Greetings, ladies and gentlemen, and welcome to PetIQ's second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question- and- answer session will follow the formal presentation. Should anyone require operator assistance, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Ms. Katie Turner. Good afternoon. Thank you for joining us on PetIQ's 2021 second quarter earnings conference call and webcast. On today's call are Cord Christensen, Chairman and Chief Executive Officer, Susan Sholtis, President, and John Newland, Chief Financial Officer. Michael Smith, Executive Vice President of the Products Division, will also be available for Q&A. 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, including adjusted gross profit, adjusted SG&A, adjusted net income, and adjusted EBITDA, among others. 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 to the most comparable measures prepared in accordance with GAAP. In addition, PetIQ has 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 second quarter financial results. Today, I will begin with an overview of our strategic business and financial highlights. Susan will provide greater detail on our services segment, and John will review our financial results. Finally, Susan, John, Michael, and I will be available to answer your questions. We generated record second quarter results demonstrating the strength of our diversified pet products and services offering. It was our highest net sales quarter, the best gross profit dollar and gross margin quarter, as well as our highest Adjusted EBITDA quarter in the history of the company. We accomplished this even as we continue to operate in a dynamic environment where we are still experiencing impacts from COVID-19. Prior to going through the results, I want to remind everyone that the second quarter was a very unique quarter for the company last year and this year. Last year, we had significant one-time sales increases when pet parents purchased more of their pet prescription drug products via our e-commerce partners due to stay-at-home orders and our services segment had all community clinics and wellness centers closed. Year-to-date, COVID had additional anomalies that have affected the timing and overall results for the quarter. Our e-commerce customers purchased inventory in Q1, anticipating Q2 volumes closer to the second quarter of last year. When the veterinarian channel reopened, our e-commerce customers returned to their pre-COVID growth rates, still very strong, but much less than last year. This caused them to have excess inventory from the Q1 purchases. Based on these fluctuations, we think it is important for you to take into account the one-time nature of volume in 2020 and look at our year-to-date and 2019 performance to accurately see our results and growth. Q2 net sales increased 1.5% to $271 million. Year-to-date net sales increased 15.8% to $525.4 million. When you compare our year-to-date net sales to the same period in 2019, our net sales increased 42.3%. Adjusted gross margin expanded 570 basis points and adjusted EBITDA of $34.4 million increased approximately 21% year-over-year. Our team has done well to execute on our strategic objectives to ensure we are serving pet parents and their pets where and when they need it to fulfill their pet health and wellness needs. Taking a closer look at our product segment, sales were pressured in the quarter by the impact of a pull forward of flea and tick seasonal programs to Q1 from Q2 this year, representing approximately $15 million in net sales. Along with lapping unusually high sales in the second quarter last year from the benefit associated with a shift in mix of sales to the e-commerce channel from the veterinarian channel due to COVID-19 and more pet parents purchasing prescription drug products online. However, when looking at our year-to-date results, you see a clearer picture of our performance. For the first six months of 2021, our product segment increased 9.8% compared to the same period last year. This growth rate is even more impressive when you consider that it is against record volumes associated with the channel shifts that occurred in 2020. Taking this a step further for comparison purposes, we also wanted to look back to the first six months of 2019 in a pre-COVID environment. Our product segment net sales increased 47.5% for the first six months of this year on a two-year stacked basis. From a mix standpoint, our business in the quarter consisted of 72% distributed and 28% manufactured sales. This compares favorably to our Q1 mix of 77% distributed and 23% manufactured sales, and to our 2020 mix of 75% distributed and 25% manufactured sales. This shift in mix towards our own product portfolio drove a significant increase in our overall profitability. Adjusted EBITDA margin expanded 400 basis points to 19.8% from the second quarter last year. Our strong margin profile played a key role in the product segment, delivering better profitability than we expected for the second quarter, even with the slightly lower net sales. Our product sales mix trend of approximately 72% distributed and 28% manufactured sales is more indicative of our go-forward sales model, which we expect to maintain in the second half of the year, helping us to sustain the higher product segment EBITDA margins than we delivered in Q2. PetIQ participates in several of the largest and fastest-growing categories within the pet industry, such as flea and tick solutions, along with health and wellness. Our team's emphasis on winning in both brick and mortar retail and e-commerce continues to pay off as we have seen strong share gains across our manufactured products in both channels. For the 26 weeks ended June 19th, 2021, the PetIQ portfolio gained 85 basis points of share within flea and tick. This share gain was led by our brand PetArmor, which was up 13% for the same period. As for health and wellness, we also gained 21 basis points of share as the robust growth in the category continues. This segment increased 41%, while our portfolio increased 46% over the first six months of the year. We believe these share gains will accelerate in the back half of the year as we start to ship new programs across the market, leveraging our assets in this space. Shifting to our services segment, recall in Q1, we noted that our services business reached a very important inflection point where we saw headwinds from the pandemic starting to abate. We continued to see sequential improvement in our results in Q2 from Q1 with the reopening of our wellness centers and mobile clinics as compared to the prior year when we were closed due to COVID-19. Service segment net revenues increased 15.9% compared