Good morning, everyone. Thank you for joining us at Oppenheimer's 24th Annual Consumer Growth and E-commerce Conference. My name is Rupesh Parikh. I'm a Senior Food, Grocery, and Consumer Products Analyst here at Oppenheimer. I'm pleased to introduce our next presenting company, PetIQ. Joining us today are CEO and Chairman Cord Christensen and CFO Zvi Glasman. So, as a reminder, PetIQ is a leading distributor and manufacturer of veterinarian-grade pet prescription medications, over-the-counter medications, and supplies, primarily within the flea and tick control and behavior management categories, and health and wellness items for dogs and cats. The format of today's session will be fireside chat, and then we'll move to audience Q&A if we have time. Let's get started. I wanted to first kick off with your views on the overall pet category and macro backdrop. I know back in 2022, the company saw signs of consumer weakness in the business. Can you remind us what you're seeing today from your vantage point? Anything unexpected from a trade-down perspective, etc.? Thanks, Rupesh, for hosting us. We appreciate the opportunity to be with you and with everyone that's listening. Yeah, like 2022, we had a lot of media out there, a lot of scares on inflation, and all pet categories pulled back in 2022. We were surprised because pet healthcare typically is not a category that has a pullback, but I don't think any of us have seen that kind of pressure from inflation and general fears really since 2007, 2008, which was different. We budgeted 2023 to be similar because we didn't see any reason not to. The consumer pet parents out there, they had adjusted to those issues and absolutely came back into the categories aggressively and made their pets' healthcare a priority. We saw the best year we've ever had in the history of the company in 2023, and we've seen that continue. The broader pet health or the broader pet category, you are seeing some trade-down. You're seeing consumers looking for ways to save money. And so, whether it's durables like beds and kennels or people willing to potentially even use a food that's not quite the food they would use prior, you've seen some softness in those areas. But the PetIQ and pet healthcare and what we're providing and the value and savings we already provide the pet parent, we've seen no pullback. And if anything, the trade-down we saw in 2022, we retained the part that came to us, and we've seen a lot of people come back into where the super premium that we distribute or we manufacture is doing extremely well as well. We're fortunate. PetIQ, our brands in our categories, we're growing at two to three times the category growth as a company and our brands. The stuff we're distributing are definitely at the category growth rates or above in every case from a retail standpoint. So, we view as a very healthy, adjusted to the new environment, healthcare for pet category for PetIQ. Okay. So, it sounds like the pet category and what you guys are seeing out there is still favorable to PetIQ thus far. Healthcare for sure. You're seeing, like I see the press releases and things that come out, and you follow some of the stocks, but Freshpet's doing extremely well. They're growing. People are spending as a super premium food. I think the companies that do a great job at providing great service and products for pets are going to do extremely well because people do prioritize their pets. And healthcare, definitely the areas we play in, we've seen a lot of really positive support. Okay. Great. Now, moving on to more company-specific drivers, let's start with discussing your services business. We know this is a small segment in the company, and you recently went through a significant optimization of the segment and have been making some big improvements in the base as well as testing some new concepts here. So, first, can you remind us about the three different service formats you're running and what is the current status of each? Yeah. Pre-COVID, we had 2 formats. We had a community clinic model where we would really 90% of the business is Friday through Sunday. We bring a vet and a couple of techs, and we do a pop-up clinic for 2-4 hours at a retail store like Tractor Supply. We see 8 pets per hour, 7-8 pets per hour, and we can pay vets extremely well in that environment to where we're probably the highest payer there is in the market. And considering our hours are weekends, it wouldn't conflict with anything else they were really doing. That model we had prior and is doing extremely well now. The wellness center model we opened up where we would put fixed clinics inside of Tractor Supply and Walmart as the predominant 2 partners that we had. Vet door to locks every day, open 5 days a week. We can add additional equipment. During COVID, that model really suffered for a couple of reasons. One, we had to close all the stores and they were new. Number two, coming out of COVID, the veterinarian labor market changed significantly where 25% of the vet labor market left and didn't come back to the industry. And so, that led to a third model where we have a hygiene model where we treat skin and coat, light grooming, clean ears, eyes, nose, teeth, identify any issues they would need to handle as a pet parent with the vet or otherwise, trim nails, paws, deal with that, give them a nice scorecard. And we're doing that