something in nature. I have a hypothesis. I put together an experiment. I test and learn and then rinse and repeat. We did not roll Chewy Plus out without a lot of testing. The testing went on kind of from, call it, the early part of 2024 all the way through kind of the early part of 2025. The results were quite good. We saw higher engagement with the app. We saw higher frequency of orders. We saw higher average ticket orders. We saw an acceleration of consolidation of wallet. We actually think Chewy Plus with our Autoship program, these programs can live independently. They can also live together. What we have been able to do is we have been able to get what used to be perhaps infrequent customers that were having low ticket orders, they have become much more frequent purchasers. They have started to consolidate share of wallet. Very early days, very, very early days for Chewy Plus. It is on a much longer-term arc over time with respect to when it starts to contribute meaningfully. We're encouraged by the program. We were encouraged enough to roll it out publicly. OK, great. Let's move on and talk about profitability. Chewy expects to expand adjusted EBITDA margins about 60-90 basis points this year. With about 60% of that expansion likely coming from gross margin improvement, how do you rank the drivers in there across Automation, Sponsored Ads, New Verticals, and then just overall Cost Discipline? OK. Let me actually provide a little context, go back in time just a little bit. You go back in time to 2023. EBITDA margins were sitting a little north of 3%, 3.3% if memory serves. We were at Capital Markets Day. We were talking about our path to 10% EBITDA margins. I think there was a great desire from both the internal community as well as the external community to help chart that path. How do we chart that path to 10% EBITDA margins? Perhaps there was a little bit of skepticism along the way. In 2024, we delivered 150 basis points of EBITDA margin expansion on a year-over-year basis. We went from 3.3% to about 4.8%. About two-thirds of that, or roughly 60% of that, was driven by gross margin expansion. The remainder through OpEx leverage through the P&L. We guided for this year that at midpoint, we guided 5.4%-5.7%. Midpoint of 5.5%, call it roughly 80 basis points of year-over-year expansion of EBITDA margin this year with a similar profile of contribution. About two-thirds gross margin and one-third OpEx leverage. The drivers of that will be the continued expansion of Sponsored Ads. It will be the continued product mix shift into higher, more accretive categories like Health and Wellness. It will be continued fixed cost leverage that we get through the system, the topology of the network, the freight and packing, shipping, et cetera, that we talked about, that network very early in the conversation. That is where the growth through gross margin will come. Of course, your OpEx leverage. We are leveraging those first-party systems that I mentioned. We're going to continue to leverage the automation that we're building throughout the company. There is just a very maniacal focus on making sure that as we allocate our capital and our dollars that we're getting the highest return, irrespective of where it fits exactly geographically on the P&L, that we get the highest ROIC on those dollars. We feel quite good about our ability to deliver EBITDA margin. We feel quite good about the trajectory that we're on to ultimately get to that long-term target of 10%. The team's done a lot of hard work to start to prove out that we can get there. OK. Sponsored Ads, about 1% of sales. The 1P ad stack should ramp through the course of this year and then support new channels and formats, more off-site video, better measurement, easier onboarding. What's the path to get Sponsored Ads to 2%-3% of net sales over time? I think we have all the elements now just to execute. In 2023, we were building out the Sponsored Ads team. We were doing a lot of manual work to start to take Sponsored Ads and be able to work with our supplier partners and take their media and their content and be able to kind of manually port it onto our site. That was late 2023. In 2024, we were using a third-party system. It was good, but it was not what we needed to be able to be efficient with respect to onboarding our suppliers. It did not have a lot of those elements that you just mentioned. We could do on-site, but we could not effectively do off-site. We could do static media. We were not able to do video content or dynamic content the way we wanted to. We built our first-party system throughout 2024. We launched it in early 2025. Now it's about execution in 2025 through the remainder of the year. OK, great. Beyond Gross Margins, you talked a little bit about Automation. Maybe you can just talk more about a little more update on Automation, kind of where the company is, but also just where do you see other opportunities to drive incremental SG&A Leverage? How variable is the current expense base? When I think about Automation, what immediately comes to mind is our Fulfillment Centers. You have these Fulfillment Centers, this topology of network that's across the United States that's located in areas where we have dense areas of pet parent and pet parent consumers of Chewy Products. We are able to make that last mile efficient. We are automating those networks. When we do automate those Fulfillment Center networks, so a 2G or Second Generation versus our First Gen, we're getting about 30% more out per sq ft of space. It is significantly more productive. The current network is about three-quarters utilized today. There is plenty of capacity within the network. Of course, you can do discrete automation of the first-generation facilities to then produce even more output and more efficiencies and more fixed cost leverage. With respect to the other lines of the P&L, like others, we have some AI initiatives across the company. Those initiatives are early in their maturity. Being able to manage 115,000 SKUs with all of the content that those SKUs consume, so the photos, the product listing pages and descriptions, being able to onboard suppliers. There are a lot of areas both within all the functions, but also on some of the customer-facing portions where you can utilize today's tools and LLMs to be able to have a much more seamless and a much more rapid in terms of update product that is presented to the customer. OK. Chewy continues to opportunistically repurchase shares. Maybe you can talk a little bit about the capital allocation philosophy going forward. Yeah. So when we talk about EBITDA, it's very high-quality EBITDA. 80% of it's converted to free cash flow. We generated a significant amount of Free Cash Flow last year, which we returned to shareholders. About $950 million was returned to shareholders last year. We were able to purchase a significant piece of shares from our sponsor that's selling down BC Partners. We made great progress there. We continue to generate a lot of Free Cash Flow and expect to convert more than 80% of our EBITDA to Free Cash Flow into the future. I think we have the full menu card of options in front of us with respect to capital deployment on a go-forward basis. OK. All right. Quick word association? OK. All right, cool. First thing that comes to mind. Active customers. Auto-ship. Health care. Accretive. Nesbek. Wallet share. That might be two words, but. Macro. Stable. AI. Opportunity. Vet clinics. Services. Gross margins. Growing. Free cash flow. Strong. Auto-ship. Sticky. And pets. Parents. All right, cool. Leave it there. Thank you, David. Cheers.