to the first quarter of 2021. This growth was partially offset by running fewer than expected community clinics as a result of labor shortages. While our rate of absenteeism improved and resulted in low single-digit closures week to week based on COVID-19 related illnesses, a new issue, labor shortages, began to translate into an unexpected number of closures as we started to plan for a more normalized pre-pandemic community clinic schedule. For example, in the second quarter of 2019, we ran nearly 17,500 community clinics versus approximately 15,100 community clinics in the second quarter this year. The number of community clinics open was down mid-teens on a percentage basis compared to our expectations for the second quarter. This impacted both our net revenue and profitability in the quarter as the missed revenue from the community clinics we were not running reduced our overall operating leverage in the quarter. While services segment adjusted EBITDA increased 42.9% compared to the first quarter of 2021, we estimate that the services segment would have contributed to the second quarter an additional $12.6 million of net revenue and $5.1 million of adjusted EBITDA due to COVID-19 related impacts to the company's community clinics and delay in wellness center build-outs. For the first six months of the year, we estimate that the services segment would have contributed an additional $20 million of net revenue and $7.7 million of adjusted EBITDA when taking into consideration the same impacts. While we expect the labor situation to continue near term, we believe our services segment will make sequential improvements in all key areas impacted by COVID. This includes improving sales and operating performance in Q3 and for Q4, similar to the improvements we've generated the last three quarters. Importantly, our services segment community clinics and wellness centers that are open are delivering the strongest KPIs in the company's history. This gives us a ton of confidence in our model and how valuable it is to pet parents across the country. We believe that our mission of delivering smarter options for pet parents to help enrich their pets' lives through convenient and affordable access to veterinarian products and services is more important than ever, and we expect our differentiated position in the animal health industry will continue to fuel our long-term growth. From a balance sheet and cash perspective, we continue to have ample liquidity and financial flexibility with our cash on hand, cash generation, and existing availability under the new credit facility we entered into in mid-April to support our future growth. Our outlook for the year remains suspended due to uncertainty from continued COVID-19 related impacts to our business. As I've stated on calls previously this year, our internal budget for 2021 reflects approximately $950 million in net sales and over $100 million in adjusted EBITDA, with the only significant variable to this plan being potential ongoing headwinds from COVID-19 affecting the company's services segment. To date, we estimate headwinds to our services segment have impacted our 2021 net sales by approximately $20 million and adjusted EBITDA by $7.7 million. Similar to years prior, Q2 represents our largest net sales and adjusted EBITDA quarter. Keep in mind, we begin to lap the addition of Capstar this month or in August of this year. We continue to maintain great visibility into our product segment and expect to generate another year of significant margin expansion, demonstrating accelerating profit leverage of PetIQ. Looking ahead, we believe PetIQ remains well positioned to capture a disproportionate amount of the pet industry growth as we move forward with our vertically integrated product manufacturing and distribution platform and a national footprint of convenient and accessible veterinarian services. We expect to continue to benefit from rising pet adoption, increases in dollar spend per pet, and an emphasis on affordable, convenient pet healthcare. All great industry tailwinds for us. Before I turn the call over to Susan, on behalf of the entire team at PetIQ, I'd like to thank John Newland for his seven years of service as CFO and wish him well in his future retirement. John has been an important member of our executive team, having successfully helped us transition our business from privately held to publicly traded company. John's expertise and contributions have been significant to our efforts to grow products and services business, drive sales, and expand margins. John will remain in his role as CFO through March 31st, 2022, to ensure a smooth transition, and we have initiated an executive search to identify a new CFO. With that overview, I'd like to now turn the call over to Susan. Thank you, Cord. Our second quarter results demonstrate that the fundamentals in our services business are strong, and we believe favorable pet industry tailwinds, as well as our unique position in the market, will help to fuel our future growth. Today, I will focus my commentary on our results versus Q1 of this year and the second quarter of 2019, prior to the pandemic, since all of our veterinary wellness centers and mobile clinics were closed in Q2 of last year. During the quarter, the states we operate in more fully rolled back their COVID-19-related restrictions, with the most relevant to our business being the state of California in mid-June. While the health and safety of our employees, retail partners, pet parents, and their pets remain our top priority, we scaled back almost all of our pandemic-related protocols consistent with local and/or state requirements. We are pleased with the continued improvement in our KPIs. The services segment generated sequential improvement in both revenue, adjusted gross profit, and adjusted EBITDA. Net revenues increased 16% and adjusted EBITDA increased 43% compared to the first quarter of 2021. This doesn't include the estimated contribution to revenue and adjusted EBITDA that Cord mentioned had we not experienced COVID-19-related impacts. When compared to the second quarter of 2019, net revenues increased 9%. Adjusted gross profit was 29.7%. This is the third quarter of significant improvement and up from 15.9% in Q4 of 2020 and 22.9% for Q1. We expect to continue to improve and are on track to get back to our 39.4% adjusted gross profit we delivered in Q2 of 2019. Our growth in Q2 was partially offset by running fewer than expected community clinics as a result of the labor shortages Cord mentioned and not yet taking any price increases to reflect the higher wages being experienced across the industry. We expect to take a price increase for our services