really for a couple of reasons. First and foremost, the pets need it for great healthcare. We're a great value at a subscription of about $80 a month on average. But once they're in the hygiene model, we're going to see them 12 times a year for hygiene, and we're going to still see them the 1.2 times a year for the vet model. So, a typical pet that does $150 of revenue a year with us on just preventative care now is a customer that we're going to do $1,100+. So, we need less pets to make the same money. It also lets us really play into our strength as PetIQ where we can have the vet labor show up when we know we can see that 7-8 pets per hour be the highest payer in the market and really do extremely well. So, those are really the big changes, Rupesh. Those are the three models, and we're continuing on the journey to figure out how to do it because it's a much-needed service and we're the most affordable way for people to take care of healthy pets. Okay. Great. Just on the hygiene wellness center, how do consumers continue to respond to these, and what do you need to see for a proof of concept here? We are looking very closely at all parts of it, right? Labor, training, making sure that we can execute at that level in that environment, making sure that the retail partners are there with enough space for us to be able to do it. We've always said that we feel like third quarter is when we can really see and know if that model is something that we think we can aggressively expand. Right now, we're aggressively pushing the pedal down on our community clinic model where we were doing 75,000, 78,000 unique events per year. We took it down to like 50,000 during COVID. We have a lot of growth just to go back into what we're capable of. We're seeing a lot of positive contribution there. You saw 800 points of margin expansion just this last quarter. Look, we love it for what it does for people and what it saves and all the things around it, but there's still a lot there. We're also very focused on making sure that we're prioritizing the investments in the company where we can see the biggest return across all segments. So, we're very balanced there as well. Okay. We could see an update later this year on thoughts on this concept. Okay. For sure. Okay. And then last year, you also launched a pet clinic test with Walmart. I had a chance to visit the location. I think it was in Dallas, Georgia. Remind us what you're seeing here, and should we expect to see plans to roll out more of these units meaningfully down the road? Yeah. We're ahead on all the KPIs we've set and Walmart set with us. You obviously saw it. So, it's a really nice location, great offerings across it. We're seeing great customer response. They're happy, and we're definitely looking at expanding it under the right terms and the right timing. Like I said, we're ahead on the KPIs to get there. But again, both us and them, we're all very focused on making sure that we have something that is perfect and right. And so, I think we'll definitely have some more locations soon, but right now, we're very happy with where we are and what's going on with it. Again, it's all balancing and really adding things to the model that needed to be there relative to the changes that took place during COVID. On the vet labor front, clearly a challenge in recent years, as you discussed earlier. What's the latest you're seeing on the labor front? Is it starting to get better or just more thoughts on the vet? I'd say there's no change in the number of vets that are there. There's a ton of competition for it. It's why we have the strength of our community clinic model, Rupesh. We're paying $265 an hour, which you put that on an annualized rate for a salary. We're the highest payer there is in that model. But we generate $800+ of margin per hour, and we only have them and a couple of techs. And so, when your labor is $300 and you're generating $80, we have lots of room for our ability to compete and do something that other people can't. So, I would say that our model that is working the best in this market, we're positioned perfectly, and no one else can do it. So, that's where we are. There's no change otherwise. Okay. One last question on services. Not sure if your team has enough visibility yet to answer this, but what do you see the profitability for the service business this year and in the intermediate term? Well, at Q1, we saw where we closed 149 stores, and we recovered all the sales, and we're still positive against that base. We're going to continue to grow. But everyone needs to remember and be clear that it's a very, very small segment of our business and what it contributes. It's an area that we like to invest in to look for the future of what it could be and what it could provide to pet parents. It fits our mission from a savings standpoint and a value and all the other things and convenience and all the stuff you'd want. But we still are very focused on where we have the most value, and we can accelerate shareholder return, which is in the product side of our business. So, there's a perfect transition point, right, Rupesh? Yes. That is a perfect transition. So now let's discuss your product segment. So, 2022 was a tough consumer environment. In 2023, most of pet continued to see headwinds where PetIQ had its best year in its history of the company in every metric. So, on the product