business beginning September 1st to help offset the wage-related cost pressure. Importantly, we've also benchmarked our sequential growth versus the veterinary service industry to better understand how we're doing. Using VetSuccess data, we know that veterinary service revenue grew 13% from Q1 to Q2. We are pleased to have grown more than the industry for the same period. Veterinary service volume or pets grew 8%. For the second quarter, our pets increased 15% from Q1. In addition, both our pets per clinic and dollars per clinic grew double digits. We believe these are all great signs that the services business is growing and meeting the needs of providing convenient, affordable services to our pet parents. During the quarter, we continued to roll back our pandemic procedures and protocols. As a result, we started to see greater operating efficiencies as we reduced added COVID-19-related expenses. Second quarter adjusted EBITDA margins improved 220 basis points versus Q1 of this year. We expect to continue to drive margin improvement in the second half of 2021. Our team stepped up the number of new wellness center openings in the quarter with the addition of 47 new wellness centers in Q2. This brings us to a total of 60 new wellness centers for the year. I want to take a moment to focus on our greenfield wellness center openings in more detail. You'll recall we opened 46 greenfield wellness centers in the fourth quarter of 2019. This was during the winter season and just prior to the pandemic. We also collaborated on these locations with our retail partners, including the site selection and marketing execution. But only a few months into the opening, we had to close all of these greenfield locations, along with the rest of our services operation, due to COVID-19. Now, fast-forward into the second quarter of 2021, which represented the first time these 46 locations were open during a peak season. We are pleased to report that the performance of these wellness centers accelerated exponentially in Q2, doubling the highest pet count ever achieved in any greenfield location since their launch in 2018. Much of this success can be attributed to partnering on the location selection and targeted marketing efforts executed by our PetIQ and retail partner marketing teams. Keep in mind, our greenfield centers start with no customer base and no consumer awareness. Our marketing objective is to be where the pet parents are. To accomplish this, we've ramped up our efforts in both geo-targeted location services and paid search. Location services and paid search campaigns work together to ensure VetIQ locations are consistently presented and easily found. To further drive pet count, we've increased our investment throughout peak veterinary services season, and this has resulted in a four times increase in pet-owning consumer intent actions like find a vet location and get vet directions. These intent actions result in pet parent acquisition, and we've proven this by evaluating and improving the correlation between paid search and an increase in pet count. The Greenfield Wellness Center success has prompted us to open more with our Greenfield retail partners. We are excited to announce one of our partners offered us a significant entry and expansion into Texas, which is one of the strongest veterinary service markets. We will look to add locations in this state later this year. Our conversion locations also continue to perform well with all locations coming back in line or exceeding pre-COVID pet count levels. However, the new conversion locations are running behind our plans for the year due to retail partners starting to build out of wellness center locations later than expected due to COVID-19. For the second half of the year, we expect approximately 30 of our conversion locations to shift into the first half of 2022 due to these build-out delays associated with COVID-19. Based on the new incremental opportunity we have with greenfield locations and the shift in timing of retail location conversions, we now expect our build-out schedule for 2021 to shift to 60% greenfield wellness centers and 40% conversion. This is the inverse of prior plans to open 60% conversion and 40% greenfield locations. Importantly, the timing of the build for our greenfield locations is within our control. We continue to target our total wellness center build-out for 2021 to be in the range of 130 -170 clinics. In Q2, our team also continued to connect with pet parents virtually. Call volumes have doubled in the first half of the year compared to both 2019 and 2020 totals. In addition, our telehealth calls grew again in Q2 by 5% versus Q1, with most pet parents seeking advice about their pet's health and wellness. Importantly, over 40% of the telehealth calls we receive are not current PetIQ clients. We've launched a nurture campaign to encourage these pet parents to become clients. As I've mentioned the last two quarters, there are two initiatives we continue to drive and monitor. Our first initiative is focused on attracting new pet parents. In Q2, over 50% of pet parents that utilized our services were new to PetIQ. Recall, we also experienced a similar rate of new pet parents using our services in Q1. Pet parents are coming to PetIQ for two reasons, affordability and convenience. Our second initiative is focused on our SmartCare Wellness plans, which we launched nationwide in Q1. Pet parents using our SmartCare Wellness plans pay a monthly $25 subscription fee and have access to unlimited visits and discounts on annual services, routine care, and products. We remain pleased with the initial traction of this plan, with over 6% of pet parents choosing to purchase a plan. SmartCare Wellness plans provide pet parents an affordable way to care for their pet annually for a low monthly fee. Another benefit to our SmartCare Wellness plans is that we generate three times our average ticket when pet parents are on this program. We believe this is a compelling offer for pet parents and a unique way for us to create a longer-term relationship with them and their pets. In closing, I would like to highlight some relevant pet industry data from a report recently issued by the AVMA. At the recent U.S. Animal Health Innovation Conference, the AVMA reported that U.S. veterinary visits were flat year-over-year in 2020, and vet practice revenues increased 7.5% compared to 2019. The report stated that this theme continued into 2021, with veterinary visits declining 1% year-over-year and revenues increasing by 8%. The AVMA reports the majority of this growth in revenue came from existing clients, which are opting for more high-value veterinary care. Why is this important? Once again, over 50% of our pet parents in Q2 were new to PetIQ. Full-service veterinary clinics are incredibly busy managing complicated pet medical issues. PetIQ's sole focus on wellness services helps relieve that pressure. We believe this trend will continue through the balance of this year and into the future. We also believe that PetIQ is uniquely positioned to meet the needs of pet parents who are looking for convenient, affordable wellness services. With that, I'll pass the call over to John. Thank you, Susan. I will now focus on our second quarter financial results in more detail. The company generated record net sales of $271 million, an increase of 1.5% on top of a strong Q2 last year. When compared to Q2 of 2019 during a pre-COVID year, net sales increased 22.8%. This increase was driven by services segment growth, partially offset by a reduction of product segment sales. The slightly lower product segment sales for the quarter was caused by a reduction of approximately $15 million from a shift in the timing of a seasonal flea and tick product sale to the first quarter from the second quarter of 2021, and lower prescription drug sales as we lapped high growth in Q2 last year associated with strong e-commerce sales due to the closure of veterinarian clinics during COVID-19. In addition, we estimate that the services segment would have contributed to the second quarter an additional $12.6 million of revenue without any COVID-19 related headwinds to the company's community clinics and delay in the wellness center build-outs. Looking at our results for the first six months of this year, net sales were $525.4 million, an increase of 15.8% compared to the same period last year. This removes some of the quarter-to-quarter shifts in the timing of our orders and demonstrates the underlying fundamental strength of our product segment. On a two-year stack basis, our net sales for the first six months of 2021 increased 42.3%. Second quarter gross profit was the highest in the history of the company at $59.6 million, an increase of 41.4%, resulting in record gross margin of 22%, an increase of 620 basis points. We achieved these record margins despite an estimated 200 basis point temporary headwind from COVID-19 related impacts in the services segment. Adjusted gross profit was $63.6 million, and adjusted gross margin was 24% for the second quarter of 2021, representing an improvement of 630 basis points when compared to the same period in the prior year. General and administrative expenses for the second quarter of 2021 were $43.1 million, compared to $38.4 million in the prior year quarter, an increase of $4.7 million. The increase was driven by higher amortization on our asset acquisitions that occurred in 2020, the largest being Capstar, as well as increased stock-based compensation expenses and an increase in selling and marketing costs for both products and services segments. adjusted general and administrative expenses were $37.5 million compared to $24.6 million in the prior year period, an increase of $12.9 million. As a percent of net sales, adjusted SG&A was 13.8%, an increase of 460 basis points compared to the prior year period. Our higher mix of sales from manufactured products and their strong gross profit margin helped us achieve adjusted EBITDA of $34.4 million, an increase of 21.4% compared to Q2 last year. For the second quarter, our consolidated adjusted EBITDA came in better than our plan. Adjusted EBITDA margin increased 210 basis points to 12.7%, compared to 10.6% in the prior year period. As we mentioned on our Q1 call, there was a shift in the timing of seasonal flea and tick sales that carried earnings of $1.5 million, as well as R&D expense of $2.5 million. While the shift in timing benefited Q1, it reduced our Q2 adjusted EBITDA by approximately $4 million. When looking at our adjusted EBITDA of $61.2 million for the first six months of 2021 compared to $42.8 million in the same period last year, it removes the noise and demonstrates a strong 43.2% year-over-year increase. On a two-year stack basis, adjusted EBITDA increased 93% compared to the first six months of 2019. Services segment adjusted EBITDA increased $1.9 million from Q2 last year to $3 million. We estimate that the services segment would have contributed an additional $5.1 million of adjusted EBITDA if all existing services locations did not have COVID-19 related impacts in our second quarter. Turning to our balance sheet and liquidity, as of June 30th, 2021, the company had cash and cash equivalents of $27.2 million. Our long-term debt balance, which is largely comprised of its revolving credit facility, term loan, and convertible debt, was $454.6 million as of June 30th, 2021. The company entered into new $425 million credit facilities, replacing existing facilities in April 2021. The new credit facilities provide more favorable terms, including a 125 basis point decrease in the company's annual interest rate on its term loan and greater flexibility to support future growth, representing total liquidity of $137.2 million as of June 30th, 2021. Working capital increased to $218.1 million as of June 30, 2021, primarily as a result of working capital increases in AR and inventory, given the seasonality and success of the business. We believe our available liquidity, consistent contribution from the product segment, and significant improvement in the services segment positions the company to drive free cash flow and build cash in the quarters ahead, as well as opportunistically pay down our debt. Finally, I would like to thank the board of directors and everyone at PetIQ for making the past seven years so rewarding. It's been a privilege to work alongside such a talented and dedicated team. I look forward to working closely with Cord and the rest of the team during the transition. With that overview, Cord, Susan, Michael, and I are available for your questions. Operator? Thank you. Ladies and gentlemen, we will now be accepting a question- and- answer session. If you would like to ask a question, please press star, one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star, two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from the line of Stephanie Link with Jefferies. Please proceed with your question. Hi, this is Blake on for Steph. Thanks for taking our questions. On the product sales, I just want to make sure, that was in line with your expectations for the quarter? I know you had the Q1 pull forward and the e-com comparison. How did those compare versus your expectations for the quarter? Yeah. I think, Blake, thanks for the question. This is Cord. We all were in the position, retailers and us as a supplier to the market, with