segment side, how should we think about organic growth within your business where we've seen healthy double-digit growth? So, just want to get a sense of how you think about organic growth going forward in your products business over the next few years. Yeah. Look, we think we're still in the same place where we should see, and again, you got to look at each segment and really understand each one of them. But our manufactured products, we still think we're a solid double-digit growth company. We tell people if they're modeling kind of 10%-11%, then they're not going to be disappointed, and you should see us continue to exceed there. And with the margin profile, that's where you're going to see a ton of leverage, and you're going to see a ton of flow through and why we continue to do better on the metrics like free cash flow and others, right? The distribution business, we tell people to model it where the market is and where the industry is. If you're a single-digit organic grower, then you're going to be just fine. We do better than that almost always because of our category and the just convenience, and we provide even for those items. So, that services, if you X out the closing, you perform with it, it's a double-digit grower there too. High single, low double digits organic growth for the company is there, and then layer on acquisitions, layer on big new product launches that are coming, and we're a really solid growth company, I think, for the next three to five years. And then before going. That's why visibility too, right? So. Okay. Great. And then before going deeper into the subcategories within your manufactured products business, what categories within your portfolio do you believe have the potential to grow the fastest? Great question. Look, we really are focused on the flea and tick category, supplements, dental. Dental and supplements, we think we have unlimited expansion opportunity there. We're growing three times the growth rate of the categories. Our brands are positioned well. The retail support's there. The consumer, the pet parent is heavily vested in those, and we're doing extremely well in those, and we do see significant upside there. Our organic growth on our flea and tick, we're still growing on our brands at mid-teens, which is fantastic for the margin profile of those products, and the base is significant. But look, supplementation, we still see it as a $100 million opportunity from a growth standpoint, and we're growing at three times what the categories are growing at. Okay. Great. So, I'm going to dive deeper into each of these categories. So, in flea and tick, you had a very strong season last year due to favorable weather and obviously your market share driving efforts. How would you characterize the flea and tick season to date this year versus last and then just your overall expectations, I guess you said with the guide? Yeah. Look, we budget every year as if it's going to be the average, and so that'd be a 5 out of 10. Last year was at a 9, 9.5. We estimate there was $35 million of incremental top line, $7 million of our EBITDA last year came from favorable weather that we took out of the base when we budgeted for 2024. We're running not at 5. We're running at probably at 6.5 right now. So, some of the beat and incremental contribution you saw in Q1 came from us doing better than that average because the weather has been better than the average. We continue to see great consumption. Right now, we think the weather is still running kind of that 6, 6.5 range right now. We can't declare that it's 7, 8, 9 yet, but we definitely see incremental there. We're positioned extremely well as a company to take advantage of whatever it ends up being, but we're very transparent that we're growing despite the fact that we had that great weather. The other thing I would tell you from a seasonality standpoint, supplements, dental, they're not seasonal. So, as we do more and more there, you're going to see more of a leveling of the seasonal aspect of our business, which really helps us with leverage and flow through and increased cash flow, and it's part of why some of the metrics were so good last year. It's just going to get better from here. Then within flea and tick, you guys have gained significant share gains. What's driving those share gains, and how do you think about the gap versus the category going forward? Look, PetIQ is the only company that's 100% focused at execution and retail, and we're really good at it. I think some of the share gains are the reality of we have that focused, and our competitors, it's really a secondary category for them or a secondary channel. I think we're really good at knowing how to convert. And I think the other thing is we've self-funded and grown into a budget where we're supporting our brands with $56 million now; that was $2 million when we went public in 2017. And so, we do know how to communicate, educate, and convert the consumer to our brands, and it's why we're growing at 2-3 times every quarter what the industry is and why we're grabbing share. What do you think on the competitive promotional fraud within flea and tick? There's not a lot of it right now, Rupesh. I mean, we're investing more than anybody. When we started the business, there were significant investments from some of the other major brands. Those investments have gone in half of what they used