trying to project what percent of the one-time business that came over from the e-commerce channel was going to be retained this year. Both they and us estimated a higher percent was going to stay and not return to the vet channel. It's a little bit below what we expected it to be. However, it is virtually no margin. It is our lowest margin category by far across the company, and it's one of the reasons you saw, as our manufactured items did better than we expected, us make up the margin dollars and ultimately be in line with what we expected from an EBITDA perspective for the quarter. Sales were soft for that reason. That's why we gave the comparison for the year-to-date numbers, to get rid of the inter-quarter transfer of volume. Also gave you a stack against 2019 for the same period, just to see how significant the one-time business came over from the vet channel when that was closed during COVID. Got it. That makes sense. On the product margin, that was really strong in terms of manufacturing split. It sounds like you think that 28% is sustainable for the second half. Just to make sure, what all was driving that increase faster than you originally anticipated? It sounds like a large part of that was maybe the lack of e-com returning. Anything else in there you'd call out? Yeah, I think the mix, obviously being less product sales and distribution, is going to naturally give you some of that mix transfer, which accounted for a small part of it, not all of it. The rest of it is, as we discussed in our script and our release, we're still gaining share. We've been running our manufactured business in a very positive way. We've seen share gains, and the share gains are coming through in our highest margin items. That led to us having that increase. We do believe we'll see a very similar trend moving forward. Obviously, it's impossible to say the exact amount, but from what we're seeing right now, we believe it's indicative of our future mix and our future margin profile. That makes sense. Last one. It sounds like you're taking a price increase in services. That's just for the services segment. Are you planning anything for the product side at all? Michael, do you want to take that? Just on the line. Some technical difficulties with the other speaker line. We're getting them right back now. Blake, can you hear me? Yes. Yes. Just a moment, we're getting the other speakers back on the line. Just one moment. Okay. I guess we lost some people. Just a second. No problem. I'll get started with the answers that are being added, but we've seen inflationary things across the business for the first half of the year, more than we've ever seen it. It's on both the services segment and the product segment, which is also a very positive sign to how well we're doing with our manufactured items to absorb those costs and deliver the numbers we delivered this quarter. We are preparing to take price increases to take care of those inflationary cost changes, with the likelihood of those cost increases being put in place at the first of 2022. We think that based on our seasonality of our business and what's going on, the right decision is for us to let our retail partners know that they're coming, but have them be effective the first of the year, which will be something that'll add incremental margin to the company. But we definitely included these numbers. We've had the same increases you've been hearing from everybody else, where both the product side and the services side has seen costs and our cost of goods up pretty significantly. Great. Thanks a lot. The speakers have rejoined. I think we're ready for the next question. Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question. Hi, good afternoon. Good afternoon, Brian. My first question, Cord, just with regard to the product sales, and I think it's a bit of a follow-up to the prior question, but we're recognizing there's a lot of moving parts right now. It's a very fluid backdrop. Should we look at the Q2 number as temporarily depressed, given some of these dynamics? Is that more of a run rate type number, more of a normalized number? Well, Brian, I think Q2 by itself is an anomaly. We're comparing to a very odd quarter last year where we saw explosive growth in the product business as the vet channel was closed. In this quarter, we're seeing the other anomaly that the retail partners that we worked with that had those sales ordered very heavily in Q1, and they also had that slide for the flea and tick numbers. Obviously when the sales return to their normal growth rates, you're not going to absorb with that much inventory. The higher projected volume means we ship more in Q1 than was needed for Q2, and they had to balance that out. It will work itself out to where we saw Q3 and Q4 people return to more normalized purchasing, and we didn't have the significant increase that we had in those quarters from the second quarter. You should see more normalized comparisons to the prior year on the product business. Q2 definitely was an odd one for that purpose I just explained. Got it. Okay. That's helpful. I guess my second question is probably more for Susan, just with regard to the service business. You mentioned the shift in composition more to greenfield from conversion. I guess I want to understand better what's actually driving that, and then how should we think about any economic differences as that shift is occurring? Meaning the economics of a greenfield versus a conversion. Yeah. Hi, Brian. Can you hear me okay? Yep, I can hear you fine. Okay, good. I think we've had phone difficulties, so I just wanted to make sure. A couple different things. I'll start by talking about, we started to see very compelling data coming out of first quarter and into second quarter. So, two different pieces. Number one, we've been sharing with our retail partners some data that we've compiled that first of all says that 40% of PetIQ parents are new shoppers to the retailer. For them, it's a great insight to help to drive traffic into their stores. The second piece is that they spend on average 1.6 more per visit. Again, another great reason to bring us in and to collaborate with us on these clinics. Anyway, the greenfield clinics, interestingly, as I explained on the call, we started to, as we came into this season, this is really the first season that these greenfield clinics have seen because we've been in and out of COVID and in and out of seasons, and our pet counts just ramped. They ramped, but they ramped, I think, for two different reasons. Number one, because remember, these are the clinics where we started making selections in collaboration with our retail partners. We put them through the metrics or through the diligence that we drive on our side, which shows the locations along with those retail partners, number one. Then number two, we've really dialed in our digital marketing, and we have geo-targeted these locations, not only through paid search, but also through geo-targeted location services to be able to drive people to those centers. I would say that in short, which I realize I wasn't there for a minute, we're driving pet count. We're driving pet count, and we're driving pet count in very similar rates to what we're seeing with conversions. I want to caution you for a minute because we're six months in. Again, the ramp that we're seeing in pet counts are very similar to conversions, and I don't see that stopping now. Got it. I think, Brian, it's important. We believe the greenfields get to the same economic benefits. We previously have had a more guarded projection of them not getting there for the first 18 months, where we think the conversions get there much faster. But we're excited about them. We have our retail partners are leaning in, bringing us locations. If you remember the greenfield locations, we control the construction and the entire process from end to end. We're not dependent on our partner to deliver the location. This year, we are going to do more greenfield locations to keep on track with our store opening plans for the year. We still believe overall we'll end at 1,000 stores. When we get to 1,000 stores, it'll still be a 60/40 split, just the conversion locations are going to be a little heavier in the out years now that they've had a little slower start coming out of COVID. That's the best way to explain it, I think. Yeah. What I'm hearing you say is that the dynamic right now is that the greenfield locations are ramping quicker than you initially thought, which is I think, clearly a positive, and that's why you're going a little further into those. Yeah. Absolutely. We have control over the construction to keep our teams that are ready to work, working, and we can get stores open and start that progression process because we do believe that's important to get the stores open, let them have that 18 months to get to their run rate. Brian, I would add one more thing. Really the added pebble on the scale for us was Texas. I'm bullish on Texas. Texas is an incredibly fantastic state for veterinary services. We're excited about the state of Texas. One last thing, John. Congratulations. Look forward to working a little bit longer, but congratulations on your retirement. Yeah. Thanks, Brian. You're not done with me yet, but, thank you. Thank you. Thanks, everyone. Our next question comes from the line of Elliot Wilbur with Raymond James. Please proceed with your question. Thanks. Good afternoon. Cord, just with respect to your commentary around the drawdown of inventory in the e-commerce channel, do you have a sense that we've reached the full extent of that this period? How easy is that for you to gauge from your position? If there's any color commentary you could offer in terms of what categories may have been impacted more than others, specifically thinking parasiticides or health and wellness, if that drawdown was any more concentrated in one of those key categories. Elliot, you haven't had the chance to meet Michael Smith. He runs our product division. He's in the data very deep. I'll let him answer your question. I think he'll give you a more thoughtful response to your question. Yeah, I think, the short answer is we're in a much better position today than we were five, six weeks ago. That's as a byproduct of a couple things. One is, clearly, there's been some softness to the season and the year versus what we had expected. As we got into the month of June, and then especially in the month of July, we saw a rebound in consumption, which helped draw some of that inventory off, in addition to some more aggressive tactics that some of our retail partners have been deploying to make up as much of the dollars in the category that they can, as there is still some season left to be captured and gained. If you look at consumption in the month of July, and if you look at how they've come back behind and started to order to replenish the strong consumption, the signal's pretty clear that they are in need of inventory again and no longer burning off. For those customers who do share their on-hand data with us, that's also a much clearer picture, getting to normalized inventory levels and normalized weeks of supply and coverage for the category. That's specifically in flea and tick. If you look at some of our other categories in health and wellness, inventory has been very healthy and not a concern. Flea and tick, e-commerce specifically, that's where the challenges have been. As we look at consumption and inventory levels through July, we feel we're in a much healthier position. Okay. Thanks for that response, Michael. It sort of leads me to my next question. There's been a very strong launch in the vet market within the flea and tick category, with triple-action product. Do you think that had any impact in terms of drawing business back into the vet channel versus OTC or e-commerce? Yeah, I don't think it was a big draw from that standpoint. I think just in general, stores were reopened and any almost veterinarian that had an hour available to see somebody had a pet waiting to be seen. I think in general, consumer demand in the quarter, the vet channel reopened. That product's done extremely well. When you look at the vet channel overall, they're on a unit basis, fairly flat year-over-year on unit consumption. There's been some share shifting between the bigger animal health companies in that category because of how well that product's done from a launch perspective. We have that item available to us. We use it. It's also very expensive, so it's a narrow customer base that buys it. I would not think that would be a direct correlation to what we're talking about here. This is literally the Rx category over-purchasing last year because they were closed and now just normalizing, balancing back out. Okay. As a follow-up, Cord, I guess based on the trends this quarter, would that have any impact on your ability to realize your prior expectation in terms of the EBITDA contribution from Capstar? No. I think, what we have right now in our trends, and we're very close to our numbers for the back half of the year, we expect the product division, despite this miss in sales, will be able to deliver its full margin contribution and EBITDA contribution for the full year. Capstar's performing well. Again, gaining share. I think we said in our statement that even though the flea and tick season's been a little bit