to be, and we've gone from $2 million - $56 million. So, it's working. People are responding. And over-the-counter flea and tick is still the most affordable, effective way for pet parents to treat their pets. You can't remotely go to the vet and find the same quality of care with that kind of cost. Great. And then, Cord, earlier you mentioned you're upbeat on the supplements category, and that's been a key growth area for the company. Can you remind us of your key efforts in the supplements area? Look, pre-COVID, we were the top-selling supplement brand in retail. Our VetIQ brand, no one touched, and there was really very little support to super premium supplementation pre-COVID. During COVID, with self-care and people being home more, the supplementation category exploded. And this last year in 2023, the supplement category became the same size as the over-the-counter flea and tick category, and actually now is a little bit bigger than that. We've got super premium supplements now that are doing extremely well with great distribution. We sell the VetIQ brand that provides the best quality for the value, and we continue to invest significantly there. And we're growing at three times the category growth rate, and we think we're on track to hit our goals over time where that category for us should be as big as our over-the-counter flea and tick category in the future. There's going to be a ton of contribution there that comes from it. We're completely vertically integrated, which most of the big brands aren't. We have two of our own scientists that do all of our own formulations. We manufacture everything. We make the Kirkland Signature supplements for pets, which tells you how when they look for a manufacturer, they look at everybody, and they chose us. That tells you how good we are at execution on that category. I think the company's positioned really well to win in that category, and we are. Okay. Great. And who do you view as your main competition within supplements? Look, there are the two biggest high-quality brands that were built during COVID were Zesty Paws and Pet Honesty. And they're the two biggest in the space. Both companies were sold in 2022 for crazy multiples. We looked at both of them. It wasn't something remotely that made sense financially, and we've gone and competed with them. If you go to Walmart right now, you have the first shelf is VetIQ. The middle shelf is Zesty Paws. The shelf above Zesty Paws is Rocco & Roxie, our brand with super premium. PetIQ, $12.88. Zesty Paws, $18.88. Rocco & Roxie, $21.88. And we're selling as well as they are. So, I think we're doing a really nice job putting out really high quality, and the consumer's seeing it. Our Rocco & Roxie brand across every category we're in, we've gone super, super premium on everything, whether it's the stain and odor cleaner, whether it's treats, whether it's the supplements. It's really working. Besides flea and tick and supplements, are there any other categories your team is excited about? Dental is a big one for us too. We launched the Minies brand as a competitor to Greenies years ago because Greenies wouldn't sell Walmart. They wouldn't sell anyone outside of pet specialty. We did so well that they sold Walmart and all the other retailers we were in, and it gave us kind of a piggyback ride for a couple of years. Well, due to some relationship strain and other execution issues on their side, all of our retail partners have come back to us very aggressively in dental. That category is actually growing the fastest of everything we have right now on a percentage basis. We see that like supplements. It's a category we could see significant growth over the future. We're putting a lot of resources behind it. We've been up 50% or better now two years in a row. Frankly, it would have been better than that if we could have got equipment fast enough. It was like we had no idea just how much demand was there, and the equipment that makes it is so specialty that we've been catching up. Okay. Great. And then switching gears to innovation, can you walk us through how you typically approach R&D and innovation? Look, since we acquired Perrigo, we have a very big and nice group of people that are the best there is at looking at how we develop the things that are important to us. Our company does really well on maximizing value for things that are doing extremely well in the vet channel. So, we're really a fast follower in a lot of ways, which means we're a very efficient, very affordable way to go develop, build, execute. And I think the numbers speak for themselves. If you look at unit movement and the things we've built, we've got some really exciting things coming. And we launch new things every single year. We get expanded distribution across all of our brands every single year for those new items. But I will tell you, we've got a couple that are in the hopper that I think could be some of the biggest things we've done in the history of the company. Okay. So, it sounds like you remain bullish on the innovation pipeline going forward. I'm bullish on our business all the way around, Rupesh. Honestly, I think we're doing a great job. We're winning across everything that we're in. And we now have not only the advertising and promotional support investment that we wanted all along, that we've self-funded along the way through our over-execution in all