off this year, our PetArmor item is up 13% overall, which is strong compared to the other brands. We feel good about the full year contribution coming through. Again, these Rx sales are virtually no margin contribution to the company. It's a good thing to have, but it doesn't affect our profitability. Okay. And then last question, just with respect to the indications of labor shortages on the servicer side. Could you just talk a little bit about what you think is the primary driver behind that? Is it just reluctance to get back out into the workforce, or is it just excess demand for one's services? Just trying to think about what the dynamics are going to be that sort of change that in the near term. I think, the first thing I would say is we have been ramping our schedules back up to pre-COVID level of clinics. If you remember our community clinics, we judge based on each day as an event, and we typically, this time of year, we would have scheduled 17,800+ clinics for the quarter. When it came us to cross over that kind of 15,000 clinic mark and get back those levels, we saw that there was a labor shortage, and we were having a difficult time staffing those clinics. We have a bunch of different things that we think are causing it. Some of it is just people that don't want to work in this environment. We have a labor pool in our community clinics that is predominantly made up of 1099 contract labor. I think in this environment, they've chosen to be less engaged. We are reaching out to all of them. We're aggressively recruiting against them, and we're getting the feedback that they definitely want to get back to work. They're just not comfortable just yet. We're very comfortable that we're going to get back to the same levels as set, at some point, but right now it's been more difficult. Susan, anything else you'd like to add to that? Yeah, I would, Elliot. If you remember our community clinic model, we have a veterinary pool of a 2,000 veterinarians, and we still have that pool today. That pool has not gone away. The difference is COVID and the environment. We sent a survey out to all 2,000 of those veterinarians that are currently in our vet pool. First of all, resoundingly, they all said that they would recommend us to a friend. We've got a nice, solid pool of veterinarians that are still there that still want to come work with us and would recommend us to a friend. They have simply pulled back on the number of clinics that they operate because they're working incredibly long, stressful hours in their full-service practices. If you think about it, just the news that you're hearing out there about vet clinics and our veterinarians out there are not working eight-hour days anymore. They're working 12-hour days, and they're days with really long, complicated cases, with angry clients, et cetera. At the end of the day, what they've chosen to do right now is to reduce their hours with us while they get through those days. I think that we need to see some pressure be relieved on those full-service practices for people to start coming back and making some extra money with us. Okay. Thank you. Thank you. Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question. Good afternoon, everybody. First question, on the budget for the year at $950 million in sales and $100 million in EBITDA, I think that language in the past, and correct me if I'm wrong, may have suggested that there could be a COVID headwind in the range of $15 million to sales and $5 million to EBITDA for the year. It sounds like that may have grown, given what you've talked about here today. How do we think about the full year in the context of that budget impacted by COVID in the first half and the ongoing impact in the second half at this point? Yeah. Jon, thanks for the question. I think if you remember, we talked about the product business being an $800 million budget and our services business delivering a little over $150 million in sales for the year, and the services business delivering right at about $15 million of the EBITDA on that over $100 million of the plan. You are accurate that year-to-date, against that $150 million budget, we are $20 million light on sales, and we're $7 million light on EBITDA contribution from that organization. Right now, that number has gotten larger because, again, it was in the second month of second quarter that we saw the labor shortage kick in, and we realized most of that increase in that time period. We have not seen that trend change, but it is also not going to be as bad as it was during the second quarter because it's peak season, where we have the most amount of revenue being done from a seasonality standpoint. We can't predict the future. We are doing everything to make it better. But we will continue to update you through the year as we get headed that direction. Definitely right now, we're running behind our internal budget due to COVID-related impacts on our service organization. What we are excited about, we're still up significantly versus last year, significantly versus two years ago. We have more EBITDA in the first half of this year than we made the entire 2019. Yeah. No, understood. I agree that's the right way to look at it. I just wanted to make sure I understood it right, that we're coming off of the budget. Based on the, not coming off the budget. The budget is what it is. Yeah. We have the COVID impact in the first half. There's going to be some additional impact in the second half. That's for us to kind of think through and reflect in the full-year outlook. Yeah. We're looking at every single month to see what that impact is and try and guess. It's impossible for us to tell you the exact number in the back half because it's such a dynamic environment with it changing all the time. But we are seeing improvements. I think the important thing that you're seeing is the last three quarters, we've told you we would see improvements, and we saw significant sales improvements moving up every quarter. More importantly, the activities we're taking are generating more margin, where we're now up to 29.7% gross margin, which is getting closer to our stated objective to get back to 39%, which we had. We are confident with the things that we're doing right now and seeing in Q3, that you'll see improvement again in all the key variables that we measure that we're making progress to get back to our normal state. Said differently, we know we will get back to the same levels. We know we're a business that is in this state running under normal circumstances over $950 million in sales and over $100 million of adjusted EBITDA, and that will be the base once we get through COVID. Okay. Just one more. As we think about that