of our acquisitions, but we also have a very good R&D department that's organized properly to bring out great stuff. And we can afford to do that at a level that we couldn't do 3 - 4 years ago. Okay. Great. And then switching to Rocco & Roxie, your commentary earlier was obviously very positive on what you're seeing with Rocco & Roxie. So, as you look at the acquisition, what have been the bigger surprises to date? And then as you look forward, what do you think the bigger opportunities are for the brand? Look, we love brands like that. It was basically Amazon was 80%-90% of their sales, Chewy the rest. We were able to expand distribution significantly and do the things they were doing there better than they were because we have more sophisticated people. So, that's a business that we paid 8-8.5x on trailing, and we added to 4-5x in a matter of a few months through execution. We've already moved into super premium supplements. Our treats that are super premium are doing extremely well. Stain and odor still has a ton of headroom to grow. So, I would say right now, Rocco & Roxie is resonating as a super premium brand that never cuts a corner on anything. And the pet parents that know us just keep expanding with us. And so, we're not close to what we think the headroom is on our ability to add products or volume there. So, it's a good example of what we like to do. And we're looking at everything right now. And when we find the ones that are in the pet healthcare space that we can see similar synergies and over-execution and ROI for everybody, then we pull the trigger. And believe me, we pass on a lot when people are too greedy or we don't see that opportunity to have expanded kind of results with the acquisition. So, we've been very, very good about whether it was Perrigo or VIP Petcare, Capstar. We've never paid over 10x. And everything we've done, we've been able to execute at a level that we're down in the mid- to low-single digits on what we paid for them. And then as you look at Rocco & Roxie, what type of growth rates do you expect going forward for that brand? Look, I think we tell everybody, if you're budgeting us at a low double-digit growth rate across our brand, you're going to be just fine. That brand has exceeded our expectations. So, we're probably running high teens to low twenties now, which is fantastic for what it is. But across our whole portfolio, we tell the market that organic growth should be in that kind of low double-digit type growth rate. Okay. That's helpful. And then just on M&A, how should you think about your M&A strategy from here? What are the key criteria you look at? And then what are you seeing right now in the overall M&A market? I mentioned a little bit before. Look, we're a pet healthcare company. We like to stay very focused there. I think as a first mover and the competitive advantage we have there speaks for itself. So, we like staying there. We haven't budgeted a bunch of acquisitions coming into our plans, and we can deliver a lot of growth and flow through, and every metric should be perfect and better than expected as we deal with that. That should look at M&A as an accretive incremental part of what we can deliver. And it's kind of the same model of Rocco & Roxie. If we don't have a business we can buy that's at, we think, a fair valuation for who they are, what they are, and we can't see tons of synergies, including points of distribution and execution on the core, then we're going to pass because we don't need any of it to get where we want to go. I would say right now, we look at a lot. It's surprising me that there's a lot of people in the market still that are overvaluing their businesses. If it's a healthcare business that needs retail execution, they're going to come back to us because there's not anybody else that's really there. It's why, Rupesh, we've not been in a bid process ever. We've had negotiated deals every time. Okay. Great. Now, shifting to a few financial questions. First, maybe starting with gross margins, can you walk us through some of the puts and takes on the gross margin line for the balance of the year? And can you remind us of how to think about the gross margin profile of your various product segment offerings and how mix can influence your gross margin delivery? Sure. So, our margins improved 40 basis points last year, and we expect to deliver 75 basis points plus this year, which will take us close to 24%. Three main drivers of the improvement. First, our service segment optimization puts in a great position to expand margins substantially for the balance of the year, as you saw in Q1. Secondly, as Cord said, our manufacturing business is going to grow low double digits long-term and this year and carries a mid-50s blended margin. So, we're going to continue to gain leverage as that becomes a bigger part of our business. Our distributed business is expected to grow at mid-single digits, and it carries much lower margins. So, obviously, we get more margin dollars as our distributed business grows, but the margin percentage increase is driven by the strong execution of our manufacturing business, which grows at the faster clip. As far as your mix question, two things to consider. First, if our distributed business grows faster than we project, we're happy with the outcome because we get more margin dollars and more EBITDA, but it wouldn't positively impact our margin percentages. Secondly, in our manufacturing business, not all product segments have the same margin profile. They are all extremely healthy, and they blend to the mid-50s. But our flea and tick business, for example, carries margin in the 80s, while our health and wellness businesses are lower. So, that can influence margins. With all that said, 75 bps+ of improvement we think is conservative. And then longer term, how do you think about gross margin expansion? Is there a certain amount of annual gross margin expansion you expect to see, or should we think of it more of a steady state because of things like mixed impacts, etc.? So, Cord, do you want me to take that or do you want to take that one? Take it. Okay. So, look, we expect 50 basis points+ per year on average. We would tell you, though, that it's not necessarily linear. Again, the health and wellness business has lower margin than the flea and tick, and what my earlier comment referred to as far as distributed business versus health and wellness businesses. Okay. Great. And then just shifting gears to longer-term targets. So, recent quarters, you've talked about delivering 10%+ top-line growth and at least 15% bottom-line growth over the next five years. So, first, can you deliver these organically without M&A? And remind us of whether these targets are what they assume in terms of M&A? And then maybe second, you can walk through some of the key puts and takes, especially on the bottom line, since we've already covered some of the key puts and takes on the top line. Yeah, I would say that we have a no change right now to kind of how we look at the future. We've talked about what our organic growth would be. We've shown the flow through now at this point and efficiency from a leverage standpoint, which that becomes math, Rupesh. And we've been pleasantly surprised that we've seen the velocity running through our factories and the incremental margin and dollars we picked up with just the throughput that takes place there. So, we see more of that coming. I think we are right now in a place where we don't have M&A as part of our next 3- to 5-year kind of planning. However, we know we can still go out and spend $50 million a year and still deliver the business every single year. If the acquisitions are available that deliver Rocco & Roxie-type performance and results, we'll do that, and it'll get even better from there. So, I think people are very pleased with what they see out of PetIQ over the next three to five years. And we've been good at knowing when to pull the trigger and what to pay on the acquisition front. There'll be more of it as the right deals come along. But our brands are great. Our pipeline's great. We know how to go out and market, execute. We've made some amazing hires across the businesses. We've been able to financially grow and have things like a huge marketing budget and have the right people with the right expertise helping us manage it. So, yeah, I think right now I'd say we haven't budgeted a ton of M&A for our future, but we absolutely expect to have that be accretive and incremental to what's already out there. And we're the most excited we've ever been about where we are because when you tip over and you start seeing the cash generation and the expanded leverage coming through on every aspect of the business, it gets funner and funner, more opportunity. We get stronger. We invest more. The moat gets deeper and wider on every front. Okay. So, it sounds like your team remains confident about the double-digit top line and then being able to drive margin expansion. Right now, we do. Right now, we do. I think that's something that we can achieve for a long time based on our size and what the TAM is for this business. Okay. And I want to wrap up with two capital allocation questions. So, can you remind us of your capital allocation priorities in the near term? And then also, I know there's convertible maturity. The next significant debt maturity is in 2026. Just your plans in terms of adjusting that maturity. First and foremost, in terms of capital allocation, we're going to reinvest in the business. You've seen us do that with the really big incremental investments in A&P, which are up to over $50 million this year plus $12 million over last year. Secondly, pay down debt. We expect to delever 1/3-1/2 turn a year, assuming no acquisitions by the end of the year will be at 2.5 times versus a 2-2.5 times target. Comfortable taking leverage down further until interest rates get a little bit clearer. Third, responsible acquisitions. As far as the convertible maturity, I think the most important point is we do not plan on converting the debt obligations to shares as we view the business as undervalued. As you noted, we've got a strong liquidity position and free cash flow profile. Our current expectation is to pay those notes with cash at maturity. But we are going to take a look at our overall cap structure, which includes a $300 million term coming due in 2028. So, it's possible we refinance it and take as we look at our overall cap structure, and we are going to continue to look at what happens with interest rates. But I think the salient point is we're not going to convert them to shares, and we have the cash available to pay them off. Great. Thank you. So, thanks, Cord and Zvi for joining us today. Thanks, Rupesh. Appreciate you.