longer-term run rate, which you just referred to, is there anything else that we might consider? I have a couple of things in mind I'm hoping you can comment on. One is this migration back to the vet channel in certain areas of the business. Does that the one for... I mean, does that take a year for you to lap? In other words, does that just have more of an impact than on Q2, but something that you have to kind of anniversary before you get back to a base level? The second thing is just any update on your partnerships on the distribution side and whether there are any puts and takes there relative to your kind of sales or profit outlook. Thanks. Yeah. Thanks for the question. I think, Jon, obviously, the anomalies we talked about last year that then led to creating some projections that led to anomalies this year means we're going to have to anniversary both of those years' anomalies before we're at steady state. The first half of 2020 and the first half of 2021 were not normal because of that. Your second part of that is, are we getting back to more of a stabilized run rate? Well, we're seeing the consumption going out the door at our partners, and that consumption right now is returning back to what we would call normalized growth rates pre-COVID. The e-commerce channel is still doing extremely well. It's gaining share. It's just not 70% like it was when the whole world shut down last year. We're back to more normalized rates where some are in the high 20s, some are in the mid-20s. Those are all numbers that have been historically what's driven our growth, and you've seen that over the years, from 2017 to now, that growth rate expand. This is an anomaly why it's regressed a little bit. From a total year profitability in a product business, we don't see any change in us delivering our overall profitability. The margin profile of the business is in such good shape, we don't see it changing. Our distribution agreements, as we talked about last quarter with our largest partner, we're in a very steady state for multi-years. It's 87% of the business. The other contract, we did renew all of the customers except a pilot we're doing with one of the customers no longer in the contract. That will create a headwind on our product revenue in the back half that will not affect any of our profitability from a margin perspective for the back half. We'll be able to deliver full margin expectations in the product business. Again, it carries such a low margin. In the back half, that one customer, it's about a $30 million change in our base by not delivering against that customer's volume. $30 million annual or $30 million second half? Back half. Back half. Okay. But no impact on profit? None. It's a, again, it's a, you know, call it a 4% EBITDA type margin. We are doing so well in how we're running our brands, that's not going to be visible. Okay. Thanks a lot. Yep. Thank you. As a reminder, ladies and gentlemen, if you'd like to ask a question, please press star, one on your telephone keypad. Our next question comes from the line of David Westenberg with Guggenheim Securities. Please proceed with your question. Thanks for taking the question. This is John on for David. John, congratulations on your retirement. First of all, how should we think about labor inflation and the longer-term impacts on the operating margins? Well, I think what you should be thinking about is that we're taking action to correct that issue, and it'll be one of the things why we've held off as long as we could, because we were hopeful that labor would return to normalized rates pre-COVID, but it's obvious they're not. The pricing activity that we're talking about will fully compensate the company for those change in inflation rates. The service organization will have those rates in place by the 1st of September, and it'll be one of the factors that improves margins in Q3. Obviously, we'll see that as being something that'll be covered going forward, so there'll be no change in the operating margins of the service organization. The product division, likewise, because we've seen it happen in our factories and other places in the business where those and other costs that have come in, we will be taking pricing action as well. As we stated, most of those based on how our contracts work will not affect the back half of the year, but will be in place to affect next year. However, as I said, with what we see, even with those inflationary factors in place, we believe we are running against our budget for the product division in full. Just how strong we are performing, we will absorb those inflationary costs, and it will be incremental margin and an increase for next year for the company. Got it. Thank you. Could you also talk about your excitement in telemedicine? Is that still a key add-on initiative? When do you think that we'll start to talk about that as a growth driver? Susan, did you hear that? Telehealth? Yeah. No. Yeah. We continue to lean in on telehealth, definitely. Telemedicine is a little bit of a different story only because of all of the regulations that have kind of come back in place in all of the states. Telehealth for us, because we have such a large customer base, helps us to push into telemedicine, I think, a lot easier. Telehealth is of no charge. People can literally call our line and get a professional on the telephone and get professional advice on the telephone. We transition that call into telemedicine if it's necessary. Right now for the majority of the cases, we push them into the clinic physically since we're completely open now. Very little is coming in through telemedicine because of our clinic reopenings. Got it. Thank you. Thank you. Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back to management for closing comments. We thank everybody for joining us today. It's been an extremely rewarding quarter. We talked about all the records that we set with record sales and record margin and record EBITDA, all-time highs for the company, despite some of these anomalies we discussed. We couldn't be more grateful for all of our employees, our veterinarians, our various people across the company that have been working in such difficult working conditions and difficult operating environments to deliver this result. We couldn't be more proud and be more excited about the company's position, how we're progressing, and the significant year-over-year improvements we're making in both our sales and our profitability as a company. We look forward to interacting with all of you soon and look forward to reporting again in another quarter here in the very near future. Thank you for joining us today. Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.